Innovation (whatever that is[1]) has become the Mecca for modern business. In today’s turbulent environment everyone is looking for that new idea or product, that innovation, which will give them an edge. Nowhere is this more obvious than the crowded market places for smartphones and mobile applications, where crowds of companies compete to become the next iPhone, Angry Birds or FarmVille. It’s hard to stand out in a crowded market and you need something unique, something innovative to grab the public’s attention.

In their quest for the next big (innovative) thing, management teams engage innovation consultancies, create innovation functions and programmes, and hire the hot new skills which claim to be the next source of innovation. (Yesterday it was portfolio management; today, Design Thinking, next some are claiming that it’s the skills provided by a liberal arts degree.) The hope it that a tangible investment will result in an intangible outcome, as if innovation is something that can be standardised and transformed into a repeatable process. None of these approaches work reliably.

Innovation, of course, extends to more than casual games and mobile phones. Apple seems to have established a track record for innovation across a number of sectors, Amazon has proved itself to be a lot more than a simple web retailer, while 3M has a long history of bringing interesting products to market (PostIt notes, Scotchguard, Goretex…). We’re also seeing success at the bottom end of the market, where companies such as Kogan[2] are finding new (innovative) was to products to waiting customers at a price point radically lower than traditional bricks and mortar retailers.

At the individual level we find the innovator situated in a broader context. The questing of Pablo Picasso, Jimi Hendrix, Laurie Anderson and Miles Davis was woven into and built apon ideas that they found around them as they tried to make sense of the world. Picasso’s desire to draw a picture showing all sides of the subject once built on Cézanne’s abstract shapes and resulted in cubism. Miles Davis wanted to bring the some of the soul from Sly Stone’s work into the world of Jazz, and created fusion and Bitches’ Brew in the process. New work – innovation – is created by cultural accretion, as the artisan pulls in tools, techniques and ideas from the community around them as they search for the best way to express their aspirations. The innovator’s role is to provide the focus, the drive to realise a new idea, that enables these previously disparit threads together. The context that enables them to do this is the culture, the thick soup of ideas that that’s been simmering for generations.

Picasso's Femme en pleurs (1937)

The common thread running through innovators — both businesses and individuals — is cultural. They approach the problem of innovation obliquely, if they approach it at all. Jon Ives, for example, is on record as claiming that Apple “just makes products that we would love to own ourselves”. Innovation is not something discovered, rather than something intentionally designed. “I’ll play it first, and tell you what it is later”, as Miles Davis said. Rather than invest in innovation functions and processes, or hire innovation gurus, and striving to be innovative, they are focused on solving problems. Tools, techniques and skills (such as Design Thinking) are pulled in as needed to solve a problem, instead of being implemented in the hope that they will instil innovation in whatever we’re doing. Sometimes the focus, the drive to realise a new idea, comes from the top-down, as in Apple’s case. Other times it works bottom-up, as with 3M’s more organic approach to innovation that allows individuals to vote with their feet.

Whether organic or structured, innovation is the result of two things. First is a rich and diverse cultural soup full of the ideas and skills that the innovator can draw on. A culture that values the learning and investigation needed to constantly enrich the soup, and one that extends beyond the wall of the organisation or individual to draw on, and appropriate, ideas an needed.

Jim Jarmusch on biting

Second is the imperative, the desire, to follow through on an idea, to realise an idea or find a more elegant solution to a problem. Sometimes is means providing the time and space to develop and idea, but often it means proving constraints to drive the creative process. These constraints might involve time and money, forcing a team to solve a problem faster or more cheaply than a conventional approach would allow. Or the constraints might be written into the requirements, such as Steve Job’s desire to eliminate all but one button to create a more elegant solution.

The failure of many efforts to instil innovation into existing organisations is that they focus on the tools, and forget that innovation is the result of a culture more than it is a process. Without the drive to try something new, and permission to pull in the ideas and tools are most valuable, any investment in innovation will just result in little more than a bright flash followed by silence. Innovation is not something you can buy. It’s the result of the organisational culture you have create, and culture is the hardest thing to change.

References

1. What is innovation? @ PEG↑
2. Kogan↑

1. Knowledge Workers in the British Raj
2. Problems and the people who solve them
3. Working in Hollywood
4. World of Warcraft in the workplace
5. The future of (knowledge) work
6. BPM over promised and under delivered
7. The north-south divide
8. Cloud computing’s long game
9. Your mobile phone is making us stupid
10. Have we reached peak SI?

Happy New Year all!

