Pitney Bowes Inc.World Headquarters1 Elmcroft RoadStamford, CT 06926-0700 USTelephone: 1-866-DOC-FLOWwww.pb.com/pivotalthoughts

Pivotal Thoughts is an ongoing publication of Pitney Bowes Inc. CorporateMarketing Department. Engineering the flow of communication, DM Seriesand IntelliLink are trademarks of Pitney Bowes Inc. All other trademarks,service marks or registered trademarks are owned by their respective companies. © 2004 Pitney Bowes Inc. All rights reserved. Printed in theUnited States of America. Created by Direct Ventures, Inc. (914) 833-9842.

How To foster and use innovation to gain a competitive edge

P i v o t a lI d e a s f o r c u s t o m e r - f o c u s e d s e n i o r e x e c u t i v e s

T H O U G H T S

Issue Two

Letter from the editor Two great limited-time offers, compliments of Pitney Bowes

As a subscriber to Pivotal Thoughts,

you’re invited to receive two fascinating

publications addressing innovation,

with our compliments.

2. Receive a free copy of The Innovator’s Solution:

Creating and Sustaining Successful Growth. It’s the

highly popular follow-up to the worldwide bestseller,

The Innovator’s Dilemma, by Harvard Business

School professor Clayton Christensen and his

colleague, Michael Raynor. The Innovator’s Solution

analyzes the strategies that allow corporations to

successfully grow new businesses and outpace the

competition. Available while supplies last.

To receive both of these publications, please visit

www.pb.com/pivotalthoughts

or call 1-866-DOC-FLOW today.

1. Receive a free copy of Pitney Bowes’

An Innovative Path to Innovation.

This engaging white paper by Jim Euchner,

Vice President, Advanced Technology &

Chief E-Business Officer explains why the

3-stage Pitney Bowes Innovation Pipeline

developed at the company’s AC&T Laboratory

succeeds so consistently.

co

nte

nts

8 The Pitney Bowes process

10 Beyond the Envelope

1 1 Innovation in the real world

12 Engineering the flow of communication

13 Two great offers from Pitney Bowes

1 Fostering and managing innovation

4 Why does innovation fail?

5 The crucial customer connection

6 Making the mail more intelligent

INNOVATION

AnInnovative

Pathto

13

Dear Colleague,

There was a time when innovation was a businessluxury, the province of companies with deep pockets

and expansive R&D labs. No more. With competitionheating up, and with digital technology encroaching

on nearly every facet of daily life, innovation is critical to the continued health of your business.

That is why we chose “fostering and managing innovation” as the topic for this issue of Pivotal

Thoughts. In our lead article, we pick the brain ofone of the world’s foremost authorities on business

innovation: Professor Clayton Christensen ofHarvard Business School. Supporting articles in thisissue explore why innovations succeed, why they fail,

and how they work. We also offer a peek at onePitney Bowes innovation that is poised to change the

way companies do business. Finally, be sure to seepage 13 for two free offers from Pitney Bowes.

I hope you find Pivotal Thoughts to be worthwhilereading, and I would like to hear your feedback. We

are currently assembling a Pivotal ThoughtsAdvisory Board, and would welcome your

participation, contributions, suggestions and ideasfor content. If you’re interested, please feel free

to e-mail me at pivotalthoughts@pb.com.

Sincerely,

MattMatthew L. Sawyer

Editor-in-Chief

PT: You’ve stated that successful innovations

often come from listening to non-customers.

Can you elaborate?

CC: Listening to customers is always important.

The real question is, which customer should you

listen to? A company has to listen to its customers

and give them what they need, because they pro-

vide the resources the company needs to survive.

So if you don’t listen to that set of customers, you’ll

die quickly. The issue is that new waves of

growth are always created when somebody listens

to a new set of customers who historically weren’t

in the market— people who didn’t have the money

or the skill to own and use a product. So listening

to non-customers, and figuring out why they aren’t

customers, is really a key to unleashing new

waves of growth.

PT: Can you cite an example?

