Yesterday, as I was reading an article on portfolio management in my issue of HBR, important news (to some) was announced: Palm has cancelled the release of the Foleo—it’s ultra-mobile laptop solution. I can’t speak for all, but as a fairly mobile person and a writer, I find the idea of ultra-portable devices with good keyboards (!) very alluring, and don’t care so much about performance and app-support. On a side-note, I am currently looking at the Dana Wireless as a similar solution.

The Foleo has of course been met with much scepticism by the (consumer-)media; it’s not quite a laptop and not quite a mobile phone. It was announced around the hype of the iPhone. Palm’s own line of mobiles and handhelds are not meeting the bar for innovation. And there was this whole discussion around the $100-laptop, which was not very well-perceived either (though still more favourable than the Foleo). We are in very turbulent times as far as the mobile platform is concerned, and perhaps it was simply a bad time to launch. It probably also didn’t help that the iPhone outsold every smartphone on the US-market in July and is about to launch in Europe (I won’t go into last night’s shocking announcement of a $200 price-drop!).

Porfolio-management, as outlined in the HBR-issue, works on three horizons, which develop in parallel. The first is the day-to-day management of products; you think in quarters and focus on current competitive factors. The third is the innovative activities of a firm, much lab-development, nothing in commercial income. The second brings it all together. HBR calls this phase the “equivalence of adolescence” in business. Innovations are put in a commercial path and are expected to become self-sufficient product-lines, hopefully sooner than later.

Of course this is not easy. You have to manage horizon 1, make sure that cash-flow happens. And you have to manage horizon 3, make sure that there are innovations in the future. However, what if these two don’t connect? Horizon 1 staff is busy fighting off the competition, and also more motivated by the instant gratification from the market. And horizon 3 is all excited about their lab-work, their Foleo if you will, but can not present a viable business-model for it. So you bring the Foleo into the second horizon, and dedicate staff to launching it. But at the same time the pressure on horizon 1, the market, is increasing. Customers are demanding better Treo’s and the competition is fierce. And on horizon 3, the innovation-platform is far from stable either, as the technology is changing rapidly. And horizon 2 gets neglected, staff perhaps diverted to horizon 1 to help manage the day-to-day, and to horizon 3, to develop new tech. Etc. etc.

I imagine that this is a plausible scenario for Palm’s current fiasco. The question is of course how to do this better? Many companies don’t actually manage this process very well, and that is how disruptive innovation can gain a foothold into a market. An example is VOIP. AT&T had internet-telephony on it’s third horizon for a while, but never actually managed to bring it to horizon 2, until it was too late and competitors like Skype and soon Ooma, (which I’m very excited about) launched.

Some solutions mentioned in the article are:

• Insulate businesses, not products: by turning your horizon 2 product-lines into a complete enterprise, with dedicated management, sales staff, and technology support, you prevent individual leakages to horizon 1. Another way of looking at this is corporate venturing; creating a spin-off dedicated to commercially viable innovations and spinning them back in when they are ready for prime-time.
• Use acquisitions to bridge the periods that there are no horizon 2 products and the horizon 3 “labs” still need time: as Jeremy oulined in his last post, this clearly works for Oracle. By doing this, you again ensure a culture of dedicating resources to long-term growth, not only the short-term.
• Recognise that your portfolio 2 products may be niche for a while: The Foleo is clearly a niche-product, but can grow into a magnificent platform over time. But expecting it to immediately gain mass can be fatal to the limited capabilities of portfolio 2 “start-ups.”
• Dedicate talented leaders to horizon 2: New business developers are a class apart, entrepreneurs with a corporate mindset. Parent-companies can be quite generous with funding, but stingy with putting the right man or woman in charge.
• Blocking resource-migration between horizons: I think this should be carefully evaluated and there will be many adaptions on a per-project basis until this process works well. Nevertheless you cannot expect a horizon 2 product to succeed, if you’re constantly pulling resources away from it to deal with horizon 1 & 3 concerns.

Clearly this represents an interesting paradigm for any company to view their life-cycle in. One implication is that executing well on all three levels can decrease the sole dependance on market-share, which many (large) companies are pushing for, but which also makes them lax in their drive to innovate, and which is also no longer as legally acceptable as it once was.

It is hard to say what exactly happened with Palm’s Foleo. Was it a case of scientific over-excitement, which does not guarantee commercial viability? Was it a result of competitive pressures? Or are there more exciting technologies on the horizon? From their blog-post, they make it appear like the latter is the reason, but of course we’ll never know the entire truth.

I imagine the Foleo II has been pushed back to horizon 3, and hope that they can find synergies between their diverse product-lines. Like Apple is now pushing OSX down to its mobile line-up, Palm should do the same. But of course they need to have a good operating system in the first place to do so, and a somewhat stable hardware-platform to build upon. All in all, I feel a little sorry for Palm but am still rooting for it to succeed, as it is a sympathetic company and more competition hopefully leads to better products all-round.

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