Find the blurb below, and to can grab the complete text from the iBookstore or Lulu (epub) (Amazon is in the pipeline).

Outsourcing in an increasingly complex world

by Peter Evans-Greenwood

Pressure on margins is driving organizations to increasingly rationalize and externalize supporting functions as they search for more efficient and flexible delivery approaches.

Most common approaches to outsourcing center on establishing target service levels and a unit cost, treating the negotiation of an outsourcing engagement in a similar fashion to the procurement of other materials that the business needs.

Outsourcing, however, is becoming more complicated as we move functions closer to the heart of the business into the hands of partners and suppliers. This represents a shift from an approach based on paying invoices for the raw materials we need to run the business, to one based on delegating core, business-critical functions to suppliers, and then requiring them to deliver the outcomes that we need.

Crafting a successful outsourcing engagement in this environment requires us to align the supplier’s incentives, and therefore their objectives, with the client’s business drivers. It’s not enough to take a piecemeal approach, imposing additional requirements and constraints in the hope that these will shape supplier behaviour.

It’s a truism that what gets measured is what gets done; outsourcing is no different. Existing approaches to crafting outsourcing agreements attempt to shape supplier behavior by imposing large and inconsistent sets of requirements, with the result that both parties search for loopholes in an attempt to optimize their position.

A successful contract will be based on the customer’s business drivers, aligning supplier incentives with them to ensure that the agreement drives the right behaviors

We used to engage in a shopping mission, a quest to find the goods we need to solve problems that we know we have. This was a journey that would bring us into contact with quirky in-store marketing displays designed to influence our purchasing decision. Product companies tried to build brand awareness, hoping to create a spark of recognition that, when you found yourselves standing in front of the shelves, would tilt you toward selecting their product over the others. Will be it Heinz tomato sauce? The store’s home brand? Or something gourmet from a boutique manufacturer. Merchants worked hard to ensure that they had the best selection of products they could find – the brands that would pull the customers into their store rather then those of the competition.

Standing before the grocery shelf or clothes rack, we would sort through the brands on offer, trying to find the one that we though to be the best value. This roughly translates into selecting the best quality that we could afford. The only products and information at our disposal was what the retailer chose to present us with, unless we were willing to trudge over to another shop so that we could we see what products it had on offer (and what it was willing to tell us about them). The result was usually a compromise: we’d select the best product we could see in front of us, knowing that it was probably neither the cheapest we might find if we kept searching, nor would it be the best we could find. Finding a better solution to our problem – that pair of jeans with a nicer fit, or the tomato sauce with just a hint of something interesting – was too hard.

The world has changed a lot since then. Firstly, globalisation means that it is now possible to reach around the global, conducting an extensive search for the cheapest, or the best (at the most competitive price). This is as simple as typing a few words into Google or visiting you favourite comparison shopping site. Secondly, quality is a solved problem. Twenty years ago that store brand ice-cream or tomato sauce, or the no-name t-shirt, were obviously inferior to the brand name product. Twenty years is a long time, and manufacturing’s relentless focus on quality management over that time means the cheapest product in the market is virtually indistinguishable from the brand names. They were probably even made in the same ingredients or components in the same factory by the same people.

Consumers no longer need to compromise. With little difference between products and the ability to source them from around the globe, many consumers opt for the cheapest they can find from the global market. Nor are consumers who are willing to pay a premium restricted to selecting from the products on offer locally, reaching around the globe find to the exact product they want at the best possible price.

“Price comparisons would be between first and second, or fourth and fifth. What we’re seeing now is a consumer who shops either on price, or on quality – the number one premium, or the retail price point. All the middle brands have gone.”

Sue Morphet, CEO PacBrands[1]

The balance of power has shifted from retailer to consumer, and the shopping mission is collateral damage. A consumer standing in front of the gaggle of tomato sauces offered by a merchant now has enough information to make an informed decision, and a brand means nothing unless it offers something unique. Consumers are buying the cheapest product, or they are buying the most interesting product (to them). The mass-market brands we grew up with, those labels we trusted because they were reliable, are being demolished, caught in a no man’s land between cheap and premium[2].

An avid reader wanting a specific book will source it from an online retailer such as Amazon or Book Depository who can offer lower prices and a larger selection, delivered direct to the front door. The time poor professional at the supermarket will often simply pick the cheapest bottle of tomato sauce they can see in front of them, knowing that it will be as good as any of the other. That teenager interested in those green sneakers with black skulls will try on their friends for size and then use an comparison shopping site on the Internet to find the best deal globally. Now that the consumer is in control, and they have the information and services they need at the tip of their smart phone, they are becoming much more impulsive with their approach to buying the goods they want.