CC: When I was just out of graduate school, if I

needed to compute, I took my punch cards to the

corporate mainframe center and gave them to a

computer scientist, who ran the job for me. It was

so inconvenient and expensive to rely on this

expert that we didn’t compute very much. Then,

when the personal computer was introduced, it

allowed the masses to begin computing in the

convenience of their homes and offices, without

having to be a computer scientist. PC technology

enabled people without much training to do very

sophisticated things. Now, we consume so much

more computing and we are so much better off.

And it was unlocked by companies listening to

people who were not computer operators, not their

traditional customers.

FOSTERING and Managing INNOVATIONOne-on-one with Professor Clayton Christensen of Harvard Business School

1

Renowned Harvard Business School

Professor Clayton Christensen has

earned international acclaim for his work and

teachings on business innovation. Widely

regarded as the world’s foremost authority on

using innovation to create new, disruptive

waves of business growth, he is one of the most

sought-after professionals on the business lecture

circuit and the author of two best-sellers,

The Innovator’s Dilemma and The Innovator’s

Solution. Recently, Pivotal Thoughts caught up

with Professor Christensen for a

one-on-one conversation.

2

PT: If listening is all it takes, why is it so

difficult for companies to innovate successfully?

CC: Sometimes it’s not just listening. When

customers have been using a product for a long

time, they understand why they need it and what

they’re trying to get done when they buy it.

Non-customers — people who haven’t been consum-

ing a product because they don’t have the money

or the skill — very often are getting a specific job

done in a difficult or unsatisfactory way. But they’re

unaware of the compromises they’re making. So,

rather than listen to them, you’ve just got to go

watch them, watch what they’re trying to get done.

By crawling inside people’s lives and watching

what they’re trying to accomplish, you can come

up with products that get the job done better.

PT: Isn’t innovation simply too unpredictable

to manage?

CC: Innovation is often perceived as being risky

and unpredictable. Many businesses believe

they’ve got to grit their teeth and say, “We’ll have to

let a thousand flowers bloom, and hopefully a

couple will be attractive, and we’ll pick those and

run with them.” Venture capital, for example, is

structured to deal with this randomness, so that

two out of every ten investments succeed. But the

reason innovation seems so random is that we just

haven’t understood the forces that act upon an

idea, act upon entrepreneurs, act upon compa-

nies. If we can gain a little clearer understanding of

what those forces are, then we can manage them

and achieve a greater degree of predictability.

PT: Is there a right time and

wrong time to attempt to create new waves

of business growth?

CC: New waves of growth have to begin while the

core business is healthy. If you wait until core busi-

ness growth has leveled off, and use that as a signal

that it’s time to start new growth, the new one won’t

get big enough fast enough to make a difference in

the overall top and bottom line. So you need to

invest in the next wave of growth when you don’t

need it. If you wait until you need the new growth,

it causes you to make costly missteps in starting

the new business.

PT: How does a company create

new waves of growth while keeping its

core business healthy?

CC: What it almost always requires is creating

a different organization, because you don’t want

to take your eye off the ball in the core business

in any way. There’s too much money to be made,

and too much at stake, to ask existing staff to do

something that’s not profitable. So you need to

have a different organization that can focus on the

new set of prospects who do not currently own or

use your products. Then create a cost structure

that allows you to energetically go after that new

set of customers.

PT: How does a company strike a

successful balance between

core and new business growth?

CC: By determining the total amount of capital

and expense money that it can spend in new

product development and acquisitions. They need

to set up a budget that says, “Every year, we’re

going to take x percent of our money and invest

it to create the next generations of growth, and

the other x percent of the money will focus on

keeping the core business healthy and competitive

and profitable.”

PT: Professor Christensen, thank you

for your time.

CC: A pleasure.

3

Why do so many new product innovations stum-

ble? A primary cause is that too many businesses

are looking for answers on a PC monitor.

“Some marketers enjoy the comfort of being in a

soft chair in their office with a computer, collecting

data about markets,” says innovation guru Clay

Christensen. “But data is only available along

certain lines, such as product category, price point,

customer demographics. And most companies

structure and segment their markets along the

lines for which they are available.”

That’s a mistake, because people don’t live their

lives by those metrics. Learning what customers

need or want, he says, often can’t be found on a

spreadsheet.

