Tag Archives: Amazon

In retail you’re either a religion, a community hub, or a commodity

Being a successful retailer used to be a question of stocking the right products. Given that consumers all have their own preferences this usually devolved into trying to offer either the best or the cheapest, or products tailored to the unique needs of a specific market segment. Or, putting it another way, you could choose to sell expensive suits, cheap suits, or suits for the broad and tall.

Today – as globalisation, the internet and social media bite into retail – retailers have been working hard to build a compelling in-store experience. The theory is that by providing a pleasant and streamlined buying journey (or, at least, a more pleasant and streamlined journey than your local and online competitors) you’ll encourage consumers to shop at your store. This has driven the recent wave of investment in omni-channel, in-store WiFi and mobile apps.

The problem is that consumer behaviour is changing.1)The destruction of traditional retail @ PEG No longer do we identify a need and then head out to the store to find a product to fill it. Browsing is something we do in a spare moment, sitting in front of the TV with a tablet, or via a smartphone during our commute on the train. We purchase when we realise that we’ve found something we want or need, wherever we are at the time and via the channel that is the most convenient.

Building your business on the assumption that customers will come to your store looking for a product in no longer a viable strategy. It’s not enough to provide the best products or the cheapest. Nor is it enough to provide a more pleasant experience than the competition.

You need to find a way to draw customers to your store before they want to buy something. Retail must make itself part of the consumer’s identity, it needs to become one of their habits or rituals, rather than simply providing a convenient delivery mechanism for someone else’s products.

Three options seem to be emerging from he turbulent market we’re in at the moment.

  1. Make your business into a community hub
  2. Create a religion
  3. Resign yourself to being a commodity

Continue reading In retail you’re either a religion, a community hub, or a commodity

References   [ + ]

Has Apple made NFC irrelevant?

In The future of exchanging value{{1}} I, along with Peter Williams and Ian Harper at Deloitte, pointed out that a successful retail payments strategy should be founded on empowering consumers and merchants to transact when and where they want to. Investing in technologies such as near-field communication (NFC) networks might allow you to shave a couple of seconds off the transaction time once customer was at the till, but it ignores the fact that consumers are increasingly transacting away from the till as mobile phones and ubiquitous connectivity allow them to transact when and where they want to.

[[1]]Peter Evans-Greenwood, Ian Harper, Peter Williams (2012), The future of exchanging value, Deloitte[[1]]

We are seeing a shift from technology acquisition to technology use. Rather than building a payment strategy around the acquisition of a new technology (such as NFC), a successful strategy needs to be based on streamlining the buying journey. While NFC might enable the consumer to save a few seconds at the till, it does not address the far larger time they spent waiting in the queue beforehand. A more valuable solution might avoid the need to queue entirely. This is a design-led approach, focused on the overall problem the customer is solving and the context in which they are solving. Technologies are pulled into the payment strategy as needed, rather than building the strategy around the acquisition of an asset or capability.

Amazon used this approach with the development of the company’s mobile application, one that allows you snap an image of a barcode to purchase a product. Bricks-and-morter retailers see this as showrooming and unsportsmanlike. Many consumers, however, love the idea.

As I pointed out in The destruction of traditional retail{{2}}:

[[2]]The destruction of traditional retail @ PEG[[2]]

If you’re standing in an aisle casually browsing products then Amazon’s till is closer to you than the one at the front of the store[4]. You also don’t need to worry about carrying your purchase home.

The challenge for retailers (from The future of exchanging value) is to:

… manage a portfolio of technologies, from existing payment infrastructure through NFC to emerging tools, combining them to enable customers to transact when and how they need to.

The way for bricks-and-morter retailers to fight showrooming is use a range of low-cost consumer technologies to make it more convenient to transact with them than an internet retailer.

Apple showed how this might be done during the What’s New in Core Location presentation at the company’s recent Worldwide Developers Conference.

Imagine you walk into Jay’s Donut Shop. iBeacons from Core Location are accurate enough for the retailer to be sure that you have walked in, while other location technologies (such as GPS or those based on Wi-Fi) could, at best, provide a list of guesses. You don’t even need to check in. You could order you donuts before you entered the shop. When you reach the counter your iPhone would display a QR code that a clerk uses to verify the purchase. You grab your donuts and leave, the transaction charged to your iTunes account and your receipt already on your phone.

As Mike Elgan points out in his post Why Apple’s ‘indoor GPS’ plan is brilliant{{3}}, it’s not much of stretch to consider some much more interesting scenarios.

[[3]]Mike Elgan (14th September 2013), Why Apple’s ‘indoor GPS’ plan is brilliant, Computer World.[[3]]

A customer could scan the labels on clothing, process the transaction on the phone, then stroll out of the store with purchases in hand (the alarm would be de-activated for those items).

This is a solution that could be supported tomorrow on all iPhone 4Ss through to the new iPhone 5C. The hardware required to create an iBeacon is already available and it’s cheap, often in the 10s of US$.

NFC continues to struggle and it seems that Apple might have pulled together a solution that makes it irrelevent.

