GUILLERMO WECHSLER

Introduction to Google Ranking

Amit Singhal gives a simple explanation of the "information retrieval" principles at Google. It is a corporate blog available for people like you and me.

Keynote Addresses from UC Berkeley's Health Care Conference

Streaming videos of a couple of the keynotes are now available from the HAAS Health Care Conference I went to in February.

Mary Ann Thode, President of Kaiser Foundation Health Plan and Hospitals (KFHP/KFH) for the Northern California Region, assesses there are three major challenges of the health care industry: affordability, access, and quality of care. She thinks those problems can be addressed by three essential elements: integration of all of the different parts of the health care industry, the information technology systems that would support that integration, and an increased role of non-profits.

J Carl Craft, Chief Scientific Officer of Medicines for Malaria Venture, speaks on the impact of malaria in the world and how they are developing several low-cost drugs to combat it.

Services for Multividuals vs Services for Individuals (or Part of Them)

In working for various service and manufacturing organizations, I noticed a pattern in marketing approaches. Often, the marketing strategy was narrowly focused on conquering some part of the "customer's" nervous system: the bank focused on "wallet share", the cold meat food manufacturing in "fridge space share", and obviously the colas on "the fluid intake share". This style of marketing saw the customer through a very narrow and instrumental lense.

That perspective didn't seem interesting for me. And I saw a big opportunity in better understanding the world of the person and building a communication strategy, a service strategy, and a product strategy that was able to recognize and be sensitive to the dynamic of the self of the customer. The original proposal that I was working with was for the marketing department of AstraZeneca in Mexico City that was willing to launch a new cancer drug.

They were dealing with a physician as if the physician were a homogenous individual with needs. What they didn't realize was that just being a physician was being a conflicting network of role identities that even the physicians were unaware of. Physicians play, at the same time, the roles of: the healer, the hospital employee, a self-employed entrepreneur, an experimental scientist, a political activist, among others. Each of these roles have a different structure of concerns, ethical values, moral norms, and instrumental goals that produce interesting tensions and possibilities for change and innovation when you are able to map them, make them explicit, and recognize interesting "user-generated" bridging practices already invented by spontaneous collaboration. While the healer wants more time to listen to a person in pain, the employee wants to perform out of the hospital's standards of efficiency -- "bed usage" or referral rates. And the entrepreneur wants to maximize economic value. All these conversations do not fit together easily. Of course, the set of role identities that I just mentioned is very narrow; but it is a lot bigger than thinking about physicians as those that prescribe your drugs.

A marketing that supports the exhausting task of focalizing people's identities is very valuable. Making sense of the vast number of role identities in the modern world is an enormous task, and is not a task we are trained for dealing with. And, basically, we are quite oblivious to the amount of stress and waste that comes out of not being sensitive to this.

I made a flash presentation for illustrating the approach. I plan to have it up on my site soon and will update you when it is available.

Project VRM's blog

Project VRM, a Berkman Center group, just launched its blog. Take a look. They are designing and supporting the development of tools which allow customers to both be independent of, and engaged with, the vendor. This movement was started at least several months ago, and I became aware of it from this post on Doc Searl's blog.

"Give Us Linux!"

Dell asked “its market” how it could improve its value to customers and there was just one resounding voice: give us open source software, and invest in developing it. Take a look at this interesting BusinessWeek article.

An Update: On Doc Searl's weblog, he mentions Glyn Moody's proposal for Dell to set up an independent business unit for GNU/Linux development. You can check out the proposal at Dell's Digg-style site, IdeaStorm.

Software as Services

Everything is about services. Products are mere service platforms. Good products are ready-to-hand capacities, without the associated risks, logistics issues and maintenance of the "thing". Take a look at this post: I Love Software as a Service.

Universal Health Care: A New Business Paradigm?

I recently went to a discussion on Universal Health Care.

