Leveraging the Internet to Maximize Shareholder Value


Innovation and Value Creation

Innovation is the lifeblood of any technology company. But how does senior management make the crucial decisions needed to sustain the innovation pipeline, deliver superior value to users/customers and grow top line successfully, while ensuring R&D investments will maximize company value?

The answers lie in management’s decision making processes. Successful technology companies develop and hone innovative products and services that delight users and create value for customers. Note that users and customers can oftentimes be very separate constituent groups (i.e. Google search users and advertisers). Determining this value chain is the key to building a defensible business model that delivers long-term valuation growth.

In his book, Basic Economics, Thomas Sowell defines economics as “The study of the distribution of scarce resources that have alternative uses.” And while it may seem like a cliché, it is the basic challenge all managers face. Capital, in the form of investment funds and human resources are scarce in every company. How C-level executives make decisions around allocating resources ultimately determines the successful conversion of capital investment into sustained valuation growth.

Intangible Assets and Value Creation

Technology companies typically derive their core value from the creation of intangible assets in the form of intellectual property (i.e. patented inventions, product software and services development). Technology and patents shape an Internet company’s brand identity and ability to dominate within its market niche.

How users and customers adopt and interact with these inventions separates the winners and losers. How companies leverage the innovation pipeline to create new products and services that users and customers readily adopt either enables or limits growth. But how a company connects the value chain determines its ability to capitalize on the growth.

Sure, it sounds simple, but witness how many software and Internet companies have trouble extending the value chain beyond their initial innovations. Microsoft, while investing in countless new products and IP has yet to find ways to cash in significantly beyond their initial operating system and office applications. Even Google has yet to realize substantial returns on its numerous inventions beyond its root products; search and contextual advertising.

In Relentless Pursuit of Innovation

Perhaps a better example of the benefits of relentless innovation is Apple. Hard to believe that only 10 years ago Apple appeared on the brink of extinction, having to borrow $150 million from Microsoft in order to survive.
After simplifying product lines, focusing on what users truly wanted, Apple not only regained market share in the PC space, but has since introduces truly innovative, revolutionary new product categories and services including the iPod, iTunes and the iPhone.

Quite simply, Apple has built a devoted following because management consciously honed its decision-making processes around the introduction of innovative products that customers can count on to be easy to use.

Capitalizing on Innovation

As the dotcom bust taught us, innovation is not enough. “Build it and they will come” is a surefire recipe for disaster unless managers can “connect the dots” and leverage IP to create a successful value chain. Such is the current dilemma of many companies in the social media space, an industry in its infancy that will soon face radical growing pains.

The adoption growth curve of companies such as Face book and Twitter is truly phenomenal, but they have yet to prove that all those eyeballs can be successfully monetized. The space is evolving so quickly that a shakeout is surely in the cards at some point.

Are social media companies building defensible, sustainable business models? Surely the venture capitalists who have invested in social media start ups believe so. And if the exit strategy is acquisition (i.e. YouTube and MySpace) then some will succeed even if the business model ultimately fails to produce sustained value creation for the acquiring companies. Time will tell whether social media companies will derive long term value from their innovation investments.

Separating Intellectual Property and Value Creation

Matt Mullenweg, founder of Automattic, seems to understand how to capture value from the development of open source software. Automattic is certainly inside the tornado now, with its open source WordPress software rapidly dominating the demand for content management system CMS software.

Initially known simply as a tool for bloggers, WordPress has captured the imagination of thousands of independent developers who willingly contribute their own time and IP to the code base and develop plugins that extend its value far beyond being just another blogging platform.

The antithesis of the closed software licensing model, Automattic seems to have found a winning formula in giving away what most software companies deem the “family jewels”. But the hosting service (i.e. WordPress.com) is allowing the company to reap financial benefits without forcing users to pay directly for its core innovations.

Conclusion: Converting Innovation to Value at Internet Speed

Allocating scarce resources to the right activities separates the winners and losers in the ever-accelerating world of technology innovation. The lesson is clear; how management decides what to work on, how users derive value from a company’s IP and how it translates to value creation determine its long term viability.

Thinking outside the box while working closely within the core requires executives to closely manage and shift the innovation pipeline. Listening carefully to the needs of users while progressively directing IP development and invention to support a well defined, sustainable value chain becomes ever-more critical in the dynamically shifting sands of the 21st century world of technology, software and Internet industries.

The Effective Corporate Blog

I hate the terms blogging and social media; these phrases just sound like a way to make your personal thoughts public and stay in touch with friends and family. But the value of social media in general and corporate blogs in particular is something you just can’t ignore these days. If you do, your competitors who understand the value of social media and having authentic conversations with their customer base.

Executive Sponsors in B2B Sales

Much has been written about the importance of executive sponsorship internally in overseeing the successful completion of IT Projects. But does your company have executive sponsors regularly involved externally in the sales cycle?

Having worked on both sides of the fence (Product Marketing and Sales as well as IT management), I have seen the importance of assigning executive sponsors to key/enterprise customer accounts.

Working as the Chief Information Officer and Vice President, Product for a mid-size marketing services firm I found the role refreshing and, often, eye-opening. Our CEO required each member of the senior management team to pair with sales executives on our top customer accounts. In this case, the executive sponsor role involved working on five accounts throughout the year, making calls on the customer with the assigned salesperson once a quarter. This was a role we accepted in addition to the typical executive duties of day-to-day customer service and operations. As a key part of each executive’s MBOs, performance and compensation were closely tied to fulfilling the assignment.

As an executive nothing gets you closer to the customer and the business than going on three-legged sales calls. Your sales staff gains confidence that management cares, the B2B sales cycle benefits from a top-down rather than the typical bottom-up sales approach and your most important customers see that management is truly engaged at all levels of your operation.

On the other side of the fence, as the customer, nothing is more frustrating than engaging with suppliers and business partners whose executives are rarely, if ever directly involved in the sales and service process. If the only way you can get the attention of a partner’s executive team is through escalation when things go sideways you begin to lose faith that you are a key customer or partner. But when you know that you have an assigned executive sponsor who calls on you regularly you are a lot less likely to consider switching suppliers.

Presenting with Impact

Presenting with Impact

When you think of presentations you’ve been to that really had an impact on you, what do you remember most? It probably wasn’t the Powerpoint slides. Powerpoint is a great tool, if used correctly. But too many people make the mistake of trying to let the slides speak for them, packing in so much content […]

Posted On: February 11, 2009
Posted In: Blog
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