The destruction of traditional retail

Le Bon Marché à Paris (1875)

A steady stream of news stories is trying to convince us that online is killing retail, that online has an unfair advantage and show rooming is evil. There’s some handwaving around omni-channel and claims that that if you sharpen your approach a bit then you will be able to stand out from the online crowd and stay alive, but it’s all a distraction. The problem is that ‘retail’ is just not something we need as much as we used to.

It’s not that we no longer need retail stores. We don’t, however, need as many of them as we have today.

Retail stores serve many purposes, but the most common is to be the last stage in someone else’s supply chain. This role – the retail store that is little more than a convenient place to make a purchase – is dying.

The internet and smartphones mean that we can now shop and purchase when and were we want. We’re no longer forced to pick between the meagre offerings at a nearby store.

Browsing is something we do in a spare moment, sitting in front of the TV with our tablet or via smart phone during our commute on the train. We purchase when we realise that we’ve found something we want or need, where ever we are at the time.

The other uses for local shops and businesses will remain:– community gathering places, restaurants etc. Life for your typical retail store is looking grim though, as they are simply something that we no longer need as much of as we used to.

Continue reading The destruction of traditional retail

My book, ‘The New Instability’, is finally available

Cover of The New InstabilityAfter much effort my book, ‘The New Instability’, has finally found its way through the channel and is now available as a paperback, ePub (iPad, Nook) and mobi (Kindle).

The nutshell summary:

The uncertain economic and business condition is not simply a passing phase, a confluence of technology is changing the how the business environment and old business models and strategies built around acquiring and leveraging assets are breaking down. A new generation of companies are rethinking how business should operate and discovering business models that are orders of magnitude more efficient than the previous lot. How have they done this? And how can how do it?

It you would like to know more then you can find an extract from the book on the ‘Extract’ page on the book’s web site.

You can buy it as:

I’ll update the ‘Where to buy’ page as it finds it’s way out into the wild.

As retail dies, who will be the winners?

The high street is dying. Retailers are struggling to attract customers to their stores. When they do manage to get them in the retailers worry about the same customers using their smartphones to buy a product they've just picked up from the shelf, from an internet retailer. Retail gurus are telling the high street that they need to make their stores more inviting if they want to continue attracting an ever more fickle public; ensuring that there's accessible parking for baby boomers who don't like walking, QR codes on all the products for smartphone wielding Gen Ys, and so. This ignores the fact that globalisation, the internet and mobile phones have fundamentally changed the way we shop. Consumers haven't just become more fickle, how we go about buying the goods and services we need is in the process of being transformed and any retailer that is little more than the last step in someone else's supply chain has a poor chance of surviving.

Continue reading As retail dies, who will be the winners?

You can’t buy innovation

Why is it so hard to incent our companies or teams to do anything innovative? Something tangible that makes a difference to the top or bottom line. The vast majority of innovation programmes seem to deliver little more that some nice demos before the programme peters out, with stakeholders often happy to return to their usual duties. The problem is that innovation is neither a product or a process, nor is it a skill; innovation is an artefact of culture, and culture is something that you cannot buy, hire or implement. The reason that most companies fail to innovate – despite significant investment in innovation – is that innovation is a result of culture and their culture actively prevents them from realising anything innovative.

Innovation (whatever that is1)What is innovation? @ PEG) 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 Kogan2)Kogan 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 Weeping Woman (1937)
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
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

Outsourcing in an increasingly complex world

Outsourcing in an increasingly complex worldSometimes posts become a tad to long and unwieldily to drop onto the blog. One such post was a thing I put together around some work I’ve been doing over the last few years on outsourcing. A friend suggested that, rather than letting it languish, it could be interesting to clean it up and publish the result as a (short) ebook; which is what I’ve done.

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

Support independent publishing: Buy this e-book on Lulu.

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

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 PacBrands1)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 business4)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:

References   [ + ]

Some new rules for IT

The other week I had a go at capturing the rules of enterprise IT{{1}}. The starting point was a few of those beery discussions we all have after work, where we came to wonder how the game of enterprise IT was changing. It’s the common refrain of big-to-small, the Sieble to Saleforce.com transition which sees the need for IT services (internal or external) change dramatically. The rules of IT are definitely changing. Now that I’ve had a go at old rules, I thought I’d have a go at seeing what the new rules might be.

As I mentioned before, enterprise IT has historically been seen as an asset management function, a production line for delivering large IT assets into the IT estate and then maintaining them. The rules are the therefore rules of business operations. My attempt at capturing 4 ± 2 rules (with friends) produced the following (in no particular order):

[[1]]The rules of Enterprise IT @ PEG[[1]]

  • Keep the lights on. Much like being a trucker, the trick is to keep the truck rolling (and avoid spending money on tyres). Otherwise known as smooth running applications are the ticket to the strategy table.
  • Save money. Business IT was born as a cost saving exercise (out with the rooms full of people, in with the punch card machines), and most IT business cases are little different.
  • Build what you need. I wouldn’t be surprised if the team building LEO{{2}} blew their own valve tubes. You couldn’t buy parts of the shelf so you had to make everything. This is still with us in some organisations’ strong desire to build – or at least heavily customise – solutions.
  • Keep the outside outside. We trust whatever’s inside our four walls, while deploying security measures to keep the evil outside. This creates an us (employees) and them (customers, partners, and everyone else) mentality.