Ronald Preston, Former Secretary of Health and Human Services in Massachusetts, brought that sharp humor that evaporated the romanticism which can be dangerous when you are trying to overcome real problems. He warned people not to think that universal coverage was only a humanitarian initiative to make health accessible to people. He also said that, essentially, this initiative is trying to save an industry that is in an acute crisis with an explosive mix of rising costs, over-capacity, and decreasing quality. In summary, he said that more insurance may help to keep this expensive industry alive. That's why we need more people inside the system. On the opposite end, Ruth Liu, Associate Secretary for Health Policy in California, glamorized the human side of Schwarzenegger's proposal.

The complexity of the challenge looks overwhelming with the variety of concerns and the different actors. What nobody in the forum seems to tackle is how poring more resources into the system that has already produced the negative results we are seeing is going to produce a different system than the one we have. The predominant service design principles underlying the discussion seem to be that health care needs to be managed top-down by the insurance companies, health care providers, and HMOs, keeping the government and politicians as the arbitrators of this complex system. I asked many of the participants, including Mary Ann Thode, President of Kaiser Northern California Region, and Ronald Preston, about the Teisberg/Porter approach on redefining health care by empowering the patient to make health conditions life-cycle value-based decisions in transparent, open markets with homogeneous quality measures and by ubiquitous access to medical records. Olmstead & Porter built their proposal from radically different theoretical design principles. Unfortunately, their book and their approach wasn't known, even though, after a short conversation I discovered that some speakers of the forum were sympathetic to it.

Although interesting, this universal health care debate lacked a radical new perspective able to simplify the overwhelming complexity of a highly regulated, hierarchical and opaque system.

Scaling Innovation in Biotech

The Berkeley HAAS School of Business did very interesting work at their annual Business of Health Care Conference. In one day, they pass you through a variety of interesting topics, with super speakers on the future of biotech, VCs and innovations in healthcare, healthcare policy, IT or HCP strategies for improving health, as well as a panel on universal health care, which opened a discussion about Schwarzenegger's health proposal. Dr. Craig Parker, head of Biotechnology Equity Research at Lehman Brothers conducted an interesting conversation with Suzy Jones from Genentech, Erik Bjerkholt from Sunesis Pharmaceuticals, Ajay Bansal from Tercica, and Mark McDade from PDL BioPharma, on the topics of scalability of innovation. He framed the discussion with simple questions: What is innovation? How do your companies promote innovation? How can we measure innovation?

Overall, the obvious consensus was that innovation is any new offer that increases value to patients. So innovation can come from basic science, improved business models, or new services, but the test unvariably will be differential value-added to customer. The other interesting consensus is that the biotech industry is already a mature industry. This means that there isn't much room for disruptive changes. Only innovative products will drive growth and revenue. So the challenge for the biotech companies will be to expand product and service innovations with shorter life-cycles of development and more efficient processes. Producing innovation with an efficient operating model becomes a key issue.

Perspectives on Innovation

Dr. Parker pointed out that, after reviewing the industry, he discovered that the innovations per employee are significantly lower in biotech companies that have grown based in acquisitions in comparison to biotech companies that have grown organically. A key example of this is Genentech.

Suzy Jones' story about Genentech was simple and powerful. She said “We're innovative because we know how to partner with scientists, the academic community, and with other interesting small companies doing good research. We are just starting our Genentech Fund to promote interesting research with our network of partners. There are a few design principles that are relevant to expand these collaborations:

• First, Genentech is not willing to buy patents and then to dispose of the scientists' teams that produced them. Genentech is recognized as a respectful partner willing to enhance good research and good scientists' teams.


• Second, Genentech is very reluctant to establish formal processes that can rigidify relations between institutions and produce contractual straight-jackets in relations and conversations that should remain vital and creative.

The model has paid off. They invariably receive the first call of their partners informing them about potential interesting ventures. High quality networking, based in what Yochai Benkler could articulate as the best traditions of collaborative production, has been leveraged by this not-too-young company which has this unusual mix of scientists in top business positions.