“It’s one thing to build a piece of equipment or a

piece of software,” says Matthew Kissner, Pitney

Bowes Executive Vice President and Group

President, Global Enterprise Solutions. “It’s a

whole other thing to learn about how it applies to

the jobs that customers need to get done, the

problems they need to solve. We spend a lot of

time looking at work flows, dynamically looking at

the problems that exist and how we can expand on

our technology to help customers do what they

need to do more effectively.”

If you build it, will they come?

The success of an innovation can be all about

timing. Sometimes a new product can outpace the

market’s need or desire for it. One example is IBM,

which invented the first computer disc drive in

1954. It wasn’t until the mid-1980s, when a

modular interface was developed between the disc

drive and the computer that the company’s disc

drive business took off. The market needed to

catch up with technology.

The converse is just as prevalent. The

marketplace may cry out for an innovation before

it’s been developed. It’s very easy to say that R&D

people should only tackle innovations that the

market is demanding. But the research and

development cycle often takes years…sometimes

even decades.

Things that go BUMP in the road:Why does innovation FAIL?

4

At Pitney Bowes, breakthrough product ideas often

begin by first taking the pulse of the

marketplace — connecting with and observing

customers, and non-customers, at work. How,

though, can that connection be established?

“It’s one thing to build a product, but it’s another

thing to learn about how it applies to the jobs that

customers need to get done, the problems they

need to solve,” says Matthew Kissner, Pitney

Bowes Executive Vice President and Group

President, Global Enterprise Solutions. “We spend

a lot of time looking at how we can expand on our

technology to help customers do what they need to

do more effectively. In many cases, that means

helping them manage their customer relationships

more effectively.”

In that way, the company is helping businesses to

establish connections to, and learn more about,

their customers. Pitney Bowes deals with some of

the world’s largest companies — all of which know

full well how difficult it is to acquire new customers.

So once a contact has been established, nurturing

it is critical.

“Many companies that we work with are saying to

us, ‘How can you help us build loyalty, build retention,

build cross-sell?’” says Kissner. “That’s what we

focus on: helping our customers build relationships

with their customers” to establish the long-term

connection needed to achieve Christensen’s goal

of “crawling inside customers’ lives.”

How are those connections achieved? One key

strategy at Pitney Bowes is to effectively engineer

the flow of communication across multiple channels.

Today, businesses may connect with customers —

and vice versa — via phone, the Internet, in-store, email

or postal mail. A company must create a consistent

customer experience across those channels,

building loyalty and cross-sell opportunities at

every touch point.

INNOVATING from the outside in:

The crucial customer CONNECTION

5

Making the mail moreINTELLIGENT

What if a business could turn every piece

of mail into an opportunity to enhance its

relationship with customers? One key innovation

initiative at Pitney Bowes is “intelligent

mailing technology” — the creation of value for

customers by combining information about the

mail with the business processes of a mailer.

Like nearly all Pitney Bowes innovations, the con-

cept of intelligent mailing technology grew from a

set of hypothetical business questions: What if an

organization could precisely track any piece of mail

it sends out and receives? What if it could know in

advance the exact date that customers will receive

their mailings, and coordinate follow-up efforts

accordingly? What if it could know for sure that a

customer’s remittance envelope is in the mail,

before receiving it?

Those are the questions that gave birth to intelli-

gent mailing technology, a tool that employs tracking

technology to give businesses precise information

about any mail piece.

“For outgoing mail, intelligent mailing technology

delivers detailed mailing information, such

as when a promotional mail package, invoice,

credit card or other mail will arrive at a customer

or prospect,” according to Jim Euchner, Vice

President, Advanced Technology and Chief

E -Business Officer at Pitney Bowes. “This allows

businesses to plan staffing requirements for

fulfillment or call center operations to provide

consistent levels of customer service. It also

ensures that they’re ready when mail arrives early,

so incoming orders aren’t missed.”

For incoming responses, intelligent mailing

technology can notify a business when customers

have mailed remitted payments, response order

cards, or submitted applications or requests for

more information. Professionals can know in

advance that a response is on its way — days

before the physical mail piece actually arrives.

6

Something for everyone

One reason that intelligent mailing technology is such an exciting concept is that it offers time and

cost-saving benefits to so many facets of an organization.

