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Big, Bold Goals – the Innovation Imperative

AUTHOR: Deborah Tarrant   DATE: 02.09.05   ISSUE 2, 2005

Over the next 10 years, as the world harnesses the power of 'intelligent processors' and the Internet, innovation will bring far greater changes to the way we communicate and collaborate, the way information is stored, shared and analysed and how we are entertained.

“Innovation touches all aspects of a business: the way it sells, markets, communicates and reacts to its customers.”
Illustration: Gregory Baldwin

Consequently, understanding how to drive innovation strategy has become imperative for every business leader in every industry, Ballmer told a combined audience of 300 MBA students from AGSM and MGSM in Sydney earlier this year.

In a speech with the wide-ranging theme of Innovation with Impact, Ballmer sought to broaden thinking about innovation in business beyond the obvious – creating the next new product. Innovation is the lifeline, the source of competitive advantage and of growth in every business, said Ballmer. It touches all aspects of a business; the way it sells, markets, communicates and reaches its customers. No matter how well a business may be doing at any particular time, a fast-changing world brings persistent pressure to keep changing and improving.

"Understanding how to drive innovation strategy has become imperative for every business leader."

Technology is enabling organizational innovation; allowing businesses to focus on core functions by outsourcing, creating mobile workforces with greater customer focus, and flattening hierarchies due to the freer flow of information.

From the unique vantage point of leading the globally pre-eminent software supplier, Ballmer – who joined Microsoft 30 years ago at the behest of his university friend, Bill Gates – has had much time to consider how to stimulate and manage the pace of innovation ­as businesses increasingly demand more from technology.

"Innovation is the lifeline, the source of competitive advantage and of growth in every business." Steve Ballmer, CEO Microsoft Corporation

Bringing on the new has a particular significance in the software industry, says Ballmer, where the product “never gets used up and never wears out”. “The only reason anybody ever buys anything new from us is because they like the innovation we bring.” As a result, Microsoft spends US$6 billion dollars on R & D and files for 3,000 patents annually.

Another innovation driver is Moore’s Law, which essentially holds that computing will get twice as powerful at the same price every year and a half.

To address the constant need for fresh ideas and reinvention, Microsoft has created a corporate cycle of innovation. Key to being a growth leader is signing up to big, bold goals and establishing a committed, high-growth culture. Ballmer says the cycle starts with a mission and a set of dreams. “Challenging yourself and your people with dreams is an important concept behind innovation.”

While the core value of the information technology industry is “the power of enablement”, Microsoft’s mission is to bring people and businesses throughout the world the ability to realise their full potential.

In that context, the company has separate groups specifically charged with the responsibility to “have dreams” about information, communication, and the entertainment experience, and a group that dreams of “how to make life simpler and easier for people who are responsible for taking care of information technology projects in corporations.”

“Challenging yourself and your people with dreams is an important concept behind innovation.”

The popular theory that dreaming detracts from execution is only true up to a point, says Ballmer. “If you don’t dream at all, you’re not going to have anything interesting to execute on,” he argues – and the dreams of Microsoft employees overlay a solid company-wide commitment to engineering excellence.

Bold goals and dreams sound exciting, but innovation alone is not enough. An important part of the process is more passive, listening to the customer, and adapting your innovations based on customer feedback.

“Many technology companies go bankrupt pursuing visions that were never tuned to respond to feedback and market understanding,” says Ballmer.

It’s a question of balance, though. “Customers want to be listened to, but they also respond to leadership, excitement, something new,” he says.

Australia, where Microsoft currently has 500-plus employees, is a good place to invest in innovation because it has high levels of intellectual property (IP) protection, Ballmer claims, citing Microsoft’s research partnerships with National ICT Australia and several universities. At the same time, he issues some cautionary words about risking IP in emerging markets. However, emerging markets, like China, India and Brazil, also present new opportunities to innovate and build products that may have to meet different economic and affordability characteristics than required in Australia, the US or Europe.

Seeing the future

Ballmer says he’s “bullish” on what the next 10 years will bring in terms of IT innovation. He reflected on the big shifts of the past decade to provide examples of the extent of possible change by recalling that in 1995, most people didn’t have a mobile phone or a PC, and most did not know what the Internet was, let alone understand the concept of bandwidth.

Incredible untapped potential exists, predicts Ballmer, as microprocessors go into smaller, cheaper, lower-power, high performance devices.

Only five years ago, all the hype was around how the Internet would change banking and retail, but the industries which will be most profoundly affected are software, media and electronic information, financial services and telecommunications — industries whose products can be physically distributed via the Internet.

The media and entertainment industries, in particular, are facing radical change, which Ballmer suggests will play out in four main areas:

The arrival of entirely electronic media

Paper media (including books) and standard television and radio as we know them today will definitely not be in existence in 20-25 years, says Ballmer, who claims this is not the prediction of “a random technologist flaunting his stuff” but a “sincere belief that the technology can be engineered to make the electronic experience superior to the paper experience.”

The increasing interactivity of video entertainment

Video on demand is on the way. As Ballmer describes it: you’re going to be able to talk to your friends or colleagues and have them join you in watching the show online or with your remote at your television set where, like any other Internet-based experience, you’ll be able to share, communicate, collaborate, buy, and move in and out of the experience.

A growth in the number of media providers

Blogs are not media in the traditional sense but they are media in the sense that people spend time reading them when they could be doing something else, Ballmer points out. While media sources will continue to proliferate, this does not indicate the demise of the big media companies. Ballmer believes they’ll adjust to the new reality.

The evolution of advertising

Advertising is sold today in “a very sort of brute force way”, says Ballmer. “You guess how many people are going to watch a bunch of shows based upon what happened last year and what the line-up looks like and you pay a lot of money.”

Today’s traditional media business will be replaced by a few big electronic market places that sell and deliver ads. In future, advertising will be much more market-focused and advertisers will bid on a certain kind of audience. The transaction will be computed and delivered in real time.