|P E T E R S. C O H A N & A S S O C I A T E S|
|FOUR SOURCES OF ADVANTAGE
Technology leaders create success cycles by the way they perform four critical business processes -- "The Four Sources of Advantage." The Four Sources of Advantage enable technology leaders to generate higher rates of return on innovation -- the present value of the cash generated by investments in innovation -- than their peers.
The Four Sources of Advantage include:
Entrepreneurial Leadership -- The ability to attract and maximize the productivity of entrepreneurs within a large organization. An example is Andy Bechtolsheim. Bechtolsheim co-founded Sun Microsystems, leaving after nine years with $50 million worth of Sun stock. He later founded a chip company, Granite Systems, which he sold to Cisco in 1996 for over $200 million. Despite a net worth in excess of $200 million, Bechtolsheim works as a vice president at Cisco seven days a week, 16 hours a day. Bechtolsheim does this because he has a personal compulsion to introduce the best product ahead of competitors when a new technology market emerges. At Sun it would take six months of internal selling to change a product feature, whereas at Cisco, such a change can be made in a week. Thus Cisco is the best environment he has found to fulfill his personal compulsion.
Open Technology -- the willingness to incorporate new technology from whichever source will meet customer demands the most effectively and quickly. Closed technology companies believe that the only good technology is one invented internally. For example, Wang Computer was a 1980s leader in word processing before personal computers were introduced by Apple and IBM. Since Wang had not invented personal computers, it was not able to adapt effectively to the superior value of the PC. As a result, Wang's sales dropped and the company entered bankruptcy. By contrast, Cisco Systems has been much more flexible, pursuing scores of acquisitions to get the technology that its customers want before competitors can get a foothold at Cisco customers.
Boundaryless Product Development -- the development of new products through cross-functional teams and prototypes. Traditional technology companies pursue a relay race approach. Here engineering throws a blueprint over the transome to manufacturing who builds a product that salespeople cannot sell because it does not meet a customer need. The Boundaryless approach starts with a cross-functional team consisting of engineering, sales, manufacturing, purchasing, finance and interested customers. The result is rapid prototyping of products that meet customer needs and can be built cost-effectively to meet demand.
Disciplined Resource Allocation -- the ability to allocate capital and people based on rigorous analysis of investment opportunities. Traditional companies tend to invest in projects that are of interest to a powerful executive or director without subjecting their suggestions to disciplined analysis. As a result, traditional companies often invest in new initiatives that do not generate positive returns -- thereby wasting scarce corporate resources. Technology leaders do a better job of balancing the interests of powerful individuals with the needs of shareholders -- through disciplined investment analysis such as stage-gate processes -- thus generating higher shareholder returns than their peers.
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