The cost of finding the goods and services has plummeted, and consumers are responding by taking a much more opportunistic approach to purchasing. Rather engaging in a search to find goods we need, we’re deciding to buy them impulsively once a need is recognised. Consumers are building relationships with organisations that provide the premium products they desire, or who can be relied on to provide them with the lowest cost items that can be found. Purchases are made opportunistically, built on the shared social connection that has already been established. Customers skip across channels – both real and virtual – learning more about the company’s products and how they can help them. Eventually they realise that there is something they would like, and purchasing is now simply a matter of acknowledging their desire. They might purchase a TV from a company known for bringing cheap but innovative electronics to market, one more focused on putting all the features the customers want into one box, rather than trying to up sell and cross sell. It might be an expensive meal at a restaurant, triggered by the knowledge that a table had just become free for that night. It could the milk man offering to drop off some veg and a steak with the morning milk and bread, guaranteed to arrive before you leave for work. Or it might be that premium computer or tablet with that carefully designed case that you were playing with at your friend’s house.

Retail is reconfiguring, splitting into the cheapest and the best, with a gap appearing the middle. Apple, for example, seems to be the only consumer IT brand still experiencing robust growth and profits[3], with the majority of PC manufactures struggling to pull slim margins from a declining market. At the other end of the market, Kogan Technologies is rapidly building a profitable business[4] around a low cost, direct to consumer model founded on using a community of low cost manufacturers to rapidly create cheap but functional products target at specific consumer needs. Harvey Norman, a traditional bricks-and-morter retailer, is seeing revenue fall and profits slump[5].

The new generation of companies – the Apples and Kogans, the Zaras and the explosion of boutique fashion houses – are playing to our new tendency to buy impulsively. They build relationships with their customers, allowing them to skip across channels without purchasing, to reduce the resistance to transacting when the time comes. They avoid sales and regular discounting so tht there’s no reason to hold off a purchase. Some, such as Betabrands, are turning this art into a science, using our desire to be seen as original and our tendency to want to grab bargains when we stumble across them to overcome our reluctance to buy something we can’t touch and feel and accelerate their sales cycle[6].

A chasm is opening up under the traditional mass-market brands, brands that rely on the shopping mission, while companies which can establish themselves at one of the two ends of the spectrum are seeing robust growth. Companies caught in the middle, companies built around the traditional shopping mission are seeing their margins decline and revenues fall, unable to compete. The shopping mission is dying, and it appears that many companies might die with it.

Update:

• Deloitte have a nice report which puts some numbers to the trend, Demand for In-Store Deals has Diminished, Shoppers Expect Discounted Prices.
• Heinz appear to be trapped in the middle.

References

1. Speech at the Australian Institute of Company Directors lunch in Brisbane, May 26, 2011.↑
2. Eli Greenbla (Aug 30, 2011), Heinz cans Coles, Woolworths, The Sydney Morning Herald↑
3. Charles Arthur (July 2011), Apple profits up 124% year-on-year after record iPhone sales, The Guardian↑
4. Neha Kale (August 2011), Kogan Technologies reports 100% increase in revenue, PowerRetail↑
5. Anhar Khanbhai, Harvey Norman profits fall 20%, Connected Australia↑
6. Amy Wallace (October 2010), Whimsy (and clothes) for sale, The New York Times↑

Predictions for the continued growth of the SI market are based on the understanding that companies are consuming more IT today than they were yesterday, and the assumption that increased IT consumption will result in tidy profits for SIs. Predictions are a funny things though, based as they are on historical trends. Guess that the market will continue to rise when you’re in the midst of a bull market and you’ll be right, most of the time. That is until something happens, something you didn’t anticipate, something that catches you unawares. The assumption that SI revenue is tied to IT consumption might no longer be true. New tools such as SaaS and cloud computing are enabling line-of-business leaders to step around the traditional IT department and engage with technology directly, bypassing the SIs traditional relationships in IT and providing them with fewer opportunities to sell their wares. At the same time the shift from on-premises to on-demand solutions – solutions which the business is happy to rent rather than own – is slashing the effort required to install, configure and integrate these new solutions, often by as much as seventy to eighty percent. On-demand solutions also have much lighter support needs relying on self-help wikis, users forums and power users, leaving the SI with little more than a small help desk to manage. With only limited access to this new class of IT buyer, dramatically smaller projects, and lower support revenue, the SIs role as IT enabler seems to be in decline. All good things come to an end though, and you usually only realise that the end has come after it has already passed. IT consumption might be going up, but there’s a good chance that SI revenue could soon be going down at the same time.

