Innovation Matters

Innovation is a pillar of Toshiba's comeback plan. The one-time laptop leader lost its way in B2B sales while it gorged on commercial revenue. Now, it is looking to recapture its prominence by offering technical innovation and features that present users with a clear advantage over discount competitors, such as Acer, Dell and emerging "whitebooks."

In Toshiba's case, innovation is taking the form of reinforced, shock-resistant bodies, optimized battery use, greater mobility capabilities and higher integration with the operating system. Cost will continue to be a factor, but Toshiba is only willing to discount enough to be competitive. Value through premium performance and features, it bets, will entice customers to buy up rather than just snap up the cheapest box.

"If you want to sell $700 notebooks, you're not going to do it with Toshiba," says Richard Vaughn, Toshiba's director of reseller sales.

Toshiba's marketing mantra is almost a carbon copy of Asian rival Lenovo. One year after it acquired IBM's ThinkPad division, the emerging Chinese computing goliath has set its sights on dominating the global PC and laptop market within the next five years. Its internal battle cry: "Innovation That Matters."

"Customers and customer satisfaction are the most important metrics," says Deepak Advani, Lenovo's chief marketing officer. "When you have maniacal focus on serving customers, revenue, customers and growth follow."

Vendors bandy about the term "innovation," using it as a key differentiator for their products and services. In this game, the company that is more innovative--or simply perceived as being more innovative--is likely to capture the hearts and minds of partners and end users alike.

The pitfall vendors need to avoid, which Lenovo and Toshiba both point out, is innovating for innovation's sake. In other words, adding products, technologies and features that do little to advance the state of the art, but sound cool on product specs and marketing slicks.

Solution providers appreciate innovation--when it works. Addressing the complex IT problems of their customers requires solution providers to seek out vendors that offer the most innovative products and collaborate with other VARs that know how to leverage innovation to create systems.

What drives solution providers crazy, they say, are vendors that press innovation into service without fully vetting the technology, pull support before partners can recoup their investments, or call something innovative when it's little more than refurbished, polished-up existing technology.

"We need to differentiate between progress and change," says Terry Cronin, Toshiba's director of marketing. "Some of these things that are going on out there that will end up dying are really just change, not progress. Customers face real issues, and we need to be addressing those, what their real issues are and what they're trying to accomplish."

Solution providers are also looking for innovative technologies, products and methodologies that will open new business opportunities, either by giving them something new to sell, adding a product that is uniquely positioned for new markets, complementing their existing product lines or filling holes in their portfolios (see "Seeking Innovation," left). In this feature, VARBusiness will identify those technologies deemed most innovative by solution providers, based on the VARBusiness 2005 State of Innovation survey of VARs. We will also examine the need for technical innovation, what innovation means in practical terms, and what solution providers want--and don't want--in the innovations developed by their vendors.

What's Hot

Looking ahead to the next 12 months, VARs surveyed hailed Voice over IP (VoIP) as the top technology breakthrough for their businesses. More than one-third of solution providers cited VoIP as a hot solutions area for them, while significant numbers also identified wireless application development, Web services/SOA and composite applications, and home digital technologies as new frontiers for them in 2006 (see "VoIP Leads the Pack," page 32).

Nate Griffin, CEO at Stormwood, considers himself something of a risk-taker. In 2001, before VoIP was considered fashionable, he embraced the technology as a way to branch beyond his established network-infrastructure business. At the time, he saw VoIP as the innovation of the future. Today, VoIP is by far the fastest-growing part of his company's sales.

"We are seeing demand everywhere," Griffin explained, noting that during Y2K, businesses went nuts buying new phones to potentially avoid the predicted date-related meltdown. With that five-year business-appreciation cycle running out now, companies are looking to either IP-enable their existing phone switches or build a totally new VoIP solution.

"Most are opting for the totally new solution," Griffin said.

The big risk with engaging customers in VoIP is that they have zero tolerance for downtime, given how traditional phones work--dial tone, and that's it. To take on VoIP, you need the latest and greatest technologies to ensure that reliability. Griffin's firm partners with ShoreTel for its VoIP products, and is able to provide top-to-bottom implementation.

Innovate With a Plan

When it comes to innovation, it's not always something completely new.

"Innovation is where invention intersects with insight and value," says Jim Rise, Xerox's vice president of office printer development. "Today, the fertile ground is around integration."

Firewalls, Web browsers and wireless NICs and Flash memory were once innovative technologies that facilitated new business opportunities and solved real-world problems. Over time, vendors and VARs started putting together these technologies with other complementary technologies to create new "innovative" solutions. Firewalls combined with signature-based scanners became proactive intrusion-prevention systems. Web browsers integrated with operating systems and business applications became Internet-enabled software suites that are available at any time, from anywhere. And wireless NICs merged with various local- and wide-area network services enabled greater mobile computing.

"Anyone could have imagined tying cellphones with GPS technology," says Gregor Freund, outgoing CTO of Check Point Software Technologies and founder of Zone Labs. "A lot of innovation isn't just coming up with a new piece of technology, but building the right balance of packaging and environment."

