Here, Innovation Is No Fluke

Fluke Corp. has a formula for continuous growth -- 100 days plus $100,000 equals winning new products.

Al Carlson, an engineering manager with Fluke Corp., never considered network technicians high-priority customers -- until he and a team of colleagues spent some time with them. The harried technicians worked long days solving problems for people who couldn't print their documents, access a server, or make an Internet connection. But their biggest headache was that there was no easy way to assess whether a problem related to hardware, software, or cabling. What the technicians desperately needed -- and what no company provided -- was a handheld electronic tool that could automatically identify trouble spots. Carlson, 54, and his team of engineers advised Fluke to make one.

That was five years ago when Fluke, based in Everett, Washington, was a $270 million company. Today network tools are the fastest growing division of a $430 million operation. The division's products identify network problems at hundreds of large companies such as Cisco Systems.

Not surprisingly, Fluke has sent out eight more teams to watch how customers work, to analyze the problems they face, and to turn those insights into new businesses -- fast. Indeed, these so-called "Phoenix teams" have become the defining feature of how this innovative company keeps innovating. Teams get 100 days and $100,000 to generate rough proposals for new business opportunities. They spend another 100 days preparing a refined business plan for their best proposal. If the business plan is solid, senior executives green light the launch.

"Before we came up with this process," says Joe Martins, 53, the program's architect, "we had a system to define new products. What we wanted was a method to find new business opportunities. We called it Phoenix because we wanted to create something from nothing."

It's working. Fluke, which manufactures a range of electronic testing devices, is introducing twelve major new products per year, up from three per year in the late 1980s. And new products (three years old or less) now account for 40% of total revenues. Faster innovation means faster growth, higher profits -- and a soaring stock price. Fluke shares, which traded around $22 in 1994, now trade just below $50.

Fluke's model of innovation has its roots in a companywide change program. Bill Parzybok, a former Hewlett-Packard vice president, took over as Fluke's CEO in 1991. Parzybok, 55, declared the company's mission to be the market leader in portable electronic testing tools for professionals. The Phoenix program was designed to turn that mission into a reality.

The first three teams -- nicknamed Calvin, Hobbes, and the Imagineers -- took shape in January 1992. Each team included a total of six people from engineering, marketing, and finance. And each generated different results. The Imagineers focused narrowly on products rather than markets, and their plans went nowhere. Hobbes identified opportunities in process industries like paper and pharmaceuticals and generated real (if unspectacular) dollars. Calvin hit a home run.

Led by Carlson, the Calvin team had developed a business plan focused on local area networks by July. By December it launched its first product -- a tool to test network cables, a modified version of which still leads the market. "We were looking for a vacuum where customers had urgent, pressing needs and a real absence of solutions," says Carlson.

Ultimately, the Phoenix program is a tough-minded approach to the open-ended challenge of innovation. Four principles shape the model. First, people should live with customers rather than study them from a distance. "No network manager wants to say the network has problems,"

Carlson recalls. "That's like admitting defeat. So instead of interviewing technicians, we had to walk around with them, to get down in the trenches with the people doing the job."

Second, Phoenix teams value curiosity over expertise. Indeed, team members are selected for their lack of knowledge about the markets they're researching; Fluke believes experts are often less creative than novices.

Fluke's third principle of innovation is absolute focus. Each Phoenix team makes a full-time commitment to its assignment, and team members even station themselves in "war rooms" to avoid distractions.

The final principle is independence. Just as Carlson's team began to understand the opportunities in network maintenance, another company, Forte Networks, showed the team its own handheld product. Carlson's team immediately began discussing an alliance in which Fluke would own exclusive marketing rights and let Forte manufacture the device. By the time the team presented its business plan to top executives, the alliance was already under way.

Joe Martins, who continues to play a leadership role in the Phoenix process, understands that not every team will replicate the success of the Calvin team. But the creative process itself brings its own success. "You have to create a nonjudgmental, nonthreatening environment," Martins says. "No matter what comes out of a Phoenix team, the result is positive. The only real failure is failing to be creative."

Visit Fluke on the Web: http://www.fluke.com . For more information on Phoenix teams, email Joe Martins jsm@tc.fluke.com .

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