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Death of the shopping mission

When did you last go on a mission to buy something? Something specific that you had decided you needed. Were you looking for a book to read, heading to a nearest bookstore to browse the shelves? Was it a trip to the local big-box store to stock up on toilet paper and other household odds and ends? Or did you wander around a department store at the local mall looking for something to wear? Our behaviour – consumer behaviour – has changed. Shopping has historically been a search problem: how do we find the products we need need? Today, though, we increasingly buy on impulse, selecting the cheapest – or the best at the most competitive price – from the wealth of products and merchants around the global. The shopping mission is going the way of the dodo. If we see a book we like, then we add it to our list at Amazon or Book Depository and it’s delivered direct to our front door. We’re getting household consumables delivered direct to our homes. And we’re even sourcing clothes online where we can find lower prices and a larger selection. Our behaviour is changing, and the retailers and merchants who don’t adapt are being left behind. A lot of the turmoil we’re seeing in the current economy is likely due to a reconfiguration of business, driven by the changes in consumer behaviour.

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]Speech at the Australian Institute of Company Directors lunch in Brisbane, May 26, 2011.

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]Eli Greenblat (Aug 30, 2011), Heinz cans Coles, Woolworths, The Sydney Morning Herald

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]Charles Arthur (July 2011), Apple profits up 124% year-on-year after record iPhone sales, The Guardian 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]Neha Kale (August 2011), Kogan Technologies reports 100% increase in revenue, PowerRetail 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]Anhar Khanbhai, Harvey Norman profits fall 20%, Connected Australia

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]Amy Wallace (October 2010), Whimsy (and clothes) for sale, The New York Times

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:

Have we reached peak SI

Have we hit the peak for systems integrators (SIs) (just as we appear to have reached “peak oil”), and it’s all downhill from here? While SIs are doing well at the moment, structural changes in the IT market suggest that the long term forecast is not all sunshine and roses as some pundits are predicting. With IT spend migrating from IT departments (the SI’s traditional buyer) into the lines of business, the ongoing shift to smaller projects delivering on-demand (rather than on-premesis) solutions, and the replacement of traditional support arrangements with outsourced and managed services, it’s hard to see how SIs will continue to grow when demand for their services seems to be tipping into decline. Globalisation, software as a service (SaaS) and cloud computer are reconfiguring the IT landscape and SIs look like they will be the big losers.

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.

[[1]]Business models for the old rules of IT @ PEG[[1]]

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.

[[2]]The price of regret @ PEG[[2]]

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.

[[3]]Miller Heiman: The Sales Performance Company[[3]]
[[4]]Holden International: Outsell You Competition[[4]]

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

Good advice

There’s a few bits of good advice that I’ve stumbled across during my time, and which I’ve sprinkled in some of my posts. I thought it might be worthwhile gathering them into one place.

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]Dr Pang unfortunately passed away in March 2009. 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]Greasy Boundaries by the Tom Fryer Quartet at Bar 303 Northcote, Melbourne Australia. 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]John Kay (Jan 2004), Obliquity, The Financial Times: 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]The Economist (2011), Middle-aged blues: The software giant is grappling with a mid-life crisis

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]Robert Coram (2002), Boyd: The fighter pilot who changed the art of war, Back Bay Books

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

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

It’s effectiveness, and not ideas or execution, which is the strongest determinant for success

We’re told that execution is everything. While a good idea might be useful, execution is seen as the factor that will determine the success or failure of our business venture. Many people find this comforting as good ideas are rare, seemingly springing from nowhere, and few of us hold little hope of having a really good idea in our lifetime. (One definition of “genius” is someone who manages to have more than one good idea before they die.) Execution, however, is something we can control. We can practice, improving our skill, making us more likely to succeed.

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.

Selling into the new whitespaces

Organic growth is a distant memory for many companies. Markets in the first world are mature and the whitespace they contain has already been claimed. The only new business many companies can expect to find is the business they steal from someone else. This trend has driven many organisations to turn to the relatively undeveloped emerging markets – the BRIC{{1}} nations in particular – or acquisition for the majority of their growth. The problem, however, isn’t the lack of white space; with markets constantly evolving, driven by technology and fashion, new white spaces are constantly bubbling in and out of existence. The problem is that our current, monolithic business models, cannot fit into these new white spaces,

[[1]]BRIC: Brazil, Russia, India, China[[1]]

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.

[[2]]Michael E. Porter’s five forces discussed @ Wikipedia[[2]]
[[3]]Strategy maps discussed @ Wikipedia[[3]]
[[4]]Scenario planning discussed @ Wikipedia[[4]]

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.

[[5]]W. Chan Kim and Renee Mauborgne (2005), Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, Harvard Business Press [[5]]

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.

