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Questioning the IT Arms RaceTechnology was the great liberator ofthe 1990s. It opened new spheres ofcompetition. It taught every compa-ny to reconsider the way it did busi-ness. It made doing business faster,smarter, and more personalized. Buttoday, many companies have discov-ered that keeping pace with the technology “arms race” can be an unwieldy proposition.

Most technology managers areunderstandably torn: Should I investin a promising new product? Howcan I afford to invest in the futureand support my current technologybase? For executives struggling withsuch decisions, I recommend threesimple questions to ask before spend-ing more technology dollars.

1. Do my customers really wantthis? Letting your customers drivetechnology, rather than the reverse, isone of the most important but mostneglected principles of New Economymanagement. Every good technologydepartment ought to be doing dozensof far-flung IT experiments.

But do new ideas — as brilliantas they may be — make things easierfor the customer? Many customer-

relationship management softwarepackages are available, along withtools designed to make the most ofthem. But if, after interacting withyour online tools, your customersstill call your 800 number, theneither you haven’t implemented thetechnology correctly, or it’s the wrongtechnology for you.

2. Is this overkill? Wireless tech-nology is the most exciting technolo-gy frontier, and it has the capacity totransform business. But don’t makethe common mistake of assuming awireless device is simply a mobile ver-sion of a PC. Many companies arebringing the same cumbersome pro-cesses designed for PC-based Webaccess to the new generation of wire-less devices. This is overkill. Much ofwhat businesses offer customers onthe Web is redundant or unnecessaryon wireless. Most wireless customerswant easy access to basic real-timeinformation. Excessive data andfunctions only makes wireless lesshelpful and more difficult to manage.

3. Do we have to do it here?Most technology executives feel pro-prietary about their best productsand services. As a result, they’re loathto outsource what they rightly regardas the heart and lungs of their busi-ness. But just because it’s a technolo-

gy project doesn’t mean it can’t behandled more efficiently and just aseffectively outside your company.There are always functions that canbe outsourced — especially offshore— where the time and financial sav-ings can be substantial, and there isno intellectual property threat.

Companies should be eager toship legacy systems maintenanceabroad. At home, a company shouldnot be reluctant to find a good strate-gic partner for peripheral but valuabletechnology projects. Then the moreimportant, future-oriented projectscan be kept in-house and receive a lotmore attention and more “manage-ment bandwidth.”

These three questions don’t com-pletely relieve all the strains on today’sIT departments. But they point tothe best way to keep focused on pri-orities and ensure that technologyinvestments stay strategic.

Dawn Lapore

OnlineAggregation: TheBattle AheadPeople eager to check up on theirbank, brokerage, and credit card

Briefs

Dawn Lapore is chief informa-tion officer for the CharlesSchwab Corporation, a positionshe has held since 1993, andserves on the board of directorsfor eBay Inc.

Larry Altman(altman_larry@bah.com) is a vicepresident in Booz-Allen &Hamilton’s Financial and HealthServices Practice. He focuses onhelping retail financial servicecompanies grow.

Anju Simon(simon_anju@bah.com) is aprincipal with Booz-Allen &Hamilton in New York, serving in the Financial and HealthServices Practice.

Zaki Hyatt-Shaw (hyatt-shaw_zaki@bah.com) is a consultant with Booz-Allen &Hamilton based in New York.

David Y. Choi (dchoi@hbs.edu) is a fellow with the GlobalLeadership Institute at HarvardBusiness School. Mr. Choi haspublished articles on marketingand strategic management, andwas a consultant with BostonConsulting Group.

Liisa Välikangas(lvalikangas@strategos.com) is director of research at theStrategos Institute, an organiza-tion founded by the businessthought-leader Gary Hamel todevelop new management prac-tices in the area of innovation.

Doug Albert(douglas.albert@cho.ge.com),vice president of market andbusiness development for the GE Fanuc AutomationCorporation in Charlottesville,Va., plays a key role in creatingnew value propositions for industrial automation customers.

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accounts can go to the Web to seewhere they stand. But there’s a prob-lem: They can’t make financial deci-sions based on a complete picture ofall their accounts, because statementsscattered across many different Websites can’t be viewed, much less ana-lyzed, at the same time.