SIs are fundamentally sandwich shops[1]. When we don’t have the time or money to maintain our own kitchen or make our own sandwiches it can be more efficient to head over to the local sandwich shop to pick up what we need. Their margins are thin and revenue is largely tied to the size of the sandwich you just bought, so they’d really like you to buy a larger and more expensive sandwich. (Notice how sandwiches have grown so much bigger over the years, and everything is now gourmet?) And, of course, pre-made sandwiches are always a lot cheaper than special orders. This sandwich shop model is something that was established early on in the history of business IT. How else could companies afford to access the rare (and expensive) IT skills they needed to create all the systems they need? This might be a payroll system, or stock management, sales pipeline reporting, or the dreaded enterprise resource planning (ERP). Consuming IT used to mean hiring an SI to build and integrate something for you.

The world has changed since then. Back when I started in the industry my home computer couldn’t hold a candle to the beast I was given at work. Today, however, my shiny new 17″ MacBook Pro makes the locked down Windows XP laptops I’m offered seem like a bit of a joke. A new breed of business manager has crept into the business while the world has changed, these are people who grew up with technology and are comfortable solving their technology problems on their own. They know that there are alternatives to the expensive solutions proposed by the IT department (solutions that IT will engage an SI to deliver), and they’re happy to use these alternatives. Why spend a seven figure sum and wait a year for the IT department’s perfect, enterprise-wide project portfolio management solution when there’s one that is good enough, one you can buy on-demand via a company credit card, and one which you know will be up and running in a couple of weeks? We might argue about the regret cost[2], but the art of business is to make a timely decision and then make it work; it’s not to sit on your hands and wait for the perfect solution which will be delivered sometime in the distant future. While demand for new IT solutions might be growing, every time a business manager steps around IT to engage and on-demand solution SIs have one less opportunity to sell their wares.

At the same time we find that these on-demand solutions – when SIs do get their hands on them – only provide a fraction of the revenue that a tradition on-premisis solution does. Time is money for an SI (literally, as most avoid risk by sticking to time and materials contracts) and fielding a SaaS solution takes only a fraction of the time required for a more traditional solution. There’s no hardware to commission with SaaS or cloud computing, nor are there disks to wait for or backup strategies to create. (You still need to worry about business continuity, but that’s another post.) There’s also little chance for customisation, and integration tends to be via standard APIs or pre-built adaptors. It’s not uncommon for a SaaS project to be eighty percent smaller than the more traditional solution. Fewer resources on ground and fewer billable hours means that that the SI can expect their revenues to head in the same direction: south.

We’re also seeing the erosion of SI support revenues. Support used to encompass both the application – in terms of application maintenance, patching and security – and the users – with training and a help desk. Many SaaS and cloud providers don’t want to provide traditional support services as it erodes their margins, margins based on huge scale and little human contact. One solution is to engage an SI to provide these services for them, either on a client-by-client bases or as part of some sort of alliance. A more attractive solution is to move – as much as possible – to a self support model where clients support each other via user forums or a Google search. We soon find that a much smaller help desk will suffice as it’s only required to be the point of last resort, or to support the more technologically illiterate users.

Taken together, these trends – reduced access to buyers, lower project revenues, and lower support revenues – seem to show that the future is not as rosy for the SIs as we first thought. Demand for IT might be growing, but growing demand for IT no longer implies growing demand for the services provided by SIs. The final nail in the coffin is the fairly recent move into SaaS by established IT application vendors. Microsoft has gone on record as wanting to capture a greater percentage of IT spend as license revenues, converting SI installation and customisation costs into licenses by providing clients with prepackaged configurations which can be turned on at the flick of a switch. Rather than pay for a SaaS CRM and then engaging an SI to configure it to your liking, you pay for the SaaS CRM along with a canned sales methodology (Miller Heiman[3]? Holden[4]?) which works out of the box (as it were). Integration between SaaS solutions is also being converted into a configuration option as SaaS vendors sign alliances – just as Google and Saleforce.com did with GoogleForce – enabling these alliances to offer complete application suites which work together out of the box.

Whichever way you look at it, now is not a good time to be a SI.

References

1. Business models for the old rules of IT @ PEG↑
2. The price of regret @ PEG↑
3. Miller Heiman: The Sales Performance Company↑
4. Holden International: Outsell You Competition↑

BPM has under delivered as it's rooted in Taylorism – *there is one true way to do the work* – but today we need to support multiple ways.