Another angle was brought by Erik Bjerkholt, who plays in a smaller company. One of the points that caught my attention is that he is trying to build a business model in which he can leverage expertise in the basic components of the biotech business by building global partnerships. One of the strengths of his company is a manufacturing facility that, instead of being coupled with the research department and headquarters like in Genentech's South San Francisco facilities, is being built in India where they have an extremely talented and vigorous partner. So, he brought up the subject of decentralization, major partnerships, and focalized innovations. His approach has resemblances to Michael Dell's early discovery that the computer industry was mature, that vertical integration is a dangerous liability, and that the horizontal, flexible organization of the supply chain was a fundamental dimension of a new business model.

Ajay Bansal and Mark McDade somehow reinforced Erik's perspective in the sense that they made two or three important assessments. One is that the opportunities for them are not in basic research but in discovering niches in the industries in which they can develop innovations that enhance treatments or services that were created by the big players of the industry, or in co-investing or buying patents from the big players that have been postponed by strategic priorities in the portfolios of the major players.

The charismatic Kevin Young from Gilead Sciences, a keynote speaker of the event, added a new perspective, claiming that in order to keep Gilead's super performance and innovation, the company should focus on leading the social networks that support their business, and adjust their research, products, and services as much as they need to to increase value to the customer. They are actively involved with a wide variety of constiuencies promoting price reductions based in scaled market needs, payment capacities, and aggressive prevention. One example he gave was an HIV program in the prison system -- requiring tests upon entrance and exit from the jail -- which puts some responsibility on the prisons to prevent the spread. Another example he gave was they opened up an operation in Turkey to prevent Hepatitis B. Young claims that innovating to promote change in practices in vast social networks is a fundamental capacity.

I left that discussion with a feeling that the spirit of science and academics, which fueled the emergence of the collaborative culture of the Internet, is also renewing critical dimensions of our health care industry.

On Dell: The American Company Able to Emulate TPS...and Beyond?

Michael Dell founded his company in 1984, after following a natural path that started with an innocuous practice of upgrading and enhancing his own computer and - more often - his friends' computers. Soon after that techno-social activity, and almost without noticing it, he was receiving requests from friends-of-their-friends. Even more interesting, he was pricing his upgrading services with good margins, and subcontracting other hackers to deliver his services. Thousands of guys like him were doing the same thing in high schools and university campuses all over America. Many had the intuition that scaling the business was worthwhile. But only Dell built Dell.

I. The Relevance of Spotting Emerging Practices

In the middle of dealing with the practicality of satisfying his customers, Michael Dell conceived of an original Business Model for his industry, and persevered in designing and adjusting the Operating Model to make it increasingly valuable: Building Products to Order, Selling Directly to Customers, and Enhancing Customer Experience. Almost 14 years later, he had a $12 billion company. Today, he has a $50 billion revenue company, valued in $100 billion.

At the time he was starting, in 1984, the PCs were in the market for more than ten years. The Internet was thriving - although circumscribed to a few universities - out of the talent and vigor of governmental and academic communities. The core of the Information Technology centered around connectivity, LANs, proprietary systems, and communication. California was plagued with Toyota cars, and many companies were asking “just-in-what?”. The “Reengineering Process” business fashion, announced by Hammer & Champy's book, “Reengineering the Corporation: A Manifesto for Business Revolution” was not even imagined; it was preceded by Dell's practices by at least a decade.

II. Conceiving the Space for Design

Dell was familiarized enough with the historical inadequacies of his overly vertically integrated industry - and maybe with the Toyota Production System (TPS) - to be intolerant of coordination waste or inventories. He was also aware enough with IT -networks to be opened to add layers of intermediaries in his supply chain. Consequently, he conceived of his Virtual Integration business model.