In response, the Web sites ofmajor banks and brokerages, such asCitigroup Inc. and Merrill Lynch &Company Inc., now offer a remedycalled aggregation. But so do personalfinance portals, such as YahooFinance, OnMoney, and MSN’sMoneyCentral. A recent Booz-Allen& Hamilton/e-Rewards study of con-sumers who aggregate shows financialportals are jockeying to give banks,brokerages, and other traditionalplayers a run for their money, andtheir customers.

Aggregators collect data from anindividual’s multiple accounts andupload it to a single Web location.Customers get one-click access to alltheir financial information, whileservice providers get a deep look atcustomers’ money situation, whichthey can use to create individually tai-lored offers.

Our survey showed that 36 per-cent of personal finance portal cus-tomers spend less time at the Web

sites of banks where they have check-ing, brokerage, and other accountsthan they did previously, and 9 per-cent stop visiting these sites entirely.

Thus, once customers aggregateelsewhere, their connection to theirfinancial institution slips, and theybecome targets for competitive offers.

Still, the survey also showedbanks have an advantage. Sixty-eightpercent of respondents said theywould be inclined to try an aggrega-tion service offered by a financialinstitution if they already had a rela-tionship with it. By contrast, no sin-gle factor steered people to portals; 26percent of portal users said theysigned up at the first site they foundthat offered aggregation.

In one sense, both financial insti-tutions and personal finance portalsare supplying a commodity service,since most license the underlyingtechnology from a single provider,Yodlee.com Inc. But the game will getmore interesting for both portals andtraditional institutions as they sur-round their core offering with distinc-tive services, branding, and incentives.

Portals can turn themselves intoindependent advisors. By definition,portals don’t offer their own financialservices. They do, however, havestrong brands and strong skills at

assembling information. Smart por-tals could parlay these factors into abrand position as an independent“trusted advisor” that gives customersadvice and offers from third-partycompanies.

Financial institutions can winaggregation business based on theirexisting checking, savings, invest-ment, and mortgage relationships.Their bricks-and-mortar assets givethem a reassuring physical presence,unlike virtual services. The big ques-tion is whether they should marketthird-party services or stick withhouse brands. Should Citibank, forexample, offer only Travelers insur-ance? Carrying external products(even from competitors) promotes animpartial image and might keep usersfrom shopping at other sites.

Whether Internet portals orbricks-and-clicks institutions, all on-line aggregation services will need todeal with similar issues. The first issecurity and privacy, since users areputting multiple accounts on one siteand providing their user names andpasswords to those accounts. Sitesalso will need to be innovative —developing and exploiting new mar-ket opportunities with enhancementssuch as fund transfers and bill pay-ment. Finally, skillful customer rela-

Tim Laseter(laseter_timothy@bah.com),based in McLean, Va., is a vicepresident in Booz-Allen &Hamilton’s Operations Practice and serves on thefirm’s e-Business Core Team.

Steve Vielmetti(steve.vielmetti@ztango.com),director of business develop-ment for Ztango Inc. inHerndon, Va., travels the globeto secure alliance partners inthe ever-changing world of thewireless Web.

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tionship management will be critical,especially for traditional financialinstitutions as they lose control overwhat was once proprietary customerdata. In the rush to mine data, bothbanks and portals had better bemindful that the customer relation-ship comes first.

Larry Altman, Anju Simon,

and Zaki Hyatt-Shaw

Top 10 InnovationThemesDoes history repeat itself when com-panies seek ways to innovate? Arethere patterns among the businessstrategies chosen by successful com-panies from one decade to the next?

To find out, we studied nearly200 business strategies, most fromthe past 20 years, but some from acentury ago. From this research weidentified 10 essential “innovationthemes,” which are repeated andproven over time.

We believe these themes arebuilding blocks that companies,across industries, can use to achievelong-term success through businessinnovation. Innovation themes helpexecutives to distinguish growth-oriented strategies with staying power

from cost-driven operational meas-ures such as total quality manage-ment (TQM) and Six Sigma, or frommanagement fads, like the short-livedNew Economy notion that a highvaluation is a substitute for profits.

This is not to say that TQM andSix Sigma are not important compet-itive tools, but they cannot create sus-tainable value unless coupled withmore innovative and forward-lookingstrategies. Consider the plight of theXerox Corporation, a company thatspent millions in the 1980s on TQM,and won the Malcolm Baldrige Na-tional Quality award in 1989, butnever hit its strategic stride in the ’90sand is now struggling to survive.