“Marketing, for example, can use it to take the guesswork out of when an offer will reach a

target audience, as well as when customers will respond to that offer,” says Euchner. “That

means they can evaluate the success of a campaign even before responses arrive —

and even improve their cross-selling initiatives for new services with follow-up to

monthly bills, policies and statements.”

Marketers can also cut costs on remail campaigns by suppressing known responders

or undeliverable mail, removing weeks of cycle time from the response analysis process.

Operations can know for sure if a customer’s remittance envelope really is

in the mail, before it arrives, and the date it was sent.That can prevent negative

customer experiences and improve customer retention, by avoiding unnec-

essary collection efforts, and by reducing the costs of dunning notices.

Finance, by knowing the date customers receive billing statements

and return their remittance envelopes, can minimize gaps in the

payment reconciliation process. Cash flow forecasting can be

improved by tracking remittances and expected arrival times in

payment processing.

Clearly, intelligent mailing technology is an idea that

can have an enormously positive impact on the way a

company does business. (That, after all, is precisely

the Pitney Bowes definition of innovation.) And

as usual, it all stemmed from two little words:

What if ?

7

SETTING INNOVATION IN MOTION

The Pitney Bowes Innovation Pipeline

The biggest challenge in product devel-

opment is to discover and meet needs

that customers have not yet voiced or

even recognized. It requires out-of-the-

box thinking to invent a category of

business-to-business products and

services. Too often, “can’t miss” innova-

tions from development labs fail to

achieve hoped-for results because

developers lack satisfactory ways to

take into account how customers may

perceive, use and value a new solution.

The Pitney Bowes Innovation Pipeline

was developed to meet this challenge.

CUSTOMER

RESULTSTECHNOLOGICAL

REFINEMENTCONCEPT

DEVELOPMENTCONCEPT

DEVELOPMENTTECHNOLOGICAL

REFINEMENTCUSTOMER

RESULTS

8

The pipeline begins in our Concept Studio, where

an eclectic mix of engineers, workplace

anthropologists, industrial designers, scientists

and line-of-business managers explore customer-

centric business challenges. Unlike traditional

product development groups, the Concept Studio

has as its first goal the identification of yet-to-be-

realized customer needs.

Our preferred methodology for discovering those

needs, workplace anthropology, is also non-

traditional. Pitney Bowes employees travel to

customer locations to observe people doing their

jobs. Concept Studio members can work alongside

customers to better understand the rhyme and

reason of what they are doing. A benefit of this

collaboration is often the discovery of solutions that

can be effectively implemented to solve real-world

business challenges.

Customers who collaborate with Pitney Bowes

begin to benefit almost immediately as unrecognized

bottlenecks, inefficiencies and non-standard

procedures are identified and documented.

Meanwhile, the Concept Studio analyzes information

and brainstorms for solutions that address

identified customer needs. The most interesting

ideas are quickly mocked up into “concept

prototypes” — low-fidelity models such as story-

boards, foam blocks or HTML pages that communicate

key aspects of the imagined product or service.

STAGE ONE:

CONCEPT DEVELOPMENT

realized, and whether there are technical hurdles

that need to be overcome to realize the vision.

It is at this stage that the “technical DNA” of the

organization expresses itself. Here, we draw on

world-class expertise in secure systems, physics,

printing and tagging technologies and advanced

software to build a working model of the solution.

Our goal is to build just enough to test critical

aspects of the product or service.

The System Lab drives the Innovation Pipeline that

feeds our engineering and product development

groups which take skeletal (but proven) solutions

from working prototypes to live products and services

for delivery to the global enterprise marketplace.

Since it was established in 2001, the Pitney Bowes

Innovation Pipeline has created a stream of world-

class solutions — from records management to

safe mail solutions — that increase the effectiveness

and efficiency of mission critical enterprise applica-

tions and improve customer employee productivity.

STAGE TWO:

TECHNOLOGICAL REFINEMENT

STAGE THREE:

CUSTOMER RESULTS

Once a compelling value proposition has been

discovered and a final concept prototype

developed, it is tested in the real world with real

customers. Our Systems Lab builds working

models of the new solutions which can be trialed

(and even co-developed) with customers. The

purpose is to understand how the concept works in

practice, whether anticipated benefits are actually

For a more in-depth look at the Pitney Bowes

Innovation Pipeline, its workings, and the real-

world solutions it has yielded, we invite you to

request a copy of “An Innovative Path to

Innovation”, an engaging white paper by Jim

Euchner, Vice President, Advanced Technology

and Chief E-Business Officer at Pitney Bowes.