Michael Dell's articulation was powerful and simple. It was something like this: "I am thriving in a young industry in which early generation of companies - IBM, DEC, Compaq - were obliged to produce a wide variety of the components of their own products. That is not the case any more. Today, there are dozens of innovative and efficient suppliers of any component required to build a high quality/high value-to-customer PC. What should I do? Compete with them? Or work with them?" The answer to these questions came later in a HBR interview: “We concluded that we are better off leveraging the investments others have made and focusing on delivering solutions and systems to customers.” Beyond that, he spotted a debilitating inertia in his early-generation competitors. He called them “engineering-centric” companies, leaning heavily toward the “we-have-to-develop-every-thing” culture/mentality.

Human beings - as experienced industrial designers claim- relate with artifacts in four ways: they conceive, design, produce, and use objects. The Virtual Integration business model of Dell is powerfully anchored to each phase of this product life cycle.

The structural relation between Supplier-Manufacturer-Customer is supported by a robust architecture of Data Linkages that increases coordination speed, monitors critical value measures, and allows early warnings in quality issues or market opportunities. Virtual Integration produces less variability, less inventory, lower cost, and lower risks. In terms of scalability and growth, the model is appealingly more efficient than the traditional vertically integrated competitors.

III. Design Principles

Kevin Rollins, Dell's CEO, has played a key role in furthering the company's developments and implementing a solid Operating Model. In a certain way, he has been the guy thinking and articulating what Michael Dell is about, and transforming the sensitivities of an individual into sensitivities embodied in a vast and rich network of business practices. He credits Dell's achievements in years of obsessive care for impeccable execution in delivering value to customers, plus some strategic and management principles. Among them are:

• Do not invest in Defensive R&D.


• Do not set standards in patent offices, but in the marketplace.


• Not delivering promised value to customer is bad; Not saying that you are failing and not asking help is very bad; Hiding your problems is unforgivable.


• Use technology to leverage collaboration and allow people to work together.


• Build as few partnerships as you can, and keep them as long as they are leading their markets.


• Focus only on what delivers real value to customer experience.

Simple and powerful. They “hammer” these principles into their peoples' heads. However, they don't take these questions lightly, they are already thinking about what “hammering” is about, and how it is connected with human phenomenon. In other words, how they can improve the speed at which they affect their vendors' and suppliers' mindsets, and how they can increase the speed at which they are affected by others.

Very cool company. In its 2005 fiscal report to the board, Michael Dell said, “We're proud of both what we're accomplishing and how it's being done.” Not only that, they are active in shaping what they call “global citizenship”. Very ambitious guys, putting themselves in the middle of historically crucial problems.

A New Perspective on Health Care Challenges

My experiences in the health care industry are limited. I helped a market research group for AstraZeneca to develop a strategy for a new cancer drug (I learned a lot about what happens in markets with sharp asymmetric information -between patients, patients' families, drug producers, physicians, health providers...-and with highly fragmented, conflicting, and largely denied role identity struggles in physicians' professional environment).

I also worked with AstraZeneca to deliver a proposal to develop a Multicultural Marketing Capability able to develop customized services and drugs for different ethnicities with distinctive patterns of health conditions. And there was a project to improve some product development practices at Genentech, alongside a few other projects with health providers.

Health care industry is a captivating place to spend professional energy. It produces simultaneously incredibly value and astonishing waste, visionary ethical leaders and opportunistic mercenaries, social recognition and social criticism. It is the space in which the discourses of science, medicine, engineering and business compete in leading to a better future. But as happens in any conversation, the wrong framing can produce bad consequences.

Many months (years?) ago, I read a HBR article by Michael Porter and Elizabeth Olmsted Teisberg, published as a book in 2006, “Redefining Health Care.” They made a magnificent contribution to understand the “framing” problem in thinking about the health industry. Simple and powerful. They made a thorough diagnosis of what they characterize as a wrong structure of competition in the industry (zero-sum competition) and they proposed a set of design principles that could shape a space in which new valuable service practices could thrive. I strongly recommend the book and will be happy to engage in conversations about it. The starting point of good service design is achieving a rich articulation of the underlying anomalies producing the mess, declaring a set of design principles to create the adequate orientation and language, and conceiving a new possible reality that unsettles current complacency. They did all of that.