We suggest executives use the fol-lowing 10 innovation themes as achecklist to assess strategic options.The first five relate primarily toindustry structure — relationships

among companies and the channelsof distribution they use.

1. Consolidation (rolling upcompetitors into a bigger, more pow-erful company). John D. Rockefellermerged 40 allied companies in the1880s to create the Standard OilTrust, a monopoly that controlledexploration, production, distribution,and marketing.

2. Bypassing (or cutting out themiddlemen). Dell’s direct-to-con-sumer model, for example, bypassescomputer retailers. Stephen Kingignored booksellers and publishersalike when he self-published his novelRiding the Bullet on the Internet.

3. Value migration (shifting to arelated but more profitable industryor niche). Consider Monsanto Com-pany, which has transformed itselffrom a chemical concern to a life sci-ences company that competes against

Six Sigma and TQM cannot create sustainable value unless coupled with a moreinnovative strategy.

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see all the information they need at aglance, with no switching betweenPC windows. Built-in analytic capa-bilities allowed for rapid financial cal-culations, eliminating the hassles ofdata downloads and paper-and-calcu-lator analyses.

How can you decide whetheryour company or industry is ripe forinnovation? Which themes may beappropriate for your company? Toanswer these questions, start by look-ing for innovative approaches insideyour industry, or within a company— your own or another. If you areconsidering a strategy theme that isnot being utilized, ask yourself why itis not. Is it because of uninterestedcustomers? Overly cautious execu-tives? Lack of infrastructure?

Look at other industries, too.Often, an innovation will jump fromone industry to another as its valuebecomes obvious. Mass personaliza-tion strategies are moving from cloth-ing and computers to automobilesand even to foods such as cereal.

If an innovation theme is presentin your industry, consider driving it tothe next level. Can you shake upindustry structures or make high-value consumer products broadlyavailable, customized, or emotionallyappealing? Push the scenarios; howev-er implausible they may be at first, seeif they really make economic sense.

And never assume you havereached the end of the line with atheme. Based on historical evidence,we believe it is much more likely thatyour imagination will run dry beforethe theme does.

David Y. Choi and Liisa Välikangas

pharmaceutical leaders.4. Teaming up (replacing vertical

integration with alliances to create anend product). Auto manufacturershave allied with suppliers that provideentire “modules” for vehicles —engines, interiors, doors, electronics— which the manufacturers assembleand market. Magna InternationalInc. is one such supplier.

5. Digital delivery (providingonline shopping, purchasing, andaccess to goods and services). Soft-ware companies like Adobe andMicrosoft let customers buy andimmediately download programs totheir PCs. Online music distributorsprovide digital delivery and eliminateretailers and manufacturers.

The other five themes, overall,focus on the customer experience.

6. Deep connections (encourag-ing emotional attachments to prod-ucts that go beyond the functionalvalue to the consumer). The home-furnishing retailer Restoration Hard-ware exploited a niche in the home-improvement market, where insteadof prosaic housewares, it sells nostal-gia for an imagined, simpler lifestyle.

7. ASAP (delivering informationor end products faster). InventorSamuel F.B. Morse revolutionizedcommunications by using his Morse

code to send the first “instant mes-sage” via telegraph on May 24, 1844,on a line connecting Washington,D.C., and Baltimore. Wells FargoBank, a leader in online banking, per-formed the first recorded onlinetransaction via the telegraph in 1864.

8. Customization (letting cus-tomers design the end product totheir specifications). Mass personal-ization is associated with diverseproducts — computers, cars, cosmet-ics, clothing, and more. Levi’s Origi-nal Spin program, for example, letsshoppers choose from 1.7 millionvariations of fit, style, and color tocreate their distinctly personal jeans.

9. Mass-market (extending avail-ability of a product from the elite tothe average consumer). The averageconsumer was liberated from dailyfood shopping in 1918, when Kelvina-tor marketed the first truly practicalhome refrigerator. Frigidaire’s modelfollowed in 1919, and General Electricoffered the first hermetically sealedrefrigerator compressor in 1926.