2011/04/16 7:35 pm via EchofonReplyRetweetFavorite

@pevansgreenwood

Peter EG

Recently I’ve been thinking about the shift we’re seeing in the business environment. The world seems pretty unstable at the moment. Most business folk assume that this is simply a transition between two stable states, similar to what we’ve seen in the past. This time, however, business seems to be unable to settle into a new groove. The idea behind the book is that the instability we’re seeing is now the normal state of play

Since Frederick Taylor’s time we’ve considered business – our businesses – vast machines to be improved. Define the perfect set of tasks and then fit the men to the task. Taylor timed workers, measuring their efforts to determine the optimal (in his opinion) amount of work he could expect from a worker in a single day. The idea is that by driving our workers to follow optimal business processes we can ensure that we minimise costs while improving quality. LEAN and Six Sigma are the most visible of Taylor’s grandchildren, representing generations of effort to incrementally chip away at the inefficiencies and problems we kept finding in our organisations.

This is the same mentality – incremental and internally focused, intent on optimising each and every task in our organisations – that we’ve used to apply technology to business. Departmental applications were first deployed to automate small repudiative tasks, such as tracking stock levels or calculating payrolls. Then we looked at the interactions between these tasks, giving birth to enterprise software in the process. Business Process Management (BPM) is the pinnacle of our efforts, pulling in everything from our customers through to suppliers to create the optimal straight through processes for our organisation to rely on.

Some vendors have taken this approach to its logical extreme, imagining (and trying to get us to buy) a single technology platform which will allow us to programme our entire business: business operating platforms[1]. They’re aligning elements in the BPM technology stack with the major components found in most computers under the (mistaken) assumption that this will enable them to create a platform for the entire business. Business as programmable machine writ large.

The problem, as I’ve pointed out before[2], is that:

Programming is the automation of the known. Business processes, however, are the management and anticipation of the unknown.

Business is not a computer, with memory, CPUs and disks, and the hope of creating an Excel with which we can play what if with the entire business is simply tilting at windmills.

The focus of business is, and always has been, problems and the people who solve them. Technology is simply a tool we’ve used to amplify these people, starting with the invention of writing through to modern SaaS applications and BPM suites. While technology has had a previously unimaginable impact on business, it can’t (yet) replace the people who solve the problems which create all the value. People collaborate, negotiate, and smash together ideas to find new solutions to old problems. Computers simply replicate what they are told to do.

We’ve reached Taylorism’s use-by date. Define the perfect task and fit the man to the task no longer works. The pace of business has accelerated to the point that the environment we operate in has become perpetually unstable, and this is pushing us to become externally focused, rather than internally focused. We’re stopped worrying about collecting resources to focus on our reactions to problems and opportunities as they present themselves. Computing (calculating payrolls, invoices, or gunnary tables) is less important as it can be obtained on demand, and we’re more concerned with the connections between ourselves and our clients, partners, suppliers and even our competitors. And we’re shifted our focus from collecting ever more data as it becomes increasingly important to ask the questions which enable us to make the right decisions and drive our business forward.

Success today in today’s unstable environment means matching the tactic – process – to the goal we’re trying to achieve and our current environment, with different tactics being using in different circumstances. Rather than support one true way, we need to support multiple ways.

There has been some half steps in the right direction, with the emergence of Adaptive Case Management (ACM)[3] being the most obvious one. A typical case study for ACM might be something like resolving SWIFT payment exceptions. When the ACM process is triggered a knowledge worker creates a case and starts building a context by pulling data in and triggering small workflows or business processes to seek out data and resolve problems. At some stage the context will be complete, the exception resolved, and the final action is triggered. Contrast this with the standard BPM case study, which is typically a compliance story. (It’s no surprise that regulations such as SOX drove a lot of business processes work.) BPM is a task dependency tool, making it very good at specifying the steps in the required process, but unable to cope with exceptions.

So what do we replace the Talyorism’s catch cry with? The following seems to suit, rooted as it is in the challenge of winning in a rapidly changing environment.

Identify the goal and then assemble the perfect team to achieve the goal.

Note: This was also posted on noprocess.org.

