Monthly Archives: April 2009

The problems we’re facing

Companies are engaged in an arms race. For years they have been rushing to beat competitors to market with applications designed to automate a previously manual area of the business, making them more efficient and thereby creating a competitive advantage.

Today, enterprise applications are so successful that it is impossible to do business without them. The efficiencies they deliver have irrevocably changed the business environment, with an industry developing around them a range of vendors providing products to meet most needs. It is even possible to argue that many applications have become a commodity (as Nicholas Carr did in his HBR article “IT Doesn’t Matter”), and in the last couple of years we have seen consolidation in the market as larger vendors snap up smaller niche players to round out their product portfolio.

This has levelled the playing field, and it’s no longer possible to use an application in the same way to create competitive advantage. Now that applications are ubiquitous, they’re simply part of the fabric of business.

Today, how we manage the operation of a business process is becoming more important that the business process itself. Marco Iansiti brought this into sharp relief through his work at Harvard Business Review when he measured the efficiency of deployment of IT, and not cost, and correlated upper quartile efficiency with upper quartile sales revenue growth. Efficiently dealing with business exceptions, optimizing key decisions and ensuring end-to-end consistency and efficiency will have a greater impact than replacing an existing application.

We are finished the big effort: applications are available from multiple vendors to support the majority of a business’s supporting functionality. The law of diminishing returns has taken effect, and owning or creating new IT asset today will not simply confer a competitive advantage. Competitive advantage now lives in the gaps between our applications. Exception handling is becoming increasingly important as good exception handling can have a dramatic impact on both the bottom- and top-line. If we can deal with stock-outs more efficiently then we can keep less stock on hand and operate a leaner supply chain. Improving how we determine financial adequacy allows us to hold lower capital reserves, freeing up cash that we can put to other more productive uses. Extending our value-chain beyond the confines of our organisation to include partners, suppliers and channels, allows us to optimize end-to-end processes. Providing joined-up support for our mortgage product model allows us to put the model directly in the hands of our clients, letting them configure their own, personal, home loan.

Link to the complete article.

It’s not enough to be good: we need to be original

We all like a good jacket. One that fits well and makes us feel good. But how long is it since we went to a specific tailor? Someone a friend recommended, perhaps, for doing a good job in the past.

The same trend is emerging in IT. The dynamics of how we provide IT services (either as external systems integrators, or internal IT departments) are changing. The did it, done it stories we’ve relied on in the past are becoming increasingly irrelevant to a business caught between globalization and spiraling competition. Where previously we built our reputations on being good—for delivering quality in the past—being good is no longer enough. We also need to be original.

Quality was a real problem when buying clothes in the 1800s. Without today’s quality standards and processes, you were never sure that you were going to get what you asked for. Even relatively recently, back when I was growing up, we used to pick through racks of t-shirts in the hope of getting one that wouldn’t twist out of shape in a few washes. Manufacturing was also expensive in the 1800s, with most people only able to afford the clothes they were wearing. A purchasing decision was a decision they would live with for a long time.

When quality is a problem, and the item you’re purchasing is expensive, managing risk becomes your biggest concern. How can you ensure that the product you asked for is the product you receive?

This is the situation IT has been in for some time. Four years, fifty million dollars are not uncommon figures in a world where you cannot buy a business capability off the rack. The closest we’ve come to this ideal are packaged applications, which is more akin to a DIY or flat packed kit where you provide some of the parts. The business still need tailors—system integrators or internal IT departments—to help put the parts together.

The solution—in both 18th century tailoring and with current IT—was to rely on someone with a track record. The did it, done it stories collected over a career provide some surety that they would receive the result they expected.

Tailoring has come a long way since then. Manufacturing processes have matured to the point where quality is simply another factor used by a procurement department to influence the final price. Quality is something a client can assume, and is no longer something actively managed.

The move away from did it, done it stories has radically changed the dynamics of the tailoring industry. We’ve seen the rise of designer labels which don’t manufacture, but which provide a unique image that many people want to associate themselves with. The traditional bespoke tailors have become boutiques which provide a unique service (an experience). The industry is also dominated by off-shore manufacturing providing quality at a low cost. The market seems to have broken into three layers.

The value triangle
The value triangle

At the top is value, where clients search the globe for the vendors which can provide them with something unique. This might be a designer which provides a specific image, or the local bespoke tailor who provides a unique experience. Or it might be the IT consultancy that brings you some unique insight into a business event (such as Sarbane-Oxley) or innovative ways to use a technology.

On the bottom are the industrialized capabilities—the factories that manufacture goods. These factories might be creating suits, running IT projects to even testing solutions. As the goods bought from factories are purchased on cost, and labour is the largest factor in cost, they typically migrate to the cheapest geography.

And finally, in the middle, are the clients concerned with risk management. These are the vendors who are good at something—vendors with did it, done it stories—which does not create any specific value, and that has not (yet) been industrialized into a factory.

We’ve seen the death of the traditional did it, done it story on shore (in the first world at least) for tailoring. We’re currently watching it play out for conventional enterprise applications.

The problem for tailors—and IT services—in the first world is that it is not enough to be good anymore. You need to be original.

Innovation [2009-04-20]

Another week and another collection of interesting ideas from around
the Internet.

As always, thoughts and/or comments are greatly appreciated.

This issue:

  • Inside Google’s design process [BusinessWeek: Innovation]
    Google takes an integrated approach to innovation, pulling together design, analysis and engineering to create an iterative processes which helps them nurture small ideas into big products.
  • Horizontal Innovation Networks: By and for Users [Eric von Hippel]
    Innovation development, production, distribution and consumption networks can be built up horizontally—with actors consisting only of innovation users (more precisely, “user/self-manufacturers”). Some open source software projects are examples of such networks, and examples can be found in the case of physical products as well. In this article, we discuss three conditions under which user innovation networks can function entirely independently of manufacturers. We then explore related empirical evidence, and conclude that conditions favorable to horizontal user innovation networks are often present in the economy.
  • Jim Jarmusch On Stealing From Everywhere [PSFK]
    Nothing is original. Steal from anywhere that resonates with inspiration or fuels your imagination…
  • If Isaac Asimov designed your computer… [Educated Guesswork]
    Like nearly all science fiction authors of that era, Asimov got computers pretty much all wrong, in at least three major ways.