Innovation Consulting Firm : Partner - Pontus Siren - InnoSight

source: pontus siren profile

Pontus Siren

Pontus is an Innosight Partner who has been based in the Singapore office for 5 years. During his tenure, he has worked across the region and has helped clients such as Johnson&Johnson, the Ayala Group, Caltex Australia and LG address the challenges of innovation and new growth. He has worked extensively on innovation growth strategies and capabilities and regularly advises senior managers on these topics.  He has worked extensively in the regional markets, particularly in India, Australia, and the Philippines. Pontus speaks and writes regularly on the topic of innovation, and he is the co-author of the Harvard Business Review article “Build an Innovation Engine in 90 Days” published in 2014. Pontus has a keen interested in digital transformation and disruption and their impact on businesses across the world.

Prior to joining Innosight, Pontus was the CEO of a biotech company that was founded together with the Karolinska Institute in Stockholm. He has published numerous articles on cancer cachexia and sudden infant death syndrome, and is a co-author in a patent on cachexia treatment. Before his biotech career Pontus worked for The Boston Consulting Group (BCG) in Helsinki, Stockholm, Copenhagen and Hamburg. During his five year career at BCG, he worked across multiple industries including industrial and consumer goods, healthcare, logistics, banking, and retail.

Pontus has a MBA (honors) from the Helsinki School of Economics, MPhil (honors) from Cambridge University in International Relations, MPhil (honors) from Glasgow University in Russian and East European Studies and a BA in History from Hamilton college.

Blockchain will usher in the era of decentralised computing - linked in's article

source: original article

Blockchain will usher in the era of decentralised computing

Apr 14, 2016

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By now, you’ve heard of blockchain, the technology that underlies Bitcoin. Blockchains are a type of decentralisation technology that will fundamentally change the way our financial services, industries and government operate.

Simply put, decentralisation technology allows assets to be stored in a network of computers accessed via the Internet. An asset can be a gaming token, a concert ticket, an authorship claim on a book or a digital currency like Bitcoin. With decentralisation technology, the owner of an asset has direct control via their password, which is directly linked to the asset. No one can touch it without consent and no one can stop you when you want to transfer the asset.

This is a powerful idea: to place your trust in a network and not in a single entity like a government, a bank, or a multinational company. The types of assets that can be stored are limitless: land titles, financial assets, genome information, social graphs and supply chain information.

This technology has electrified financial services and the excitement is spreading to other industry verticals such as energy, pharma, automotive and natural resources. Particularly in banking, decentralisation technologies pose significant existential risks as well as opportunities. If individuals can control their assets over a network, do you need a bank account? Banks understand this and are working to develop products and services ahead of this disruption, so they can be one of the winners in a world with decentralisation technologies.

With news articles coming out daily on the latest developments in blockchain, it’s easy to get overloaded. We have a framework to help you piece the big picture together.

Can you remember the first time you “surfed” the Internet?

In 1992, using Gophernet, an early Internet protocol, I discovered a world of knowledge by clicking through endless links and digging into Usenet newsgroups and bulletin boards. At that time, most of the internet addresses, or urls, ended with .edu. Dotcom was still in its infancy. (See Bob Alberti’s comment at the bottom of this blog post)

Now, the Internet is essential in our daily lives. We live in a special moment in history where humanity will soon be connected to the web and to each other. The Internet brought untold wealth and innovation to Silicon Valley but also to the far corners of the earth. Its power is bringing information to the masses, unfiltered by middlemen. It is a decentralised communication platform that no one controls. It has transformed how people consume, generate and share information.

We take for granted that information is at our fingertips – everywhere and ubiquitous. It’s hard to overstate how revolutionary this advance is for humanity, where information has been traditionally locked up and inaccessible to the majority. This is the transformational power of decentralised communication. Thirty years after the World Wide Web, what follows next?

Multinational companies own our data and control our assets

We store our personal information on servers that Facebook, Google and Apple own. Health care providers hold our most intimate details in their databases. We trust banks to keep our money and electronic accounts secure. Here lies a major vulnerability: We need to trust middlemen to keep our data and assets safe.

At the same time, people are storing valuable data on mobile devices. Our deepest secrets – photos, messages, movements, buying history, and health data are on our phones. Computing has never been more accessible, thanks to the drastic cost reduction in hardware. Soon six billion people will own a smartphone.

It’s time to think of a different model for keeping and securing personal assets. It’s time to give power to individuals to control their digital assets. Whether it is their social network, buying habits, health tracking and even genome information, individuals should control their digital assets, not corporations.

Decentralised communications via the Internet was the first salvo in giving individuals more power and control over the information they consume. The second salvo is the decentralisation of computing, where individuals can truly own and control their digital assets – photos, messages, movements, buying history, and health data.

The elements of computing are all going to be decentralised

There are three elements to computing:

1. Communication – allows the computer to interact with the external world.
2. Processing – performs commands, instructions and controls the operation of the computer.
3. Storage –stores data and files in a digital format.

Figure 1 – Elements of Computing – Communication, Processing and Storage

These three components (Figure 1) allow for infinite possibilities for us to create programs that can perform complex calculations, reduce errors and make our lives simpler. On top of these components, software can be built to help us to find a ride, book a hotel, or meet a new friend. If communication is already decentralised and not managed by a single entity vis-a-vis the Internet, how can we do the same with processing and storage?

An emerging decentralised stack is here now

Blockchains inspired us to think about moving not only cryptocurrency on decentralised networks, but any digital asset. Here’s a secret. The decentralised stack is here now and accessible to everyone (Figure 2).

Figure 2 – Elements of Decentralised Computing – Communication, Processing and Storage

To enable decentralised processing, the Ethereum Foundation dedicated 50+ person-years of effort to develop a scripting language and development environment that allows business processes and contracts to run across a network. Anyone can take the Ethereum code and use it as they please. As of September 2015, twenty new companies were exploring business models on Ethereum. Meanwhile financial services, consulting, and industry incumbents are running private experiments to test out applications based on Ethereum.

Within decentralised storage, there are three main components 1. a ledger that holds cryptocurrency, 2. a file system named Interplanetary File System to hold large files over 50 MB, and 3. a database called BigchainDB that can handle high volumes of transactions being written to the database and is searchable using common database tools.

Taken together, we now have all the pieces for an open-source decentralised stack on top of which applications can be built, analogous to the traditional open web development stack of Linux (Operating System), Apache (Web Server), mySQL (database) and PHP (programming language) known as the LAMP Stack.

Each element is necessary and complementary to allow the decentralised ecosystem to thrive. With all the components in place, use cases and real-life applications are now both possible.