References

1. Ismael Ghalimi (2009), Introducing the Business Operating Platform, IT|Redux↑
2. Business is not a programming challenge @ PEG↑
3. Keith D. Swenson (2010), Mastering the Unpredictable, Meghan-Kiffer Press.↑

On solving problems

If you don’t like the problem, then change it into one you do like.
— Dr K Pang

One of the best pieces of advice I picked up was from Dr. K. K. Pang[1] at university some time ago. Dr Pang taught circuit theory, which can be quite a frustrating subject. It’s common to encounter a problem in circuit theory which you just can’t find a way into, making it seemingly impossible to solve. Dr. Pang’s brilliant, yet simple, advice was “If you don’t like the problem, then change it to one you do like.”. Just start messing with the problem, transforming bits of the circuit at random until you find a problem that you can solve.

The trick with overcoming many of the obstacles that life and work throws in front of you is to realize which problem you should be solving.

On creativity

It’s pointless to try and be original, as someone’s always done it before. Just focus on doing what you’re interested in.
—Tom Fryer

My guitar teacher of many years back, Tom Fryer[2], had a bit of sage advice. It’s pointless to try to be original, as someone will always have had the idea before you. It’s a big world with a lot of history, and there’s not that many ideas. A more productive approach is to simply plow your own furrow; focus on the problems you want to solve, steal ideas shamelessly if they seem useful, and invent what you need to fill the gaps. It doesn’t matter if what you’re doing is original or not; it’s only a question of how useful and interesting the result is.

This is something that I’ve since seen from a few well known creative folk.

It’s not where you take things from, it’s where you take them to.
—Jean-Luc Godard

Innovation (a related topic) is not a question of having a great idea, or being the best at execution. Results count: what did you do with the opportunity to had?

On being the best

You’ll end up disappointed if you worry about being the best at what you do. It’s a big world and you’ll eventually run into someone has more skill. It’s more important to be happy with what you’ve done.
—Tom Fryer

Another from Tom; he’s a very wise man. No matter how much you practice, some day, probably in an armpit bar in the backwoods, there’ll be someone who blows you away as they have more skills than you. Winning awards or contests doesn’t mean you’re the best; it just means that you’re the most successful competitor at the time. (Or just the most popular, as many contests are actually fashion contests.) Some folk don’t choose to compete.

This ties back to John Kay’s concept of obliquity[3]: the idea that your goals are often best approached obliquely. The most effective path up the hill is usually to weave our way up the slope, rather than directly attack the steepest path.

I call this paradox the principle of obliquity. It says that some objectives are best pursued indirectly. I owe the phrase to Sir James Black, the chemist, whose career illustrates the principle in action. Black made more money for British companies than anyone else in the history of British business, by inventing beta-blockers and anti-ulcerants. The first he discovered in the laboratories of ICI, the second in those of Smith Kline French after he had decided that ICI was more interested in profits than in chemistry. To quote Black ‘I used to tell my colleagues (at ICI) that if they were after profits there were easier routes than drug research. How wrong could one be?’ The attempt to pursue profit too earnestly is pharmaceutical research defeated its own objectives.
—John Kay

The path to sustained success is not to set some imaginary hurdle to jump over – being the biggest or best – but to focus on doing what it is you want to do. IBM – helping business make use of technology – has been successful for over one hundred years. Microsoft – the biggest application developer on the planet – is struggling after a few decades[4].

Apple’s journey over the last decade or so seems to bear this out.

We just want to make products that we’d love to own.
—Steve Jobs

On being somebody

“Tiger, one day you will come to a fork in the road,” he said. “And you’re going to have to make a decision about which direction you want to go.” He raised his hand and pointed. “If you go that way you can be somebody. You will have to make compromises and you will have to turn your back on your friends. But you will be a member of the club and you will get promoted and you will get good assignments.”

Then Boyd raised his other hand and pointed another direction. “Or you can go that way and you can do something – something for your country and for your Air Force and for yourself. If you decide you want to do something, you may not get promoted and you may not get the good assignments and you certainly will not be a favorite of your superiors. But you won’t have to compromise yourself. You will be true to your friends and to yourself. And your work might make a difference.”

He paused and stared into the officer’s eyes and heart. “To be somebody or to do something.” In life there is often a roll call. That’s when you will have to make a decision. To be or to do. Which way will you go?”

—John Boyd from Boyd: The fighter pilot who changed the art of war[5]

It’s a big choice, but one the career councillors at school seem to gloss over. You can either choose to be someone, to fulfil a specific role such as CEO or rock star, or to do something, such as feed the poor. If you’re lucky, doing something will also allow you to be someone (such as Mother Teresa), but it doesn’t work the other way around.

