Buddy, I'm going to ask you question that I haven't prepared you for. Normally, I show you some of these questions in advance, but this one I've gotta ask you this and it just occurred to me. The model for innovation is done through R&D, research and development centers. Big companies have really smart engineers and scientists and they put them in an installation. A drug company I know had 6,000 bright people working in their R&D center, and they try to come up with innovative products. 75% of a modern economy is services, not products. And service innovation, it seems to me, is a bit of a different ball game. And the reason is that the ecosystem in a service innovation is the innovation. Take a bank for example. A service innovation is how you serve your customers. That's done by the people in the branches, the operating people, by the operational people. So to create service innovation, I don't think it works to create an insulated R&D center. You need to open an experimental branch with real customers and you need to kind of practice your innovative service on the people. So you were dealing with product innovation, but in a sense it was also service innovation because the product created valuable services. So how do we do service innovation, especially when innovators are developing products and their real value is the services they create, not the product itself? The smartphone, its real value, its real value is not this. It's what it does for us, right? So, how do we do service innovation that's based on an operational ecosystem? >> I am not sure it's any different. For me, a service or a product or a technology, or it could be a new painting or a sculpture is all about doing something different than before. And it's something that serves the audience in a new way that people will be excited to use it. And you could go on with all kind of services. You mentioned cellular phone. Is it a product, is it a service? For people, it's a service. You could either go make a phone call. You could do anywhere you want rather than finding the payphone that you never found and it's always broken when you need it. It's a service, it comes with a product, so you could think that the innovation here is the service that you could use, you make your phone call anywhere, anywhere you want. The product innovation about the technology, the sales, all that, it's a new technology to develop is to develop a service. So what's the innovation, the product? Yes, it was innovative, but what's the ecosystem and what's the product? Everyone could take it in a different manner. You could think about people trying to sell today, banking services like loans on the Internet. It is a service. People try and think, put them out. Some of them fail, some of them succeed. And you do that, it's the same rule. You do something, you do it differentiated. You rely on an ecosystem. In this case, today the ecosystem has smart phones and Internet anywhere you want. And people could do banking services, was any company they want in any way they want. The innovation is the service. The ecosystem they use is an existing ecosystem, in some cases, they need new partners to get it better. But it's how you use an ecosystem, how you build it and how you create a service on an existing ecosystem which is better. And if it doesn't exist then what has to get done to make it happen? >> So just to sum up, we're talking about strategy, strategy can be really complicated. In the end, it's rather simple. Something it's different, it's unique, ten times better than what exists and it transforms the marketplace. Some management experts have talked about blue oceans, meaning you don't compete with other companies. You make them irrelevant because you have something so radically new. It's so much better than what exists, you're the only game in town. You're sailing your little sailboat on a blue ocean because there's nobody else around for miles. >> The critical aspect of an ecosystem for innovation is the ability of people to use it out of the box. Ideally, you have an innovation that resides on an existing ecosystem. That's wonderful because people could use it and you don't have to invest in anything, the other extreme that people want to create a completely new ecosystem. Motorola with Iridium trying to send satellites, eventually it failed. It was billions of dollars had to be invested before anyone could even use the product. In most of the cases, you have to take on things on the ecosystem and you have to find the products to build it. And you have to find the minimal change in an ecosystem which is usually very costly and very complex. That will enable people to use new products in a differential manner than it was before. >> So for example, buddy, FedEx which is an ecosystem. Aircraft that mostly fly at night, a big hub in Memphis, trucks that deliver, communication system, GPS, so you know exactly where the package is, what road, when it's going to be delivered, really complicated ecosystem, and every, every piece is crucial. If you're missing one piece, the system doesn't work. Think it out in advance, make sure that all the pieces are in place. >> And you want to control the critical ones, in whatever the ecosystem delivers in a good way just rely on it. >> You do the critical parts, you can outsource the parts that aren't critical. The mission critical parts you better control because your fate depends on it.