Figure 3 – Timeline of Release of Decentralisation Technologies

The timeline of the development of this decentralised infrastructure is as follows:

• 1970s TCP/IP – Vint Cerf/Bob Kahn – decentralised communications
• 1989 WWW – Tim Berners Lee – decentralised communications (current form)
• 2009 Bitcoin – Satoshi Nakamoto – decentralised ledger with a cryptocurrency
• 2015 Interplanetary File System – Juan Benet – decentralised file system
• 2015 Ethereum – Vitalik Buterin et al – decentralised processing
• 2016 BigchainDB – Trent McConaghy et al – a decentralised database.

With the addition of decentralised processing and storage – Bitcoin, IPFS, Ethereum and BigchainDB – business processes, trade and finance can be digitised into decentralised networks to save costs, reduce time and reduce risk.

Towards a Cambrian explosion of startups and disruption of existing business models

As of early 2016, there has been $1 billion of venture capital invested into over 800 Bitcoin and blockchain companies.  Any one of these companies could become the next Google or Facebook if decentralisation can be merged with a business model. To give the full context of how we see the technology stack for computing in the era of blockchains, Figure 4 shows how platforms and applications can now be built onto the decentralised computing elements.

Figure 4 – An Emerging Decentralised Stack – Computing, Platforms and Applications

Platforms bundle the elements of decentralised computing to enable applications across multiple industry verticals. Some of the emerging platforms include Eris Industries, Chain, and R3Cev, a consortium of 40+ banks. These platforms work directly with industrial and financial services customers to build out prototypes in lab environments to test whether ideas are viable.

There are multiple business models that are promising.

For instance, London startup Everledger created a blockchain-based technology to certify diamonds. By bringing transparency to a previously opaque supply chain, Everledger will help unlock billions worth of value in reducing fraudulent insurance claims and giving consumers provenance information.

Most people agree that the management of intellectual property rights is broken. Ujo Music is taking a stab at the problem by using blockchain for attribution and royalties, and in the process seeking to transform how artists’ rights are managed.

Large companies who are building ‘Internet of Things’ applications and devices (like GE, IBMand German utility RWE) all need a simple, cost effective way to meter usage and charge for services. Decentralised technologies can provide this capability.

We believe that a Cambrian explosion in companies and innovation based around blockchains is fast approaching. If we accept that the internet has caused a massive shift in how our society runs – with countless new business models, millions of new jobs created and significant disruption to incumbent media and information industries, imagine what it will be like when the entire decentralised stack is leveraged?

Decentralisation technologies are going to transform existing services and practices in government, manufacturing, and banking. They will also enable new industries such as the Internet of Things, 3D printing and management of personal genome information. The innovations will be far reaching across our society, business and government – as far reaching as the Internet already has been.

Conclusion

The Internet transformed our lives by decentralising the access and flow of information. With the inspiration of Bitcoin, the next phase has now begun. This article has given a basic framework for a non-technical observer to understand the key elements of computing in the blockchain era – processing, storage and communications. With the decentralised stack complete, we foresee an explosion of use cases by startups and incumbents. The potential implications to our society and business are far reaching.

♣♣♣

Notes:

• The authors thank Chris Burniske, Sally McCrane, Matt Sedlacek, Helena Vieira and Kai Wu for reading drafts of this article.
• The post originally appeared in the LSE Business Review and gives the views of its authors, not the position of LSE Business Review or the London School of Economics.
• Featured image credit: deavmi, Wikimedia Commons

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Bruce Pon and Trent McConaghy are the Co-Founders of BigchainDB, a scalable blockchain database that allows enterprises to deploy blockchain applications.

Prior to BigchainDB, Bruce co-founded Avantalion, a consulting firm specialised in building banks and industry startups in Europe and Asia for companies such as Mercedes-Benz, Volkswagen, Mitsubishi. He has an Engineering Degree from the University of Saskatchewan and has advanced training from MIT Sloan School of Management, University of Cambridge and IMD in Lausanne.

Prior to BigchainDB, Trent co-founded Analog Design Automation and Solido Design Automation, two companies that helped to drive Moore’s Law for circuit design. He has Engineering Degrees from the University of Saskatchewan and a Ph.D from the Catholic University in Leuven, Belgium.

News: 'We don't have a future' - Hanjin crews return to uncertain fate - BBC news

http://www.bbc.com/news/business-37604082

"Hanjin is like a family," says the first officer, slowly choosing his words. "But now," he hesitates, "it looks like we've lost our family."

"กับดักความคิด" (Conceptual block)

source: http://www.unigang.com/Article/13088

กับดักทางความคิด

“กับดักความคิด” (Conceptual block) ที่นักวิชาการทั้งหลายถือว่าเป็นกำแพงในจิตใจ
ซึ่งปิดกั้นการรับรู้ ละการไตร่ตรอง เพื่อหาทางออกที่สร้างสรรค์ให้แก่ปัญหาที่เกิดขึ้น

เมื่อเราติดกับดักความคิดแล้ว ไม่ต้องหวังว่าเราจะคิดอย่างรอบคอบ รอบด้าน และสร้างสรรค์ได้ ความคิดเราก็จะวนเวียนอยู่ในกับดักนั่นเอง และกับดักนั้นมักจะเป็นสิ่งที่เรารู้อยู่ เคยชินอยู่ เชื่ออยู่ อาทิ กับดักของทรรศนะ (Perceptual block) หรือการรับรู้ซึ่งบางครั้งเกิดเพราะคนอื่นสร้างกับดักขึ้น แล้วเราไปคิดตามเขา ลองดูตัวอย่างบทสนทนาระหว่างอัลเบิร์ต ไอน์สไตน์ กับนักศึกษาในวันหนึ่งในห้องเรียน...

ไอน์สไตน์ “มีคนซ่อมปล่องไฟสองคน ก็เล็งซ่อมปล่องไฟเก่า พอพวกเขาลงมาจากปล่องไฟ ปรากฏว่าคนหนึ่งตัวสะอาด อีกคนหนึ่งตัวเลอะเทอะ มอมแมม เต็มไปด้วยเขม่า คำถามมีอยู่ว่า คนไหนจะอาบน้ำก่อน”

นักศึกษาคนหนึ่งตอบทันทีว่า “ก็ต้องคนที่ตัวสกปรกเลอะเขม่าควันสิครับ”

ไอน์สไตน์ “แน่ใจหรือ ลองคิดดูให้ดี คนที่ตัวสะอาด เห็นอีกคนที่ตัวสกปรกเต็มไปด้วยเขม่าควัน เขาก็ต้องคิดว่าตัวเองสกปรกเหมือนกันแน่ ส่วนอีกคนก็เห็นฝ่ายตรงกันข้ามตัวสะอาด ก็ต้องคิดว่าตัวเองสะอาดเหมือนกัน ถึงตอนนี้ ขอถามอีกทีว่า ใครกันแน่ที่จะอาบน้ำก่อน”