See page 13 for details.

Take the deep dive

9

e n v e l o p eAn ongoing series of events for senior-level executives

Consumers are tired of irrelevant, unwelcome

email and junk mail. The business and legislative

landscapes have responded with SPAM and Do-

Not-Call safeguards. How are leading marketers

meeting this new business challenge?

“Marketing Has The Right to NOT Remain Silent”

is a new white paper from Pitney Bowes and the

Peppers & Rogers Group management consulting

firm. It illustrates how the best companies are

meeting today’s communication challenges. The

white paper is so popular that it will be transformed

into an informative Webinar. With insights and per-

spectives from top executives across multiple

industries, the Webinar will offer definitive strate-

gies for how a business can achieve an optimum

marketing mix based on the value of its customers

and their distinct marketing preferences. It will be

a must for top marketing executives competing in

a changing business environment.

B E Y O N D T H E

THE RIGHT TO NOT REMAIN SILENT

Webinar from Peppers & Rogers

INNOVATION AT WORK Clay Christensen Webcast

How are growth companies born? And how do they keep growing? In a live webcast, renowned

Harvard professor Clayton Christensen presented “Innovation at Work: Creating and sustaining

successful growth”. According to Christensen, among the most important things an innovation-

focused business can do is listen to its customers and non-customers.

MANAGING GLOBAL DIVERSITY

CEO roundtable

Diversity has become a key to managing a

business and dealing with employees, suppliers,

customers and communities. Yet, it eludes many

U.S. companies. What are the right and wrong

ways to manage diversity? What role does diversity

play in business today? These critical questions

were addressed at a fascinating CEO roundtable

discussion on March 30 at the prestigious “21

Club” in New York City. Co-sponsored by Pitney

Bowes and Chief Executive magazine, “How Do

Best Practice Companies Manage Global

Diversity?” attracted more than 100 of business’s

most revered chief executives.

It’s fitting that Pitney Bowes co-sponsored the

event. We were recently named America’s most

diversity-conscious company by Diversity Inc.

magazine. And we look forward to continuing our

commitment to and leadership in this vital area

of business.

Pitney Bowes “Beyond the Envelope” events bring

together senior-level executives with America’s busi-

ness thought leaders to explore today’s most timely

business topics. Here are some recent and upcoming

events. To learn more about these and other Beyond the

Envelope events, log on to www.pb.com/executiveview.

10

eBay,® the World’s Online Marketplace,® turned to

Pitney Bowes and the U.S. Postal Service for a solution

to make shipping easier. The result: a superior online

postage application that integrates Pitney Bowes’ flexi-

ble Web-based Internet postage technology with the

PayPal® electronic payment system. Now eBay ® offers

users a virtual mailroom. Sellers can pay for postage,

print labels, track packages from their desktops, and —

with free Carrier Pickup from the U.S. Postal Service —

send packages without stepping outside.

CURING AROYAL PAIN

CLICK ITAND SHIP IT

INNOVATION IN THE REAL WORLD:

RIBA uses

advanced

Pitney Bowes

technologies

to expedite

its mailings

The Royal Institute of British Architects (RIBA) needed

a way to keep more than 1,500 pieces of mail flowing

daily for its 32,000 professionals. But simply updating

postal accounts was taking several hours. Pitney

Bowes stepped in, with DM SeriesTM Digital Mailing

System with IntelliLinkTM technology that allows RIBA to

obtain value-added services on an easy-to-use com-

mand screen. The system can feed, seal and affix

postage to envelopes at up to 260 pieces a minute.

With Pitney Bowes’ help, RIBA’s entire mailing can be

done in a fraction of the time.

eBay ® speeds

e-commerce

with Internet

postage

technology

Two stories from the front line

11

C O M M U N I C AT I O N

Pitney Bowes

t h e f l o w o fENGINEERING

Pitney Bowes is a world leader

in integrated mail and document

management, working with nearly all

the FORTUNE 500 companies, developing

processes and technologies for cost

efficiency, security enhancement and

improved customer communications.