[[6]]Viknesh Vijayenthiran (May 2011), Move Over Tesla, Delta Motorsport Launches 150 MPH E-4 Electric Coupe, Motor Authority[[6]]

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.

[[7]]Ben Austen (April 2011), The Megabus Effect, Businessweek[[7]]
[[8]]Kogan Electronics[[8]]

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.

The importance of taking time

Jeff Bullas has nice post on his blog called “Is this the future of books” about where publishing might be taking us. He’s less interested in the future of the codex (sheets of paper bound to form a block) that we’re all familiar with, than the future of the narrative which lives inside many books.

Jeff, like myself, enjoys an author taking him somewhere, either by weaving a tale of dastardly deeds (á la James Elroy), or building a an argument that might make me change my opinions (á la Peter Singer). Much of the development with ebooks seems to be more focused on multimedia, which is a great tool to explore a topic or idea, but in some instances it doesn’t have the power that a narrative can bring to the topic. He doesn’t come to any strong conclusions, but he raises some interesting questions. Go read the post: it’s a good one.

What really caught my eye, however, was one line he threw in toward the middle of the post:

Do Gen Y have the time to read or enjoy a book for a quiet 2 hours when everything is about ‘now’ and 2 minute YouTube videos and 400 word blog posts?

This got me thinking.

Many books have very little inherent value. They’re just filler. The pulp fiction you buy at the airport, or that copy of Ninja Ruby Coding for Left Handers or Six Sigma for Dummies are often just thrown together. That’s ok as you’re just getting them to waste time on the plane or get a quick overview of the topic. We’re not expecting War and Peace.

These days though, we have alternatives to the physical book. Those pulp novels are being replaced by low price ebooks, often costing only $2.99, while the reference book are being edged out by Wikipedia and other community created references. (And the “e” versions of reference books are searchable.) Neither of these use cases justify a high price tag or heavy investment from the author. The reason we made them into books historically was that it was the only way the information could find distribution. These days we have more appropriate distribution models. (Plus reference books these days often just seem to copy large slabs of text from public resources anyway.)

Some books, however, build a longer narrative and bring some insight on a specific problem or the world at large. These books can justify being 400 pages or more, as it often takes that long to build their argument and walk you through the various aspects. Over their 400 hundred pages they bring a unique value, changing how you think about some topic, a shift which might range from your attitude to yourself and society (as Peter Singer has done, inventing entire social movements in the process) through to showing you new ways to think about your business and how to improve it (Peter Drucker and Michael Porter spring to mind). And there’s always the likes of George Orwell, Neal Stephenson and Margret Atwood to argue for the longer fictional narrative.

This raises an interesting question: if these longer form books have a distinct value, then are you missing out on something important if you pass them by? Or, more specifically, are the people who cannot (or will not) consume these high value books putting themselves at a disadvantage relative to the people who do?

If all you’re ever doing is reacting to information that happens to flow your way, then you cannot claim to be in control of your own destiny. You’re just reacting to the environment as it unfolds. The challenge is, as always today, to know where to invest your time so that you can move beyond simply reacting. Some ideas require more effort, but the reward is worth it. A short blog post might provide stimulating coffee break conversations, but if it doesn’t change the way you view the world did it add much value beyond being convenient infotainment. That TED talk you watched in your lunch break might be inspiring, but did it change how you approached and did your work in the afternoon?

We live in a rapidly changing world, and many peoples’ reasons for consuming all these snack sized ideas is to help them find the one’s which will make a difference. However, if you never take the plunge and explore the longer form arguments that seem interesting, you just might be doing yourself a disservice. Living on quick, easy and cheap McMuffins might keep you going in the short term, but you could regret it later when you no longer fit behind the steering wheel.

Apologies for the lack of updates

I’ve been quite tardy lately with updates, which I apologise for. A couple of mates convinced me to write a book which I’m in the process of writing, and it seems be consuming all my spare time. (The Future of (Knowledge) Work still has two more updates to come though, so there is some ideas in the pipe still.) Expect updates to be less frequent until I’m done with the book and can move on. Luckily I’m about 80% of the way though now, so there shouldn’t be too far to go.

Your mobile phone is making us stupid

Whilst sitting and having a quite read the other day I happened across a thought which made me pause:

Not only may our natural capacities, like brute strength and visual acuity, be weakening, but our brains too may, after a long period of evolutionary expansion, be at last growing smaller. Researchers like Peter Brown calculate that our brains shrank on average by 9.5 percent in the last 10,000 years alone (more, as a proportion, than our bodies, for which he recorded the 7 percent drop already mentioned). Further back, 100,000 years ago, we find that the Neanderthals had, on average, bigger brains than ours.