นักศึกษาอีกคนตอบด้วยความมั่นใจว่า “อ๋อ! รู้แล้ว คนที่ตัวสะอาดต้องวิ่งไปอาบน้ำก่อนแน่ เพราะเห็นอีกคนตัวสกปรก ก็นึกว่าตนเองสกปรก แต่อีกคนซึ่งตัวสกปรก เห็นเพื่อนตัวสะอาด ก็นึกว่าตัวเองสะอาด จึงไม่ไปอาบน้ำ...ใช่ไหมครับ”

ไอน์สไตน์มองไปรอบๆ ห้องแล้วเฉลยว่า “คำตอบนี้ก็ผิดทั้งสองคน ออกมาจากปล่องไฟเหมือนกัน จะเป็นไปได้อย่างไรที่คนหนึ่งตัวสกปรก อีกคนหนึ่งตัวสะอาด เป็นไปไม่ได้! นั่นแสดงว่า เราติดกับดักแห่งความคิด เพราะความคิดของเราถูกชักนำไปด้วยประเด็นหนึ่ง หรือสถานการณ์หนึ่งๆ ซึ่งในที่นี้คือ สะอาดและสกปรก จนเราละเลยความเป็นเหตุเป็นผล และบ่อยครั้งเราก็ไม่สามารถแยกแยะและหาแก่นของประเด็นที่แท้จริง” (ดู ดร.เดชา เตชะวัฒนไพศาล, 2552)

เห็นไหมละครับว่า เมื่อติดกับดักความคิดแล้ว เราจะได้คำตอบผิดๆ อย่างไร ความจริงกับดักความคิดยังมีอีกหลายประเภท เช่น กับดักจากอารมณ์ (emotional block) เช่น อารมณ์โกรธ อิจฉา น้อยใจ ลองนึกดูว่า ถ้าเซอร์ไอแซค นิวตัน ผู้คิดค้นทฤษฎีแรงโน้มถ่วงโลกถูกแอบเปิ้ลหล่นใส่หัว เกิดความโกรธว่า ใครวะเอาแอบเปิ้ลขว้างหัวเรา! โลกทั้งโลกก็จะไม่ได้ศึกษาทฤษฎีแรงโน้มถ่วงหรอก เพราะความคิดของนิวตันถูก กับดักความโกรธบังไว้แล้ว!

นอกจากนั้น ก็ยังมีกับดักทางวัฒนธรรม กับดักสิ่งแวดล้อม กับดักทางปัญญา กับดักทางวาจา กับดักความเคยชิน ฯลฯ สิ่งเหล่านี้บดบังความสร้างสรรค์ทั้งสิ้น หากเราจะก้าวข้ามกับดักนี้ได้ เราต้องปรับวิธีคิดให้รอบคอบ รอบด้าน ปราศจากอคติ

พระพุทธเจ้าเรียกวิธีคิดแบบนี้ว่า โยนิโสมนสิการ ซึ่งท่านเจ้าคุณพรหมคุณาภรณ์แยกเป็น ๑๐ อย่างหลักๆ ตั้งแต่ คิดแบบสืบสาวเหตุปัจจัย แยกแยะส่วนประกอบ คิดแบบอริยสัจเพื่อแก้ปัญหา คิดแบบเห็นคุณและโทษและทางออก คิดแบบวิภัชชวาท (คือไม่หนักไปทางเดียว) ฯลฯ

อ้อนแอ้นและท่านผู้อ่านเคยติดกับดักความคิดหรือเปล่า? แล้วหาทางออกอย่างไรครับ?

ติดบ่อยมากค่ะ โดยส่วนใหญ่จะติดกับดักอารมณ์ ไม่ว่าจะเป็นโกรธ หรือน้อยใจ แล้วตัวเองมักจะคิดวนอยู่อย่างนั้น จนทำให้เกิดความเครียด ยิ่งเครียดก็ยิ่งคิดไม่ออกค่ะ

ทางออกของอ้อนแอ้นหรอคะ ปรึกษาคุณพ่อค่ะ มีอะไรไม่สบายใจหรือคิดไม่ตก จะเก็บไว้คนเดียวทำไม มีพ่อ เป็นปราชญ์ทั้งที ปรึกษาทุกทีก็ได้ข้อคิดดีๆ เสมอค่ะ

ดิฉันมีอีกหนึ่งตัวอย่างของกับดักความคิดมาให้ท่านผู้อ่านคิดตามสนุกๆ ค่ะ

ชาย ๓ คนเป็นเพื่อนกันมีเงินคนละ ๑๐ บาท เห็นส้มที่แม่ค้าขายกิโลละ ๓๐ บาทน่าทาน จึงรวมเงินให้เด็กไปซื้อมาให้ เมื่อเด็กซื้อส้ม ๑ กิโล แม่ค้าใจดีจึงลดราคาให้ ๕ บาท เด็กคิดว่าถ้าเอาเงินทอน ๕ บาทไปคืนหมดจะแบ่งกันลำบาก จึงเก็บไว้เอง ๒ บาท และคืนชายทั้ง ๓ คนละบาท

สรุปว่า ชาย ๓ คน จ่ายค่าส้มคนละ ๙ บาท เท่ากับ ๒๗ บาท อยู่กับเด็กอีก ๒ บาท รวมเป็น ๒๙ บาท แล้วเงินหายไปไหนหนึ่งบาทคะ?

เฉลยคือ ผิดที่บทสรุปค่ะ เพราะควรสรุปว่า ทั้ง ๓ จ่ายไปทั้งหมด ๒๗ บาท คือค่าส้ม ๒๕ บาท กับให้เด็กไปอีก ๒ บาท ก็เลยเหลือคนละบาทค่ะ

ดังนั้น อย่าเชื่อในสิ่งที่เห็น และอย่าเชื่ออะไรโดยไม่คิดนะคะ
♥
บทความโดย ศ.ดร.บวรศักดิ์ อุวรรณโณ และ อิสริยาภรณ์ อุวรรณโณ คอลัมน์ มุมมองสองวัย, นสพ.เดลินิวส์

Read more at http://www.unigang.com/Article/13088#F59bft7mOj3Pwutw.99

Alibaba vs. Amazon: An In-Depth Comparison of Two eCommerce Giants

Everyone likes a good showdown.  With Alibaba’s recent IPO, people are eager to pit the two eCommerce juggernauts against each other to create an Alibaba vs. Amazon faceoff.

But Alibaba is widely misunderstood.  And despite being an enormous eCommerce peer, it’s extremely different from Amazon.  Are the two really destined to be arch enemies or is it all just exaggerated drama?

In this post, I’ll dive deep into the nitty gritty of both companies:  what makes them tick, how they make money, how they’re different and what they mean for the future of eCommerce.

Note for Financial Geeks Like Myself:  Most of the data below has been taken from Alibaba’s recent IPO prospectus and Amazon’s 2013 annual report.  Alibaba’s annual figures represent the calendar year prior to their March 31st fiscal year ends.