By engineering the flow of communications, we

provide solutions to two of the most important

challenges facing management today: how to cut costs

and boost productivity inside the organization, and how

to grow revenue outside it. To these ends, we offer unique

capabilities for engineering the processes, technologies and financing

that help business-critical communication flow more efficiently within the

organization — and work more effectively outside it.

Linking paper to digital formats, mail and transactional documents to

customer response and relationships, our solutions continue to impact

higher and higher value processes in the communication chain.

Helping companies simplify and manage their complex mail and document

processes, Pitney Bowes can reduce costs, increase impact and enhance customer

relationships. More than 80 years of technology leadership have produced many

major innovations in the mail and document industry, as well as more than 3,500

active patents with applications in a variety of markets, including financial services,

government, manufacturing, printing and marketing.

12

Letter from the editor Two great limited-time offers, compliments of Pitney Bowes

As a subscriber to Pivotal Thoughts,

you’re invited to receive two fascinating

publications addressing innovation,

with our compliments.

2. Receive a free copy of The Innovator’s Solution:

Creating and Sustaining Successful Growth. It’s the

highly popular follow-up to the worldwide bestseller,

The Innovator’s Dilemma, by Harvard Business

School professor Clayton Christensen and his

colleague, Michael Raynor. The Innovator’s Solution

analyzes the strategies that allow corporations to

successfully grow new businesses and outpace the

competition. Available while supplies last.

To receive both of these publications, please visit

www.pb.com/pivotalthoughts

or call 1-866-DOC-FLOW today.

1. Receive a free copy of Pitney Bowes’

An Innovative Path to Innovation.

This engaging white paper by Jim Euchner,

Vice President, Advanced Technology &

Chief E-Business Officer explains why the

3-stage Pitney Bowes Innovation Pipeline

developed at the company’s AC&T Laboratory

succeeds so consistently.

co

nte

nts

8 The Pitney Bowes process

10 Beyond the Envelope

1 1 Innovation in the real world

12 Engineering the flow of communication

13 Two great offers from Pitney Bowes

1 Fostering and managing innovation

4 Why does innovation fail?

5 The crucial customer connection

6 Making the mail more intelligent

INNOVATION

AnInnovative

Pathto

13

Dear Colleague,

There was a time when innovation was a businessluxury, the province of companies with deep pockets

and expansive R&D labs. No more. With competitionheating up, and with digital technology encroaching

on nearly every facet of daily life, innovation is critical to the continued health of your business.

That is why we chose “fostering and managing innovation” as the topic for this issue of Pivotal

Thoughts. In our lead article, we pick the brain ofone of the world’s foremost authorities on business

innovation: Professor Clayton Christensen ofHarvard Business School. Supporting articles in thisissue explore why innovations succeed, why they fail,

and how they work. We also offer a peek at onePitney Bowes innovation that is poised to change the

way companies do business. Finally, be sure to seepage 13 for two free offers from Pitney Bowes.

I hope you find Pivotal Thoughts to be worthwhilereading, and I would like to hear your feedback. We

are currently assembling a Pivotal ThoughtsAdvisory Board, and would welcome your

participation, contributions, suggestions and ideasfor content. If you’re interested, please feel free

to e-mail me at pivotalthoughts@pb.com.

Sincerely,

MattMatthew L. Sawyer

Editor-in-Chief

Pitney Bowes Inc.World Headquarters1 Elmcroft RoadStamford, CT 06926-0700 USTelephone: 1-866-DOC-FLOWwww.pb.com/pivotalthoughts

Pivotal Thoughts is an ongoing publication of Pitney Bowes Inc. CorporateMarketing Department. Engineering the flow of communication, DM Seriesand IntelliLink are trademarks of Pitney Bowes Inc. All other trademarks,service marks or registered trademarks are owned by their respective companies. © 2004 Pitney Bowes Inc. All rights reserved. Printed in theUnited States of America. Created by Direct Ventures, Inc. (914) 833-9842.

How To foster and use innovation to gain a competitive edge

P i v o t a lI d e a s f o r c u s t o m e r - f o c u s e d s e n i o r e x e c u t i v e s

T H O U G H T S

Issue Two