References

1. Dr Pang unfortunately passed away in March 2009.↑
2. Greasy Boundaries by the Tom Fryer Quartet at Bar 303 Northcote, Melbourne Australia.↑
3. John Kay (Jan 2004), Obliquity, The Financial Times↑
4. The Economist (2011), Middle-aged blues: The software giant is grappling with a mid-life crisis↑
5. Robert Coram (2002), Boyd: The fighter pilot who changed the art of war, Back Bay Books↑

Our focus first on ideas and then execution distracts us – possibly intentionally so – from the real driver for success in business: luck. Brilliant ideas – ideas who’s time has come – are obviously rare. And then there’s our natural proclivity to overestimate our own abilities. (Such as the vast majority of drivers who think they are better than average drivers. Some of them must be wrong). While we don’t like to admit it, finding ourselves at the right place at the right time with a good enough solution is more important than any other single factor.

Google is a case in point. We can admire skill of Larry Page and Serge Brin, and the search algorithm they developed was obviously better than what came before, but neither of these is sufficient to explain the success that is Google today. Something else was required; luck had a large part to play in their success. If they hadn’t been turned down when they tried for sell a young Google for something like one million dollars, if the didn’t have access to the venture capital community on Sand Hill Road, if they …

We don’t like to talk about needing luck, as allowing luck into the equation implies that something is outside our control, that a success was not the result of our skills alone. If we rolled the Google dice again, from a starting position where the world was slightly different, would Google float to the top? Or would someone else find themselves at the right place at the right time with a good enough idea?

Many business leaders have penned biographies which highlight how their skill – and their skill alone – drove their organisations ever higher. A few are brave enough to admit that they were lucky, and that they were smart enough to to make the most of luck when it flowed their way.

Business is a numbers game. While each throw of the dice might be random, across a number of rolls we can can identify trends which we can use to tip the odds into our favour. An effective player realises this and works to exploit the trends they see and increase their luck. Or as one smart and lucky golfer was heard to say:

The more I practice, the luckier I get.

— Gary Player

The large innovative move from an established company, or the disruptive startup that become a billion dollar company at the founders first attempt, is the exception. There is no silver bullet, a single thing they did and which we can replicate.

Most of us need to play a longer game if we want to see success. Each time we roll the dice we need to ensure that the odds move a little further into our favour by:

• being frugal with our resources
• moving to a position where we have a better chance of success
• make the most of the opportunities that are presented to us
• learning from our previous mistakes

It’s not ideas or execution that determine our success. Both are important but neither is sufficient. It’s our ability to increasingly become more effective with each action we take – our ability to learn from our mistakes, rather than our ability to improve our skills – increasing our luck to the point that one day it overflows and we find ourselves with a success.

I happen to have set that sentence down in the old, slow way by hand. If I had used a computer, I might have got it down in a third, a quarter of the time. But like a good many writers, even this far into the twenty-first century, I find that the pace at which I work in longhand – at which my arm, my hand moves in the act of writing – has what is for me a “natural” relationship to the speed at which my mind works and I do not to let go of a relationship that seems peculiarly mine. Writing by hand slows the thought process, allowing thinking to think again, mid-through, and leaving open the possibility of second thoughts. It has an effect too on syntax, on the way a sentence gets shaped.

—David Malouf, The Happy Life, Quarterly Essay QE41

Business growth comes from one of two directions: either organic growth, or by acquisition. You can buy a plot in the mother land, or you head out into the undiscovered countries to find a plot for your own. Much has been written about both of these approaches.

Competitive business strategy – the art of stealing someone else’s plot – has been refined to a fine art. With our five forces[2] strategy maps[3] and scenario planning[4], we have a range of tools at our disposal with which we can map out the opportunity, determine our strengths, measure the weaknesses of our competitors, and plan our attack. Competition has become quite bloody, with the major players in each industry and market evenly matched. For all their efforts, most businesses can only tweak their share of the market a few points either way, while their year-on-year performance dominated by the performance of industry as a whole.

The last gasp of this approach was the idea of blue oceans[5]. If the ocean where you’re paddling is red with the blood of your competitors, then perhaps its time to find a patch of clear blue ocean where you can paddle unmolested on your own. This is an approach that Nintendo used to great effect. Nintendo decided not to compete directly with Sony and Microsoft in the battle for the home gaming console. The market was dominated by Sony and Microsoft, each investing heavily to try and improve the graphics of their next generation console to give a more realistic (and violent) experience. Instead, Nintendo chose to focus on casual games (first needing to invent the concept of casual games) which had a wider appeal than the core gamer market. These are game that are easy to pick up and put down, games which much broader appeal than the first-person shooters which dominated the market at the time, and game which the core gaming market derided as simple and uninteresting. Casual games made Nintendo the most profitable company per employee in the world (beating even Goldman Saches at their peak) for a brief period of time.