History

Most eCommerceFuel readers will be familiar with Amazon’s history. In the mid-90s, Jeff Bezos founded Amazon which began by focusing solely on selling books.  They’ve since grown into the behemoth they are today, and are now the largest online retailer in North America.

Alibaba was founded in China by Jack Ma in 1999.  Ma didn’t have Bezos’ technology or business background.  An English teacher, he had failed at his previous two business ventures.  But despite those setbacks, he raised money from family and friends to launch Alibaba.com – a B2B portal for connecting Western businesses and Chinese manufactureres.

Since then, the company has grown to be the largest eCommerce company in the world (measured by both gross sales and company value) and recently went public in the largest IPO in history.

Philosophy

As we’ll get into, there is much that sets these two companies apart.  But the starkest contrast can be seen in the philosophy each company has.

Jeff Bezos’ long standing goal is to build the world’s most customer centric company.  And it’s hard to argue with his progress. Despite their size, Amazon’s customer service – in terms of pricing, delivery and customer support – is impressive.

Amazon is obsessed with the customer and getting them the best possible price – at almost any cost.  They’re notorious for alienating suppliers, content partners and publishers in their pursuit of this goal.

You can see this in their ongoing fights with publishers for higher royalties and by undercutting suppliers by ignoring pricing guidelines as alleged in the book The Everything Store.  Even members of the eCommerceFuel Private Forum have reported being squeezed out of a market by Amazon and/or experiencing aggressive tactics.

Jack Ma and Alibaba have a different focus.  The following quote is taken from their recent IPO prospectus:

“Our proposition is simple: we want to help small businesses grow by solving their problems through Internet technology. We fight for the little guy. Since our founding in 1999, we have helped millions of small businesses to achieve a brighter future.”

“…we want to help small businesses grow by solving their problems through Internet technology. We fight for the little guy.” -Jack Ma of Alibaba

Alibaba’s goal to help small businesses stands in stark contrast to Amazon, who is often (fairly or otherwise) criticized for making it harder for small businesses to compete and stay relevant online.

So is there ANY common ground between the two?  Actually, yes.  Both relegate shareholder interests to the bottom of the totem pole.

Jack Ma has repeatedly said that Alibaba’s priorities are their employees, their customers and then the shareholder, in that order.  And Jeff Bezos is notorious on Wall Street for continually investing in the future of his company at the expense of providing short term returns / profits to shareholders.

Business Models

Alibaba has traditionally been best known in the United States for Alibaba.com – their B2B portal that connects Chinese factories and businesses.  But that’s not why you’ve been hearing so much about them recently.  Where they REALLY make their money is in facilitating eCommerce within China.

Alibaba’s Taobao division is where they make the vast majority of their money, is responsible for more than 80% of Alibaba’s sales and consists of two main properties:

The Taobao Marketplace is similar to eBay, and allows consumers and small businesses to list merchandise for sale. The other major platform, Taobao Mall, is more akin to Amazon.  It’s a B2C platform that allows larger businesses and brands to sell direct to consumers.

Sales on the Taobao marketplaces make up more than 80% of all online purchases in China.  Let me repeat that.  80% of all online purchase in China.  That’s mind boggling.

To say they have a stranglehold on eCommerce in China is an understatement.  Amazon’s share of the U.S. market is nowhere near those levels.

Alibaba accounts for more than 80% of all online purchases in China.

What’s important to note is that Alibaba’s platforms merely facilitate the transactions.  They manage the marketplace and charge a small commission, but don’t hold – or sell – any merchandise themselves.

Amazon, by comparison, plays in both markets.  On Amazon.com, you’ll find thousands of products you can by directly from 3rd party businesses.  But Amazon is also in the business of stocking items and selling products directly to consumers.  In many instances, they’re competing directly with the same merchants who are using their platform to sell.

Both companies have other business arms.  Each has a cloud computing division (although Amazon’s is much bigger), both are involved with media creation and Alibaba even owns a stake in a professional Chinese soccer team!

But the marketplaces where they sell products are the bread-and-butter of each one’s business.

Geographic Focus

As I’ve mentioned already, Alibaba’s primary money making operations are from operations within China.  So the chart below won’t be a surprise.

But what’s interesting is how much of Amazon’s business comes from outside North America – a whopping 40%!

There’s been lots of talk about how Amazon should fear the entrance of Alibaba into the U.S. market – and it will definitely be interesting to see how that plays out.  But who has the better track record of expanding outside their home market?  It’s definitely Amazon.

Who Sells More Stuff?

In 2013, Alibaba reported GMV (gross merchandise volume) of approximately $250 billion.  That means more than $250 billion worth of transactions were made / facilitated via their platforms.

Amazon, by contrast had 2013 product revenues of approximately of $61 billion – significantly less than Alibaba.  But this number is misleading, because Amazon doesn’t count any of the sales made by 3rd party merchants in this number.  They only count sales where they were the business directly selling to the consumer.

So making the comparison is difficult because the two firms don’t disclose the same metrics (GMV).  In a recent article, Ben Evans speculated that Amazon’s actual GMV (the amount of total stuff that gets sold on their site) could be in the range of 2x what they list as product revenue.

So who’s bigger from a product sales standpoint?  It’s probably a safe bet to say Alibaba is larger but it’s impossible to know for sure.

Service & Fee Revenues

It’s important to understand that GMV – the value of all the goods sold / orders places on a platform – isn’t the same as what the company actually collects in revenues or profits.

For example, assume someone places a $100 order on one of Alibaba’s sites for a camera.  The $100 will count toward the GMV reported, but Alibaba will only receive a tiny fraction of that as a listing / transaction fee –  say $2. That tiny fee is ultimately what’s important, because it’s what Alibaba gets to keep as profit.

When you compare the amount of money that Alibaba and Amazon generate (and get to keep) from service fees, a different picture in terms of size emerges.

Despite having a marketplace that moves significantly more goods, Alibaba doesn’t collect nearly as much in fees / sales commission as Amazon.

(Note:  There are some fees for other services included in this chart, like cloud based computing offerings, but it’s predominantly made up of fees charged to 3rd party sellers).

Profitability

Alibaba sells more stuff.  Amazon generates significantly higher fee revenues.  So who ends up actually making more money?

Surprisingly, Alibaba.  By a long shot.

In 2013, Alibaba made more than 10x as much money as Amazon.  While Alibaba’s profits have grown consistently in the past few years, Amazon’s have languished.  Amazon even lost money in 2012.

Why such a massive difference?

Unlike Alibaba, Amazon actually stocks their own products.  And building out warehouses in their attempt to take over the eCommerce world is no small (or affordable) feat.

To help normalize this a bit, let’s look to a different metric:  free cash flow.  Without getting too technical, free cash flow tells you how much cash a company is generating and removes the noise introduced by accounting techniques and other one-time events.  In short, it can offer a clearer picture of a business’ health.

