Graduate: A phone to drive your car and match your outfit

Mobile phones are no longer what they seem. Roger Trapp on plans to provide us with a portable communication system for every mood and personality.

When the latest James Bond film, Tomorrow Never Dies, opens tomorrow, cinema-goers will no doubt be thrilled as the famous secret agent frolics with attractive women while dodging the attentions of the forces of evil. But they will also have a glimpse of the future of telecommunications, thanks to the involvement in the project of the Swedish company Ericsson.

The organisation is responsible for the "concept phone" which Bond uses to keep in touch with his latest love conquest, and which will also blow up safes, open doors, see around corners and even drive his car. Mats Lindoff, the company's research and development director, says the one- off product incorporates the sort of ideas that are normally screened out during the development process.

But, besides giving the company an opportunity to promote itself in what it sees as an appropriate setting, the Bond deal has a serious point. It shows how companies such as Ericsson are harnessing technology to include a range of features on a piece of equipment that is getting smaller all the time, and demonstrates how it is increasingly possible to segment the mobile phone market.

Half a billion people are expected to be using mobile phones world-wide by the turn of the century, and Ericsson was one of the first to realise the value of segmenting the market. Rather than attempting to come up with products that it hopes will suit everybody, it has begun to target particular sorts of users - from teenagers to busy executives - with different features, sizes and colours. One product enables the user - with a flick of the finger - to change the look of the phone and its colour to suit the occasion, whether that is lying on the beach or attending a formal banquet. Another - which will be launched in the UK early next year - allows people on the road to use their mobile phones to connect with a personal computer at home to send and collect e-mail as well as work on documents.

According to Mr Lindoff, who is in charge of the 100,000 strong company's development teams spread around the world, the future will see even more customisation. Advances in technology - particularly in voice recognition - will mean that the handsets will probably get smaller, while an increasing range of functions will be possible. But it is unlikely that everybody will want every feature, so there will, he says, be "products for different kinds of person", and they will choose them "based on their lifestyle".

As interest in mobile telecommunications has steadily risen in recent years, the innovation phenomenon of Ericsson and Nokia from neighbouring Finland has been much remarked upon. But to Mr Lindoff and his colleagues, the explanation is simple. With small domestic markets, they had to look abroad for a sustainable business - and in order to make an impact in such a highly competitive world as mobile telecommunications they had to ensure that they were at the cutting edge.

In so doing, they have lessons for many other businesses in the importance of innovation in today's business climate. Ericsson and Nokia do not merely have groups of clever people dreaming up technologies that will enable us to communicate more quickly and more effectively, using smaller equipment. They have also become adept at observing the behaviour of consumers so as to judge the sort of features they value and those they do not.

The more usual source of lessons in innovation, of course, is California's Silicon Valley. And Chris Meyer, an academic and consultant based in the area, describes, in his recently published book Relentless Growth, how the hi-tech companies there exhibit certain characteristics that can be transferred to other industries.

Prof Meyer is the Silicon Valley principal for Integral, a firm of consultants, founded by the Harvard academics Steve Wheelwright and Kim Clark, that has links with Ernst & Young, the Big Six accounting and consulting firm. And although, even at a time of enthusiasm for creativity and growth, there is a feeling among some managers that this can be dangerous stuff that is best left alone, he stresses that innovation can be successfully managed.

This is not to say that conventional management techniques will work in this sector; many will stifle rather than encourage creativity, he stresses. But he does believe that a model with five elements that he has developed will get organisations a long way there.

The first of his elements concerns leadership and management. Leadership typically involves giving people the space to think, while management tends to require what he calls a "loose-tight" format, whereby those responsible take a hands-off approach at certain times and then become closely involved at crucial points, whether these are breakthroughs, or the times when it is decided to call off a project. As Malcolm McKenzie, a colleague in E&Y's London office, points out, "Often, executives step in too late."

Second, he suggests there has to be some sort of strategic alignment, whereby innovation is managed "in aggregate", or as part of a portfolio of projects with varying degrees of risk. That is what the highly successful Silicon Valley venture capitalists do, says Prof Meyer, who adds that their skill is not just investing, "but knowing when to call it quits".

Third is process. Though innovation depends on people, process can also be a huge help in setting out the methods by which people can be most effective. Prof Meyer believes that such technological advances as the creation of intranets and other forms of communication are proving to be a substantial aid in encouraging co-operation and "supplying context".

The fourth element focuses on organisation and people. Prof Meyer acknowledges that innovative, creative employees can be difficult to deal with, but adds: "The way to herd cats is to find things for them to play with." In the case of people, this amounts to interesting or challenging work.

Prof Meyer's fifth element is his "personal passion": measurement. In most organisations, the measurement system is "if not bankrupt, close to it", he claims.

And the problem is not too few measures, but too many. Together they convince managers that they know much more than they really do. On the one hand, there is too much information and not enough room left for judgements; on the other, the problem is more to do with accountants' and other financial specialists' preoccupation with past performance. Most of what they know is history and - although the widespread discussion of "the balanced scorecard" is helping to shift the emphasis, very little is "known" about the future.

"There is a need to balance trying to achieve control with the realisation that if you control it firmly and tightly, you're probably not innovative," adds Prof Meyer.