10. Fix-it-for-me (solving apressing customer problem with acomprehensive solution or break-through product). Michael Bloombergdesigned a total hardware/softwaresystem with Wall Street traders inmind. Thus, two monitors let traders

may offer the solution.According to ARC Advisory

Group, a leading analyst of industrialautomation and e-business, sales ofcellular engines — the “guts” of a cellphone, without key pads, micro-phones, and power chargers — willoutsell cellular phones within thenext few years. These cellular engineswill provide M2M links among sta-tionary and mobile machines to cen-tral enterprise systems. In many cases,field operators will have direct accessto remote devices to gain criticaloperating information. In other cases,the machines will interact directlyduring the night when wireless net-works are less congested from con-sumer use.

If you have ever visited an Eng-lish pub, you have surely noticed thegaming machines in a corner andpatrons happily clunking £1 coins in

the slots. But even as you noticed themachines, you probably didn’t con-sider the complexity of managingthese devices. Pub gaming machinesoffer a range of features, but eventual-ly regular users tire of playing thesame games, so machine owners mustphysically rotate the machines amongpubs to keep up user interest. Themachines must also be serviced, andthe coin boxes must be emptied regu-larly to secure the profits. M2M com-merce can dramatically simplify theprocess, increasing revenues andoperating efficiency.

Ztango Inc., a pioneer amongM2M wireless service providers, hasdeveloped technology specifically forgaming machines that can simplify oreliminate these tasks, and more.When problems occur, remote diag-nostic technology built into themachines instantly connects to central

M2M — The NextWireless FrontierToday’s hype around the wireless Webtypically centers on consumer applica-tions. Witness the phenomenal popu-larity, especially among teens, of NTTDoCoMo Inc.’s i-mode wireless serv-ices in Japan. According to research byNissan Motor Company, many Jap-anese kids pay more each month thanthe cost of a car payment to send mes-sages and play interactive games.

But wireless service companieselsewhere in the world fret aboutwhether they can find the true “killerapp” to yield returns on the billions ofdollars they’ve invested in new licensesand third-generation (3G) infrastruc-ture. We think a shift in focus fromconsumer-to-consumer to machine-to-machine (M2M) communications

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operations with information aboutthe failure. Repair technicians canthen get the machine back online —and earning profits — far faster thanin the past.

Wireless connectivity will alsoallow the machine operator to trackdaily yields and better plan field visitsto collect the coins, reducing the costof collection. Most importantly,machines can be remotely reconfig-ured with new software to create anew user experience, rather than relo-cating an entire machine. Plus, infor-mation on daily activity is collectedvia the wireless network each night,which allows the fleet owner to accu-rately assess the popularity of eachgame and rotate the mix without eversetting foot in the pub.

M2M also has huge potential inindustrial settings. Take the remotemonitoring of plastic resin storagetanks located outside the thousandsof factories around the world manu-facturing plastic parts. These silos

typically hold 40,000 to 60,000pounds of resin and need refillingevery five to 30 days. ProgrammableLogic Controllers (PLCs), special-purpose industrial computers, moni-tor and control many storage tanks,but few resin tanks are linked into acentral control system for qualityassurance or materials management.Accordingly, most materials managerssend a technician to bang a wrenchon the side of the tank or plunge astick in from the top to determineinventory levels and plan replenish-ment orders.

Enter a new offering that com-bines industrial systems and Internettechnology expertise, from a jointventure between the GE FanucAutomation Corporation and CiscoSystems Inc. By adding a cellularmodule with unique wireless softwarereporting data to a central host com-puter, materials managers can re-motely monitor inventory levels toensure just-in-time replenishments.

The device can be configured to linkdirectly to the supplier sales and logistics systems to enable vendor-managed inventory, creating a differ-entiated service for an otherwise commoditized business.

As these examples indicate,M2M applies in a variety of contexts.With the expansion of the wirelessinfrastructure, there will be manynew cost-effective applications. Thegreatest challenge to the expansion ofM2M comes from the traditionalbarrier to innovation: change man-agement. Although end-users imme-diately see the quantifiable benefit ofM2M communications, IT profes-sionals, unfamiliar with wireless tech-nology, fear the unknown. The taskof putting in place and managingcomprehensive M2M wireless datasolutions requires expertise in manyareas, from machine interface andequipment installation to managingcomplex integration with carrier net-works and enterprise systems. Butmany companies are now blazing atrail that others will inevitably follow— the newest fast lane on the infor-mation superhighway.

Doug Albert, Tim Laseter,

and Steve Vielmetti

The greatest challenge tothe expansion of M2M ischange management.

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