Normally, the costs involved with building new warehouses (called capital expenditures) would be taken out of free cash flow.  But to normalize our comparison given Amazon’s wild building spree, I’ve added these warehouse expansion costs back in.

Amazon has an ever-so-slight edge, but the two companies both generated approximately $5 billion in free cash flow in 2013.

Why Such a Difference?

As you can see in the chart below, Amazon had a 0.8% profit margin in 2013.  Alibaba, by contrast, had a 44% profit margin in 2013 – more than 50x higher.

So what explains this monumental difference? In a phrase, “warehouses vs. software”.

What explains this monumental difference? In a phrase, “warehouses vs. software”.

Alibaba doesn’t sell products themselves.  Instead, they simply offer a web platform that facilitates the exchange of good.  They’re the world’s largest eCommerce company, but they’re actually much more like a software company than a retailer.

Amazon, by contrast, is in the business of selling directly to consumers – and has to deal with all of the logistically complex and expensive physical aspects that go along with it.  Namely, building out a vast warehouse network.

It’s this difference that explains why Alibaba has been able to grow so quickly and remain highly profitable, while Amazon has had to sacrifice profits for two decades to get where they are today.

Bottom line?  Software tends to scale better than warehouses do.

The Future

Are these two powerhouses destined to meet in a spectacular pay-per-view battle for eCommerce supremacy?  As fun as that would be to watch, it’s unlikely in the near future.

Alibaba has a stranglehold on the Chinese market and Amazon is the undisputed U.S. leader.  They both have such a massive head start – and an intimate understanding of their market and models – that it’d be extremely difficult for one to knock the other from their perch.

But Alibaba’s Jack Ma has stated that they have plans to invest seriously in the U.S.  And Amazon isn’t known for shying away from a fight, even if it proves to be costly.  So what will happen?

There have been talks of Alibaba purchasing a company like eBay or Etsy, which would make sense given their platform approach in China and focus on smaller businesses.  But I think a potentially even bigger opportunity for Alibaba would be to help Western merchants reach the massive – and still largely untapped pool – of Chinese consumers.

Imagine if smaller independent U.S. merchants could easily sell and ship their high-end products to consumers in China.  Currently, there are a number of issues that make that difficult (logistics, language, culture issues) but Alibaba could create a platform that addressed those problems.

They’ve already proved the model by successfully connecting Chinese manufacturers and western businesses with Alibaba.com.  As China’s middle class grows and matures, why not flip that model on its head?

It will be especially interesting to see how Amazon addresses Alibaba’s rise, and what their next move will be.

Given Alibaba’s more profitable and scalable model – and their momentum – I think they have the advantage for any head-to-head battles in new markets.  But Amazon does have a better track record of expanding internationally and, like I said earlier, has never been one to shy away from a fight.