Timothy Taylor
The Artificial Ape{{1}}

[[1]]Timothy Taylor (2010), The Artificial Ape, Palgrave Macmillan[[1]]

Which is really a quite interesting idea. After all, pundits have been arguing for a while that technology has been making us smart or stupid, depending on their preference. One one side we have the Clay Shirkies and Ray Kurzweils of the world: boosters who think that technology is making us smarter and hope that the singularity{{2}} is near. On the other we have the likes of Nicholas Carr who takes that opposite view, fearing that our interlectual tide is going out{{3}}.

[[2]]Singularity.com[[2]]
[[3]]The Shallows: What the Internet is doing to our brains[[3]]

It’s not the first time this has been debated. Socrates had a well publicised aversion to reading and never wrote anything down{{4}}. He argued that true understanding could only come from dialogue. (We know this, of course, as Socrate’s student Plato chose to write down Socrates’ thoughts for posterity.)

[[4]]Socrates at the Stanford Encyclopaedia of Philosophy[[4]]

Most of the arguments around the idea of technology making us stupid centre on our ability to access facts. Clay Shirky et al see Google as a good thing, extending our powers or recall. If you can describe something, then Google can probably find it for you. Twitter might even help information, information which you didn’t even know that you needed, find you. Others see this it as a bad thing, as the deluge of information might be eroding our ability for quiet contemplation, enabling us to constantly distract ourselves as we peruse just one more fact rather than spending our time fruitfully thinking new and ever more valuable thoughts.

I found Mr Taylor’s take on the argument very interesting. His view was that our brains had shrunk, not because we didn’t need to remember as much stuff anymore, but because the need for us to be creative problem solvers had eased. We’ve built a soft and comforting environment around ourselves – with our air conditioners, central heating and pizza delivery – so we just don’t have to deal with the environment anymore. We’re a bit like the boy in the bubble{{5}}, watching the real world pass us by, preferring our buffed and tanned Second Life avatars and manageable virtual problems to the challenges of hunting down enough wooly mammoth to feed the kids.

[[5]]Slideshow: Sad Story of ‘Boy in the Bubble’ at Wired[[5]]

If it’s the pressure to solve pressing problems, and not our ability to remember facts, which drives intelligence{{6}}, then we might have something to worry about, as our ability to creatively solve problems is the skill we need the most. The last time I typed “cure for cancer” into Google it didn’t deliver much hope. I’m not sure the Neanderthals spent much time pondering the eternal verities or trying to remember where to find a handy jawbone, but they did spend a lot of time trying to stay alive when compared to us and our modern lifestyles. We forget, the steam engine was invented by someone welding bits of steel together while trying to solve problem, while thermodynamics (the theory explaining it) came afterwards.

[[6]]Intelligence, that is, in terms of our ability to solve problems, which is a bit different to what IQ tests measure, as they focus on counting how many cultural norms and received wisdom we have absorbed. IQ scores have been rising, not because we’re getting better at solving problems, but because we getting better a teaching and testing cultural norms.[[6]]

If we take Mr Taylor’s lead, then it’s technology’s role in insulating us from the environment we live in that we should be worrying about the most. The caveman was focused on staying alive, and the challenge presented by the ever changing environment he lived in meant that he needed a brain 9.5 percent larger than our own just to survive. We just don’t face the same challenges today, with our climate control tuned to 21°C and the pizza delivery on the speed dial.

Neanderthal had brains 9.5% larger than Homo erectus
1. Chimpanzee, 2. Australopithecine, 3. Homo erectus, 4. Neanderthal, 5. Co-Magnon

Mobile phones might represent the pinnacle of our quest to eliminate environmental uncertainties, as they erase the last self reliance we previously need to get by. It’s this self reliance that provides us with, and even forces us to solve, problems. When I was young, for example, the first trip into the city on your own was a big deal as you would be out of reach of mum and dad. The usual response was to give you money for the phone, and tell you to head for the police if there was a problem, however if something went wrong you had to solve the problem on your own. Today, kids taking the same trip have a phone and can call mum and dad for help whenever they need, and they don’t need to be as self reliant.

Which comes back to that idea of information overload that concerns Mr Shirky and Mr Carr. I’ve never been, nor am I now, worried about too much information. I’m not even that worried about the distractions of living with the Internet. The real problem – as I’ve said before{{7}} – is the ability to focus on the problems we need to solve. We can choose to be proactive or reactive. If we sit there trying to sift through the mountains of information available today then we will always be overwhelmed as there’s so many good ideas out there that it’s hard to decide what to react to. However, if we have a focus, a long term problem which we’re working over and exploring each angle of, then we’re a bit like that Neanderthal, using his bigger brain to reach out for a handy jawbone and find a new use for it. There’s lots of suitable jawbones within reach, the challenge is to understand how they might fit into the solution we need.