In many cases, innovation is as simple as a new business plan for marketing technology. In the old days, when the greatest desktop threat was diskettes infected with boot-sector viruses, the antidote was a reactive program that sought out and eradicated the malicious code. Over time, antivirus vendors developed scanners that evolved from on-demand, client-based remediation to real-time, network-based scanning of both client-bound traffic and the client's hard drive.

Some argue that the Apple iPod, praised for its innovative technology, is little more than existing technology that's packaged to support the online music business the computer company acquired. Once Apple bought iTunes, it needed a convenient and easy device that users would embrace for their portable tunes. The iPod--comprising Flash memory, a power source, an easy-to-use interface and compact form-factor--was pieced together with existing technology to become the perfect replacement to portable cassette and CD players.

"Innovation just from a technology perspective is not enough," Freund says. "The iPod is really not that technologically innovative; it's the business model combined with its form-factor that makes the iPod unique."

First Rule: Solve a Problem

The newest whiz-bang gizmo may look great in a catalog or at a trade-show booth, but innovation doesn't mean much unless it's the right price--especially on the lower end of the market.

LCD monitors are commonplace nowadays. Sleek, attractive, space- and energy-efficient, they were a godsend compared with the old, bulky CRTs. Innovative, yes. Pricey? Absolutely. The first units cost well above the $800 mark, far too expensive for small businesses and the solution providers who sold to them.

"LCDs were one innovation that really helped us, but only after the price came down below $400," says Michael Seip Sr., business development manager at Ledet Computer Consulting in Easton, Pa.

Ledet is a four-person shop that primarily services local and county government agencies, law firms and local manufacturers. Its services business carries the bulk of the revenue, providing break/fix consulting and upgrade planning and implementation. When Seip and his team go looking for new products, the latest bells and whistles are the last thing on their checklist.

"When we see a new product, we try to figure out how it will fit in the small business and how we will make it fit with our customers," Seip says.

Solving real customer problems and pain-points should be the foundation, the inspiration for innovation. Sometimes this goes beyond the standard ROI equation because new technology should be something customers can find intrinsic value.

"Innovation isn't just about technology. It's about social-technical issues, business models and all of those things. We should be giving it much broader thought than we're giving it today," says Jeffrey Kruelen, a senior manager of services-oriented technologies at IBM, whose team is leading research on IBM's Business Insight Workbench and On-Demand Innovation Services. "Innovation is the invention of the next new thing and putting it together with expertise to solve problems."

There's Risk In Anything New

Solution providers complain that vendors are quick to push shiny, new boxes and feature-rich applications, but are equally quick to pull their support if those innovations aren't marketplace hits. That, of course, leaves many VARs and integrators--especially small shops--stuck supporting products they've sold to customers that vendors no longer recognize.

In fact, solution providers have a relatively low tolerance for risk. While many VARs are willing to adopt new technology to complement existing product lines or fill needs, most expect a relatively quick ROI (see "Return On Investment: Expectations vs. Tolerance," left). If they don't achieve ROI quickly, solution providers will likely move to more profitable product sets.

Vendors say that risk is part of the innovation process. Soliciting customer and solution-provider feedback on product and technology needs, market studies, focus groups and beta tests contribute to product and technology development. However, true innovation doesn't emerge as a solution until it's married with a business process that addresses specific needs. Vendors that are pushing innovative technologies and products that are commingled with a business plan are the ones most likely to survive the full R&D, early-adopter and broad-deployment life cycle.

"There's more value being put on fundamental research, and most companies believe they have to be very practical and pragmatic on integrating solutions that meet today's needs," says Satya Nadella, corporate vice president of business solutions at Microsoft. "Real breakthrough is in model-driven development, and we won't break the paradigm [of innovation failure] if we invest in technology that only works tomorrow."

In other words, vendors must engage in continual technology development. The innovation's initial output may be the foundation of a product or process that will improve over time. Or it will adapt and evolve to address more business challenges. And, in many cases, that means vendors working with their channel partners to resolve product problems and advance the state of the art.

Additionally, some vendors see their channel partners evolving alongside innovation. As technologies, products and services change, so, too, will solution providers' business models and product offerings. Technology advancements may mean new opportunities for VARs, who can offer valued-added services to new product lines. Likewise, innovation may push channel providers out of certain businesses, such as software sales, and into services, such as managing networks and professional training and support.

But what about the risk of technology not making it in the marketplace, leaving solution providers holding the bag? Vendors admit that innovation does come with a risk, and that risk could hurt partners--particularly smaller VARs. However, high-risk innovation that works also comes with big rewards. Assessing what risks to take and balancing business portfolios is the challenge, vendors say.

"Vendors can bring technology to market in a variety of form-factors these days, but a key part of their mission obviously also has to be providing support for the technology," says Kenneth Schneider, chief security architect at Symantec.

Innovation Makes a Difference

Vendors use innovation to set themselves apart from competitors, especially in commoditized technologies, such as networking, storage and display technologies. Solution providers see innovation as a means for expanding business and revenue.

According to the State of Innovation survey, more than three-quarters of solution providers say they rely on innovation to grow their businesses. If they see innovative technology, VARs will add vendor and products, partner with complementary solution providers to solve customer partners, and hire sales and support personnel to penetrate new markets.

The lesson: Vendors that fail to innovate will miss opportunities. "If you're not pushing a lot of innovation into product lines, you're going to lose to competition," Symantec's Schneider says.