Whatever happens, it will undoubtedly be exciting to watc

Clayton Christensen : Assessing Your Organization's Innovation Capabilities

copyright and permissions Assessing Your Organization's Innovation Capabilities by Clayton M. Christensen Leader to Leader, No. 21 Summer 2001 Thought Leaders Forum: Clayton M. Christensen Clayton Christensen is a professor of business administration at the Harvard Business School, and is author of The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. (6/2001) More on Clayton M. Christensen This article appears as "Coping with Your Organization's Innovation Capabilities" (Chapter 17) in Leading for Innovation. Read more. Order from Amazon.com. From Leader to Leader, No. 21 Summer 2001 • Table of Contents • From the Editors • Resources Additional resources for this article The amount of information available to managers and the amount of work required to sort the important from the less important is increasing dramatically. arnings are all about us that the pace of change is accelerating. The amount of information available to managers -- as well as the amount of work and judgment required to sort the important from the less important -- is increasing dramatically. The pervasive emergence of the Internet is exacerbating these trends. This is scary news -- because when the pace of change was slower, most managers' track records in dealing with change weren't that good. For example, none of the minicomputer companies such as Digital, Data General, and Wang succeeded in developing a competitive position in the personal computer business. Only one of the hundreds of department stores, Dayton Hudson, now Target, became a leader in discount retailing. Medical and business schools have struggled to change their curricula fast enough to train the types of doctors and managers that their markets need. The list could go on. In most of these instances, seeing the innovations coming at them hasn't been the problem. The organizations just didn't have the capability to react to what their employees and leaders saw, in a way that enabled them to keep pace with required changes. When managers assign employees to tackle a critical innovation, they instinctively work to match the requirements of the job with the capabilities of the individuals they charge to do it. In evaluating whether an employee is capable of successfully executing a job, managers will look for the requisite knowledge, judgment, skill, perspective, and energy. Managers will also assess the employee's values -- the criteria by which the person tends to decide what should and shouldn't be done. Unfortunately, some managers don't think as rigorously about whether their organizations have the capability to successfully execute jobs that may be given to them. Often, they assume that if the people working on a project individually have the requisite capabilities to get the job done well, then the organization in which they work will also have the same capability to succeed. This article offers a framework to help managers confronted with necessary change understand whether the organizations over which they preside are capable or incapable of tackling the challenge.  An Organizational Capabilities Framework hree classes of factors affect what an organization can and cannot do: its resources, its processes, and its values. When asking what sorts of innovations their organizations are and are not likely to be able to implement successfully, managers can learn a lot about capabilities by sorting their answers into these three categories. Resources Resources are the most visible of the factors that contribute to what an organization can and cannot do. Resources include people, equipment, technology, product designs, brands, information, cash, and relationships with suppliers, distributors, and customers. Resources are usually things, or assets -- they can be hired and fired, bought and sold, depreciated or enhanced. Resources are not only valuable, they are flexible. An engineer who works productively for Dow Chemical can also work productively in a start-up. Software that helps UPS manage its logistics system can also be useful at Amazon.com. Technology that proves valuable in mainframe computers also can be used in telecommunications switches. Cash is a consummately flexible resource. Resources are the things that managers most instinctively identify when assessing whether their organizations can successfully implement changes that confront them. Yet resource analysis clearly does not tell a sufficient story about capabilities. Processes Organizations create value as employees transform inputs of resources into products and services of greater worth. The patterns of interaction, coordination, communication, and decision making through which they accomplish these transformations are processes. Processes include not just manufacturing processes, but those by which product development, procurement, market research, budgeting, employee development and compensation, and resource allocation are accomplished. Processes are defined or evolve de facto to address specific tasks. This means that when managers use a process to execute the tasks for which it was designed, it is likely to perform efficiently. But when the same seemingly efficient process is employed to tackle a very different task, it is likely to prove slow, bureaucratic, and inefficient. In contrast to the flexibility of resources, processes are inherently inflexible. In other words, a process that defines a capability in executing a certain task concurrently defines disabilities in executing other tasks. When managers employ processes designed to address one problem to tackle different tasks, an organization manifests slow, inefficient, and bureaucratic behavior. One of the dilemmas of management is that by their very nature, processes are established so that employees perform recurrent tasks in a consistent way, time after time. To ensure consistency, processes are meant not to change -- or if they must change, to change through tightly controlled procedures. The reason good managers strive for focus in their organizations is that processes and tasks can be readily aligned. The alignment of specific tasks with the processes that were designed to address those tasks is, in fact, the very definition of a focused organization. It is when managers begin employing processes that were designed to address one problem to tackle a range of very different tasks that an organization manifests slow, inefficient, and bureaucratic behavior. Values The third class of factors that affects what an organization can or cannot accomplish is its values. The term values carries an ethical connotation, such as those that guide decisions to ensure patient well-being at Johnson & Johnson or that guide decisions about plant safety at Alcoa. But in this framework, values have a broader meaning. An organization's values are the criteria by which employees make decisions about priorities -- by which they judge whether an order is attractive or unattractive, whether a customer is more important or less important, whether an idea for a new product is attractive or marginal, and so on. Employees at every level make decisions about priorities. At the executive tiers, they often take the form of decisions to invest or not invest in new products, services, and processes. Among salespeople, they consist of day -- to -- day decisions about which customers to call on and which to ignore, which products to push and which to deemphasize. The larger and more complex a company becomes, the more important it is for senior managers to train employees at every level to make independent decisions about priorities that are consistent with the strategic direction and the business model of the company. A key metric of good management, in fact, is whether such clear and consistent values have permeated the organization. Clear, consistent, and broadly understood values, however, also define what an organization cannot do. A company's values must by necessity reflect its cost structure or its business model, because these define the rules its employees must follow for the company to prosper. If, for example, the structure of a company's overhead costs requires it to achieve gross profit margins of 40 percent, a powerful value or decision rule will have evolved that encourages middle managers to kill ideas that promise gross margins below 40 percent. This means that such an organization would be incapable of successfully commercializing projects targeting low -- margin markets -- even while another organization's values, driven by a very different cost structure -- might enable or facilitate the success of the very same project. The values of successful firms tend to evolve in a predictable fashion on at least two dimensions. The first relates to acceptable gross margins. As companies add features and functionality to their products and services in an effort to capture more attractive customers in premium tiers of their markets, they often add overhead cost. As a result, gross margins that at one point were quite attractive at a later point seem unattractive. Their values change. One of the bittersweet rewards of success is that as companies become large, they lose the capability to enter emerging markets. The second dimension along which values can change relates to how big a customer or market has to be, in order to be interesting. Because a company's stock price represents the discounted present value of its projected earnings stream, most managers typically feel compelled not just to maintain growth, but to maintain a constant rate of growth. For a $40 million company to grow 25 percent, it needs to find $10 million in new business the next year. For a $40 billion company to grow 25 percent, it needs to find $10 billion in new business the next year. The size of market opportunity that will solve each of these companies' needs for growth is very different. An opportunity that excites a small organization isn't large enough to be interesting to a very large one. One of the bittersweet rewards of success is, in fact, that as companies become large, they literally lose the capability to enter the small, emerging markets of today that will be tomorrow's large markets. This disability is not because of a change in the resources within the companies -- their resources typically are vast. Rather, it is because their values change. Those who engineer mega-mergers among already huge companies to achieve cost savings, for example, need to account for the impact of these actions on the resultant companies' values. Although their merged research organizations might have more resources to throw at innovation problems, they lose the appetite for all but the biggest market opportunities. This constitutes a very real disability in managing innovation.  