[[7]]The Art of Random @ PEG[[7]]

I suppose the best way to view this post is as an argument for the idea of sun-shaped people{{8}}. One key lesson from evolution is that specialists die out when the environment around them changes, making their carefully crafted skill irrelevant. Today’s (business) environment changes pretty quickly, and many of the specialist skills of the past are rapidly becoming redundant. We’re also finding that the specialists which replace them have increasingly short half lives. T-shaped folk (folk with deep experience in one domain and some knowledge of others) fare little better, as they are still focused on facts – understanding the common values and received wisdom of a domain, often racing to keep up with the fashion industry which “best practice” often devolves into. Sun-shaped people, on the other hand, have a core focus, and problem which they’re working over and examining from different angles during the full length and breadth of their careers, grabbing jawbones and other handy tools as needed. Perhaps there’s a bit of Neanderthal in them after all.

[[8]]The Sun-Shaped Individual @ PEG[[8]]

The top ten posts of 2010 are …

And the top ten posts from the last year — as recorded by Popularity Contest — are:

  1. Innovation linkage
  2. Peter Drucker’s seven sources of innovation
  3. Consulting doesn’t work any more. We need to reinvent it.
  4. Is Generation X/Y/Z irrelevant?
  5. The IT department we have today is not the IT department we’ll need tomorrow
  6. People don’t like change. (Or do they?)
  7. A prediction: many companies will start shedding IT architects in the next six to eighteen months
  8. The myth of the inevitability of social organisations
  9. Why Enterprise 2.0 and Social Business Design might be of marginal utility to most of us
  10. Business models for the old rules of IT

Happy new year all!

Think “in the market,” not “go to market”

A friend of mine{{1}} made an astute comment the other day.

We need to think about “in the market” models, rather than “go to market” models.

[[1]]Andy Mulholland @ Capgemini[[1]]

I think this nicely captures the shift we’re seeing in the market; businesses are moving away from offering products which (hopefully) will sell, and adopting models founded on successful long term relationships. This is true for both business-to-consumer and business-to-business relationships, as our success is increasingly dependent on the success of the community we are a part of and the problems that we solve for (our role in) this community.

For a long time we’ve sought that new widget we might offer to the market: the new candy bar everyone wants. It’s the old journey of:

  • find a need,
  • fulfil the need.

Our business models have been built around giving someone something they what, and making a margin on the way through. Sometimes our customers didn’t know that they had the need until we, or their peer group, pointed it out to them, but we were nevertheless, fulfilling a need.

Recent history has seen the more sophisticated version of this emerge in the last few decades:

Give them the razor and sell the razor blades{{2}}.

[[2]]Giving away the razor, selling the blades @ Interesting thing of the day[[2]]

which has the added advantage of fulfilling a reoccurring need. Companies such as HP have made good use of this, more-or-less giving away the printers while pricing printer ink so that it is one of the most expensive substances on the planet (per gram).

Since then, companies (both B2C and B2B) have been working hard to reach customers earlier and earlier in the buying process. Rather than simply responding, after a customer has identified a need, along with the rest of the pack, they want to engage the customer and help the customer shape their need in a way that provides the company with an advantage. A great example of this are the airlines who enable you to buy a short holiday somewhere warm rather than a return trip to some specified destination. The customer gets some help shaping their need (a holiday), while the company has the opportunity to shape the need is a way that prefers their products and services (a holiday somewhere that the airline flies to).

The most recent shift has been to flip this approach on its head. Rather than aligning themselves with the needs they fulfil, some companies are starting to align themselves with the problems they solve. Needs are, after all, just represent potential solutions to a problem.

Nike is an interesting case study. Back in the day Nike was a (marketing driven) sports shoe company. If you needed shoes, then they had shoes. Around 2006—2008 Nike started developing a range of complementary products – web sites, sensors integrated into clothing, etc. – and began positioning the company as providing excellence in running, rather than simply fulfilling a need. The company grew 27% in two years as a result.

Rolls Royce (who I’ve written about before{{3}}) are another good example, but business-to-business. They shifted from the need (jet engines) to the problem (moving the plane) with huge success.

[[3]]What I like about jet engines @ PEG[[3]]

While these companies still have product and service catalogues, what’s interesting is the diversity of their catalogues. Rather than structuring their catalogue around an internal capability (their ability to design and manufacture a shoe or jet engine), the focus is on their role in the market and the capabilities required to support this role.

As Andy said, they have an “in the market” model, rather than a “go to market” model.