Since Nintendo and the Wii, the pace of business has accelerated (again), driven by globalisation and cloud computing. Nintendo took several years to develop one market defining product, and is now struggling with it’s next move and the market for casual games is leaving it behind. Younger companies like Zinga swooping in with lower cost, online games to steal much of the market for casual games. The opportunity to move sideways and find new blue oceans is becoming rarer, as the rapid pace of business means that you often find that the patch of blue ocean that you were paddling for is as red as the patch you left, as many of your competitors saw the same opportunity. The whitespace is – in effect – drying up.

With organic growth into the white space a distant memory the first work, many companies are turning to the developing work – the BRIC nations in particular – to try and grown their revenues. Find a country further back on the development curve and peddle you weres there, where the is no (or, at least, little) sophisticated competition. There are some hurdles to overcome, such as the fact that we need to package our toothpaste and mouthwash in sachets, rather than large tubes and containers, but the white space seems to be there for the taking.

Globalisation is a double edged sword though. Not only does it allow you to sell your goods in every nook and cranny around the planet, to also allows the local companies, the companies in those nooks and crannies, to leverage the best expertise and suppliers from around the world to service their local market. While the world might be flat, it is also spiky and local knowledge counts. Western companies are finding that they are increasingly beaten to the punch by a more agile and knowledgeable local. The developing world is developing a lot faster than many of us expected.

The white space, however, is not completely filled: the circle that is the market has a well-defined centre but no discernible circumference, and new opportunities are constantly popping in and out of existence around it’s edge. Rapidly evolving circumstances and changing fashions are creating new market opportunities, new white space, as customers realise that they have an unfulfilled need. The problem is that our existing businesses can rarely fit into the holes these opportunities provide. Conceived as vast machines, our businesses are built around powerful engines, with each piece turned to provide optimal performance. While this might provide our businesses with power, it also makes them cumbersome. They’re the muscle car from the seventies: fast in straight line, but corner like the titanic. We’re usually still madly tugging on the tiller trying to turn the ship when the opportunity evaporates back into the ether it came from.

The challenge is to change the way our businesses behave – how they use assets and people, their processes and governance – so that they can fit into these new white spaces. Delta Motorsport[6], for example, approached the process of designing a new car from an unconventional direction. Locating themselves near Silverstone in the U.K., among the various Formula 1 teams and (more importantly) the community of contract manufacturers that surround these teams – Delta was able to design the E-4 Coupe, a 150mph (241kph) electric sports car, for the tiny budget of £750,000 and with just ten employees. They expect that they can move the car into production for an additional £4.5 million, a fraction of the $1 billion, and in a fraction of the time or more required via a more conventional approach.

The market is fragmenting as companies such as Delta Motersport, Megabus[7] and Kogan[8] create business models which enable them to fit into these new white spaces. In some instances these white spaces sit beside existing market, providing new products and services to customers who were previously left unsatisfied. At other times the bubbly edge drains away soft centre, as the white space provides new products and services for customers who used to settle for something else.

Colonising the new white spaces requires us to approach our businesses from a different direction. Rather than think about our business as a statically configured and optimised machines – Henry Ford’s production line writ large – we need to consider our business as more flexible, dynamically optimised vehicles. Optimising internal systems and processes no longer provide us with a competitive advantage. We need to reorient out teams externally, intent on understanding the environment that is unfolding around us and driving the business forward. We need to streamline the controls, the accountabilities and processes we use to operate the business, ensuring that it is easy to enact any decision once it is made.

The challenge today is to understand where to find these new white spaces, and to build up a playbook of tactics which informs us on how to leverage the plethora of on-demand capabilities (BPO, cloud, SaaS, globalisation …) available to us today to reshape parts of our business to fit into the tightest white space.

References

1. BRIC: Brazil, Russia, India, China↑
2. Michael E. Porter’s five forces discussed @ Wikipedia↑
3. Strategy maps discussed @ Wikipedia↑
4. Scenario planning discussed @ Wikipedia↑
5. W. Chan Kim and Renee Mauborgne (2005), Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, Harvard Business Press ↑
6. Viknesh Vijayenthiran (May 2011), Move Over Tesla, Delta Motorsport Launches 150 MPH E-4 Electric Coupe, Motor Authority↑
7. Ben Austen (April 2011), The Megabus Effect, Businessweek↑
8. Kogan Electronics↑