The Capabilities to Address Sustaining or Disruptive Technologies ne of the most important findings in the research summarized in The Innovator's Dilemma relates to the differences in companies' track records at making effective use of sustaining and disruptive technologies. Sustaining technologies are innovations that make a product or service better along the dimensions of performance valued by customers in the mainstream market. Compaq's early use of Intel's 32-bit 386 microprocessor instead of the 16-bit 286 chip was an example of a sustaining innovation. So was Merrill Lynch's introduction of its Cash Management Account. Disruptive innovations, on the other hand, bring to market a new product or service that is actually worse along the metrics of performance most valued by mainstream customers. Charles Schwab's initial entry as a bare-bones discount broker was a disruptive innovation, relative to the offerings of full-service brokers. Early personal computers were a disruptive innovation, relative to mainframes and minicomputers. PCs were disruptive in that they didn't address the next-generation needs of leading customers in existing markets. They had other attributes, of course, that enabled new market applications to coalesce, however -- and from those new applications, the disruptive innovations improved so rapidly that they ultimately could address the needs of customers in the mainstream market as well. In a study of sustaining and disruptive technologies in the disk drive industry, my colleagues and I built a database of every disk drive model introduced by any company in the world between 1975 and 1995 -- comprising nearly 5,000 models. For each of these models, we gathered data on the components used, as well as the software codes and architectural concepts employed. This allowed us to put our finger right on the spot in the industry where each new technology was used. We could then correlate companies' leadership or laggardship in using new technologies with their subsequent fortunes in the market. We identified 116 new technologies that were introduced in the industry's history. Of these, 111 were sustaining technologies, in that their impact was to improve the performance of disk drives. Some of these were incremental improvements while others, such as magneto -- resistive heads, represented discontinuous leaps forward in performance. In all 111 cases of sustaining technology, the companies that led in developing and introducing the new technology were the companies that had led in the old technology. It didn't matter how difficult it was, from a technological point of view. The success rate of the established firms was 100 percent. The other five technologies were disruptive innovations -- in each case, smaller disk drives that were slower and had lower capacity than those used in the mainstream market. There was no new technology involved in these disruptive products. Yet none of the industry's leading companies remained atop the industry after these disruptive innovations entered the market -- their batting average was zero. The Innovator's Dilemma recounts how dynamics like those we observed for disk drives -- the interplay between the speed of technology change and the evolution in market needs -- precipitated the failure of the leading companies to cope with disruptive innovations in a range of very different industries. Why such markedly different batting averages when playing the sustaining versus disruptive games? The answer lies in the resources-processes-values (RPV) framework of organizational capabilities described earlier. The industry leaders developed and introduced sustaining technologies over and over again. Month after month, year after year, as they introduced improved products to gain a competitive edge, the leading companies developed processes for evaluating the technological potential and assessing their customers' needs for alternative sustaining technologies. In the parlance of this article, the organizations developed a capability for doing these things, which resided in their processes. Sustaining technology investments also fit the values of the leading companies, in that they promised higher margins from better products sold to their leading -- edge customers. On the other hand, the disruptive innovations occurred so intermittently that no company had a routinized process for handling them. Furthermore, because the disruptive products promised lower profit margins per unit sold and could not be used by their best customers, these innovations were inconsistent with the leading companies' values. The leading disk drive companies had the resources -- the people, money, and technology -- required to succeed at both sustaining and disruptive technologies. But their processes and values constituted disabilities in their efforts to succeed at disruptive technologies. Large companies often surrender emerging growth markets because smaller, disruptive companies are actually more capable of pursuing them. Though start-ups lack resources, it doesn't matter. Their values can embrace small markets, and their cost structures can accommodate lower margins. Their market research and resource allocation processes allow managers to proceed intuitively rather than having to be backed up by careful research and analysis. All these advantages add up to enormous opportunity or looming disaster -- depending on your perspective. Managers who face the need to change or innovate, therefore, need to do more than assign the right resources to the problem. They need to be sure that the organization in which those resources will be working is itself capable of succeeding -- and in making that assessment, managers must scrutinize whether the organization's processes and values fit the problem.  Creating Capabilities to Cope with Change manager who determined that an employee was incapable of succeeding at a task would either find someone else to do the job or carefully train the employee to be able to succeed. Training often works, because individuals can become skilled at multiple tasks. Processes are not as flexible as resources -- and values are even less so. Despite beliefs spawned by change-management and reengineering programs, processes are not nearly as flexible as resources are -- and values are even less so. The processes that make an organization good at outsourcing components cannot simultaneously make it good at developing and manufacturing components in-house. Values that focus an organization's priorities on large customers cannot simultaneously focus priorities on small customers. For these reasons, managers who determine that an organization's capabilities aren't suited for a new task are faced with three options through which to create new capabilities:  Acquire a different organization whose processes and values are a close match with the new task.  Try to change the processes and values of the current organization.  Separate out an independent organization and develop within it the new processes and values required to solve the new problem.  Creating Capabilities Through Acquisitions Unfortunately, companies' track records in developing new capabilities through acquisition are frighteningly spotty. Managers often sense that acquiring rather than developing a set of capabilities makes competitive and financial sense. Unfortunately, companies' track records in developing new capabilities through acquisition are frighteningly spotty. Here, the RPV framework can be a useful way to frame the challenge of integrating acquired organizations. Acquiring managers need to begin by asking, "What is it that really created the value I just paid so dearly for? Did I justify the price because of the acquisition's resources -- its people, products, technology, market position, and so on? Or was a substantial portion of its worth created by processes and values -- unique ways of working and decision making that have enabled the company to understand and satisfy customers and develop, make, and deliver new products and services in a timely way?" If the acquired company's processes and values are the real driver of its success, then the last thing the acquiring manager wants to do is to integrate the company into the new parent organization. Integration will vaporize many of the processes and values of the acquired firm as its managers are required to adopt the buyer's way of doing business and have their proposals to innovate evaluated according to the decision criteria of the acquiring company. If the acquiree's processes and values were the reason for its historical success, a better strategy is to let the business stand alone, and for the parent to infuse its resources into the acquired firm's processes and values. This strategy, in essence, truly constitutes the acquisition of new capabilities. If, on the other hand, the company's resources were the primary rationale for the acquisition, then integrating the firm into the parent can make a lot of sense -- essentially plugging the acquired people, products, technology, and customers into the parent's processes as a way of leveraging the parent's existing capabilities. The perils of the ongoing DaimlerChrysler merger, for example, can be better understood through the RPV model. Chrysler had few resources that could be considered unique in comparison to its competitors. Its recent success in the market was rooted in its processes -- particularly in its product design process and in its processes of managing its relationships with its key subsystem suppliers. What is the best way for Daimler to leverage the capabilities that Chrysler brings to the table? Wall Street is pressuring management to consolidate the two organizations so as to cut costs. However, if the two companies are integrated, it is very likely that the key processes that made Chrysler such an attractive acquisition will not just be compromised. They will be vaporized. This situation is reminiscent of IBM's 1984 acquisition of Rolm. There wasn't anything in Rolm's pool of resources that IBM didn't already have. It was Rolm's processes for developing PBX products and for finding new markets for them that was really responsible for its success. In 1987 IBM decided to fully integrate the company into its corporate structure. IBM soon learned the folly of this decision. Trying to push Rolm's resources -- its products and its customers -- through the same processes that were honed in IBM's large-computer business caused the Rolm business to stumble badly. This decision to integrate Rolm actually destroyed the very source of the original worth of the deal. How much better off they would have been had IBM infused some of its vast resources into Rolm's processes and values! Financial analysts have a better intuition for the worth of resources than for processes or values. DaimlerChrysler, bowing to the investment community's drumbeat for efficiency savings, now stands on the edge of the same precipice. Often, it seems, financial analysts have a better intuition for the worth of resources than for processes or values. In contrast, Cisco Systems' acquisitions process has worked well -- because, I would argue, it has kept resources, processes, and values in the right perspective. Between 1993 and 1997 most of its acquisitions were small companies that were less than two years old: early-stage organizations whose market value was built primarily on resources -- particularly engineers and products. Cisco has a well-defined, deliberate process by which it essentially plugs these resources into the parent's processes and systems, and it has a carefully cultivated method of keeping the engineers of the acquired company happily on the Cisco payroll. In the process of integration, Cisco throws away whatever nascent processes and values came with the acquisition -- because those weren't what Cisco paid for. On a couple of occasions when the company acquired a larger, more mature organization -- notably its 1996 acquisition of StrataCom -- Cisco did not integrate. Rather, it let StrataCom stand alone, and infused its substantial resources into the organization to help it grow at a more rapid rate. Creating New Capabilities Internally Too often, resources are plugged into fundamentally unchanged processes -- and little change results. Companies that have tried to develop new capabilities within established organizational units also have a spotty track record. Assembling a beefed-up set of resources