Bacontrepreneurs building bacon empire [abc news]
The investment required to start a company has plummeted in recent years: and not just web entrepreneurs but business that make and sell real, physical products. Today, new products and competitors can emerge from the most unexpected quarters.
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.
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.
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.
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.
Can China beat the U.S.A. at customer service? Not quite yet according to The Economist, but they do seem to be getting there. If Chinese businesses can start to out perform the West in front office processes then China would start to be the front line seller, not the back office producer. And China has a massive, and rapidly maturing, domestic market to experiment on as it tries to get these processes right.
The Economist’s article provides us with a real sense of the shift in global business that that the current financial crises only seems to be accelerating. I’m a big believer that there’s nothing particularly special about the people in any particular country. I’ve been lucky enough to work on most of the continents and with a diverse enough range of nationalities to understand that we’re all equally intelligent, creative and innovative given half a chance. If we’re all as smart as each other then ultimately success (or not) of a country will come down to the size of its talent pool (population) and the willingness of its businesses to invest. China and India, with their massive populations, and drive to modernize are well positioned to tip the balance in their favor, if they can sort their domestic markets out. This appears to be happening.
Our current assumptions seem to be that the East (China and India) will manufacture products designed in the West (the U.S.A. and Europe) and which are sold to western customers. Most of the value is generated and captured in the West. This makes sense at the moment as the West (and the US in particular) is the largest, homogenous and rich market in the world. Western companies have the advantage of a large domestic market, and overseas companies all target the West as it offers the largest potential to grow their businesses.
However, China’s move into the front office has the potential to flip the entire balance. Western companies could be manufacturing Chinese designs for western domestic markets, with the cash generated in the West and value captured in the East. With its huge internal population Chinese business will have access to the talent it needs to invent and design new products and services. It has have a large domestic population to grow a business and tune its offering. As costs rise and the advantages of labour arbitrage are eroded, manufacturing will slowly migrate from East to West to be close to the client where it avoids currency risk (similar to how various Japanese car companies established factories in the American south).
The question on all of our lips, though, is “How does this effect me?”
Another week and another collection of interesting ideas from around the Internet.
As always, thoughts and/or comments are greatly appreciated.
Innovate Like Chris Rock [Harvard Business: Conversation Starter] Chris Rock has become the most popular comedian in the world. There is no doubt he’s got enormous talent, but his brilliance also comes from the fact that he’s an experimental innovator. The jokes he rolls out on his global tours are actually the output of thousands of small experiments – some of which worked, but many of which did not.
Imagine the future. Not the distant future, we’re talking about next week or maybe the week after rather than an eventual future where we all have flying cars. A new business competitor has emerged on the market, coming out of nowhere with a business model that makes it impossible for your company to compete. They have half the cost to serve of their competitors, half the time to revenue, they seem to be able to introduce a new product in a matter of days rather than weeks, and their products are incredibly customisable. They seem to have halved the business metrics that you want to go down, doubled the ones you want to go up, while as the same time supporting a product portfolio of impressive depth and complexity. And they claim to be able to do this with conventional technology. How did they do it? And how are you going to respond?
I figured that I might as well take the time to clean up some of the articles that I’ve written in the past and drop them on the web site. The first cab off the rank is something I put together to point out some of the limitations when using rules engines to capture business logic, and technologies that might help us past these limitations.
Agent technology represents a new generation of software that brings the power and sophistication of goal–directed reasoning and planning to business applications for the first time. The technology was developed during the early 80s in reaction to the perceived limitations of the rule–based systems (expert systems) that were in wide use at the time. Goal–directed technology builds on the rule–based technologies that preceded it, overcoming their limitations by integrating support for procedural reasoning; the step–by–step, trial–and–error approach that a person typically uses to solve a problem.
Goal–Directed technology enables the development of more flexible and robust applications; applications that are aligned with the business and that allow enterprise systems to adapt rapidly in the face of changing requirements.