as a means of changing what an existing organization can do is relatively straightforward. People with new skills can be hired, technology can be licensed, capital can be raised, and product lines, brands, and information can be acquired. Too often, however, resources such as these are then plugged into fundamentally unchanged processes -- and little change results. For example, through the 1970s and 1980s Toyota up -- ended the world automobile industry through its innovation in development, manufacturing, and supply-chain processes -- without investing aggressively in resources such as advanced manufacturing or information processing technology. General Motors responded by investing nearly $60 billion in manufacturing resources -- computer-automated equipment that was designed to reduce cost and improve quality. Using state-of-the-art resources in antiquated processes, however, made little difference in GM's performance, because it is in its processes and values that the organization's most fundamental capabilities lie. Processes and values define how resources -- many of which can be bought and sold, hired and fired -- are combined to create value. Unfortunately, processes are very hard to change. Organizational boundaries are often drawn to facilitate the operation of present processes. Those boundaries can impede the creation of new processes that cut across those boundaries. When new challenges require people or groups to interact differently than they habitually have done -- addressing different challenges with different timing than historically required -- managers need to pull the relevant people out of the existing organization and draw a new boundary around a new group. New team boundaries enable or facilitate new patterns of working together that ultimately can coalesce as new processes -- new capabilities for transforming inputs into outputs. In their book Revolutionizing Product Development, Steven C. Wheelwright and Kim B. Clark call these structures heavyweight teams. Not just Chrysler but companies as diverse as Medtronic in cardiac pacemakers, IBM in disk drives, and Eli Lilly with its new blockbuster drug Zyprexa have used heavyweight teams as vehicles within which new processes could coalesce. Creating Capabilities Through a Spin-Out Organization The third mechanism for creating new capabilities -- spawning them within spin-out ventures -- is currently in vogue among many managers as they wrestle with how to address the Internet. When are spin-outs a crucial step in building new capabilities to exploit change, and what are the guidelines by which they should be managed? A separate organization is required when the mainstream organization's values would render it incapable of focusing resources on the innovation project. Large organizations cannot be expected to freely allocate the critical financial and human resources needed to build a strong position in small, emerging markets. And it is very difficult for a company whose cost structure is tailored to compete in high-end markets to be profitable in low-end markets as well. When a threatening disruptive technology requires a different cost structure to be profitable and competitive, or when the current size of the opportunity is insignificant relative to the growth needs of the mainstream organization, then -- and only then -- is a spin -- out organization a required part of the solution. Just as with new processes, business based on new values needs to be established while the old business is still at the top of its game. Merrill Lynch's retail brokerage business, for example, is today a very healthy business -- and the firm's processes and values for serving its clients work well. The disruption of on-line brokerage looms powerfully on the horizon -- but any attempt Merrill management might make to transform the existing business to succeed in the next world of self-service, automated trading would compromise its near-term profit potential. Merrill Lynch needs to own another retail brokerage business, which would be free to create its own processes and forge a cost structure that could enable different values to prevail. It must do this if it hopes to thrive in the post-disruption world. How separate does the effort need to be? The primary requirement is that the project cannot be forced to compete with projects in the mainstream organization for resources. Because values are the criteria by which decisions about priorities are made, projects that are inconsistent with a company's mainstream values will naturally be accorded lowest priority. The physical location of the independent organization is less important than is its independence from the normal resource allocation process. In our studies of this challenge, we have never seen a company succeed in addressing a change that disrupts its mainstream values absent the personal, attentive oversight of the CEO -- precisely because of the power of processes and values and particularly the logic of the normal resource allocation process. Only the CEO can ensure that the new organization gets the required resources and is free to create processes and values that are appropriate to the new challenge. CEOs who view spin -- outs as a tool to get disruptive threats off their personal agendas are almost certain to meet with failure. We have seen no exceptions to this rule.  A Structural Framework for Managing Different Types of Innovation he framework summarized in the figure can help managers exploit current organizational capabilities when that is possible, and to create new ones when the present organization is incapable. The left axis in the figure measures the extent to which the existing processes -- the patterns of interaction, communication, coordination, and decision making currently used in the organization -- are the ones that will get the new job done effectively. If the answer is yes (toward the lower end of the scale), the new team can exploit the organization's existing processes or capabilities to succeed. As depicted in the corresponding position on the right axis, functional or lightweight teams are useful structures for exploiting existing capabilities. On the other hand, if the ways of getting work done and of decision making in the mainstream business would impede rather than facilitate the work of the new team -- because different people need to interact with different people about different subjects and with different timing than has habitually been necessary -- then a heavyweight team structure is necessary. Heavyweight teams are tools to create new processes -- new ways of working together that constitute new capabilities. FITTING AN INNOVATION'S REQUIREMENTS WITH THE ORGANIZATION'S CAPABILITIES Note: The left and bottom axes reflect the questions the manager needs to ask about the existing situation. The italicized notes at the right side represent the appropriate response to the situation on the left axis. The italicized notes at the top represent the appropriate response to the manager's answer to the situation on the bottom axis. Return to reference The horizontal axis of the figure asks managers to assess whether the organization's values will allocate to the new initiative the resources it will need in order to become successful. If there is a poor or disruptive fit, then the mainstream organization's values will accord low priority to the project. Therefore, setting up an autonomous organization within which development and commercialization can occur will be absolutely essential to success. At the other extreme, however, if there is a strong, sustaining fit, then the manager can expect that the energy and resources of the mainstream organization will coalesce behind it. There is no reason for a skunk works or a spin-out in such cases. Region "A" in the figure depicts a situation in which a manager is faced with a sustaining technological change -- it fits the organization's values. But it presents the organization with different types of problems to solve and therefore requires new types of interaction and coordination among groups and individuals. The manager needs a heavyweight development team to tackle the new task, but the project can be executed within the mainstream company. This is how Chrysler, Eli Lilly, Medtronic, and the IBM disk drive division successfully revamped their product development processes. When in region "B" (where the project fits the company's processes and values), a lightweight development team, in which coordination across functional boundaries occurs within the mainstream organization, can be successful. Region "C" denotes an area in which a manager is faced with a disruptive technological change that doesn't fit the organization's existing processes and values. To ensure success in such instances, managers should create an autonomous organization and commission a heavyweight development team to tackle the challenge. Functional and lightweight teams are appropriate vehicles for exploiting established capabilities, whereas heavyweight teams are tools for creating new ones. Spin-out organizations, similarly, are tools for forging new values. Unfortunately, most companies employ a one-size-fits-all organizing strategy, using lightweight teams for programs of every size and character. Among those few firms that have accepted the "heavyweight gospel," many have attempted to organize all development teams in a heavyweight fashion. Ideally, each company should tailor the team structure and organizational location to the process and values required by each project.  The Danger of Wishful Thinking The capabilities of an organization also define its disabilities. anagers whose organizations are confronting change must first determine that they have the resources required to succeed. They then need to ask a separate question: Does the organization have the processes and values to succeed? Asking this second question is not as instinctive for most managers because the processes by which work is done and the values by which employees make their decisions have served them well. What the RPV framework adds to managers' thinking, however, is the concept that the very capabilities of an organization also define its disabilities. A little time spent soul-searching for honest answers to this issue will pay off handsomely. Are the processes by which work habitually gets done in the organization appropriate for this new problem? And will the values of the organization cause this initiative to get high priority, or to languish? If the answer to these questions is no, it's okay. Understanding problems is the most crucial step in solving them. Wishful thinking about this issue can set teams charged with developing and implementing an innovation on a course fraught with roadblocks, second-guessing, and frustration. The reasons why innovation often seems to be so difficult for established firms is that they employ highly capable people and then set them to work within processes and values that weren't designed to facilitate success with the task at hand. Ensuring that capable people are ensconced in capable organizations is a major management responsibility in an age such as ours, when the ability to cope with accelerating change has become so critical..  Copyright © 2001 by Clayton M. Christensen. Reprinted with permission from Leader to Leader, a publication of the Drucker Foundation and Jossey-Bass. Print citation: Christensen, Clayton M. "Assessing Your Organization's Innovation Capabilities" Leader to Leader. 21 (Summer 2001): 27-37. This article is available on the Drucker Foundation Web site, http://drucker.org/leaderbooks/L2L/summer2001/christensen.html.