[[2]]LEO: Lyons Electronic Office. The first business computer. @ Wikipedia[[2]]

Things have changed since these rules were first laid down. From another post of mine on a similar topic{{3}} (somewhat trimmed and edited):

[[3]]The IT department we have today is not the IT department we’ll need tomorrow @ PEG[[3]]

The recent global financial criss has fundamentally changed the business landscape, with many are even talking about the emergence of a new normal{{4}}. We’ve also seen the emergence of outsource, offshore, cloud computing, SaaS, Enterprise 2.0 and so much more.

Companies are becoming more focused, while leaning more heavily on partners and services companies (BPO, out-sourcers, consultants, and so on) to cover those areas of the business they don’t want to focus on. We can see this from the global companies who have effectively moved to a franchise model, though to the small end of town where startups are using on-line services such as Amazon S3, rather than building their own internal capabilities.

We’re also seeing more rapid business change: what used to take years now takes months, or even weeks. The constant value-chain optimisation we’ve been working on since the 70s has finally cumulated in product and regulatory life-cycles that change faster than we can keep up.

Money is also becoming (or has become) more expensive, causing companies and deals to operate with less leverage. This means that there is less capital available for major projects, pushing companies to favour renting over buying, as well as creating a preference for smaller, incremental change over the major business transformation of the past.

And finally, companies are starting to take a truly global outlook and operate as one cohesive business across the globe, rather than as a family of cloned business who operate more-or-less independently in each region.

[[4]]The new normal @ McKinsey Quarterly[[4]]

So what are the new 4 ± 2 rules? They’re not the old rules of asset management. We could argue that they’re the rules of modern manoeuvre warfare{{5}} (which would allow me to sneak in one of my regular John Boyd references{{6}}), but that would be have the tail wagging the dog as it’s business, and not IT that has that responsibility.

[[5]]Maneuver warfare @ Wikipedia[[5]]
[[6]]John Boyd @ Wikipedia[[6]]

I think that the new rules cast IT as something like that of a pit crew. IT doesn’t make the parts (though we might lash together something when in a pinch), nor do we steer the car. Our job is to swap the tyres, pump the fuel, and straighten the fender, all in that sliver of time available to us, so that the driver can focus on their race strategy and get back out on track as quickly as possible.

With that in mind, the following seems to be a fair (4 ± 2) minimum set to start with.

  • Timeliness. A late solution is often worse than no solution at all, as you’ve spent the money without realising any benefit. Or, as a wise sage once told me, management is the art of making a timely decision, and then making it work. Where before we could take the time to get it right (after all, the solution will be in the field for a long time and needs to support a lot of people, so better to discover problems early rather than later), now we just need to make sure the solution is good enough in the time available, and has the potential to grow to meet future demand. The large “productionisation” efforts of the past need to be broken into a series of incremental improvements (à la Gmail and the land of perpeputal beta), aligning investment with both opportunity and realised value.
  • Availability. Not just up time, but ensuring that all stakeholders (both in and outside the company, including partners and clients) can get access to the solutions and data they need. There’s little value in a sophisticated knowledge base solution if the sales team can’t use it in the field to answer customer questions in real time. Once they’ve had to fire up the laptop, and the 3G card, and the VPN, the moment has passed and the sale lost. Or worse, forcing them to head back to the bricks and mortar office. As I pointed out the other week, decisions are more important than data{{7}}, and success in this environment means empowering stakeholders to make the best possible decisions by ensuring that the have the data and functions they need, where they need, when they need it, and in a format that make it easy to consume.
  • Agility. Agility means creating an IT estate that meet the challenges we can see coming down the road. It doesn’t mean creating an infinitely flexible IT estate. Every bit of flexibility we create, every flex point we add, comes at a cost. Too much flexibility is a bad thing{{8}}, as it weighs us down. Think of formula one cars: they’re fast and they’re agile (which is why driving them tends to be a young mans game), and they’re very stiff. Agility comes from keeping the weight down and being prepared to act quickly. This means keeping things simple, ensuring that we have minimum set of moving parts required. The F1 crowd might have an eye for detail, such as putting nitrogen{{9}} in the tyres, but unnecessary moving parts that might reduce reliability or performance are eliminated. Agility is the cross product of weight, speed, reliability and flexibility, and we need to work to get them all into balance.
  • Sustainability. Business is not a sprint (ideally), and this means that cost and reliability remain important factors, but not the only factors. While timeliness, availability and agility might be what drive us forward, we need still need to ensure that IT is still a smooth running operation. The old rules saw cost and reliability as absolutes, and we strived to keep costs as low, and reliability as high, as possible. The new rules see us balancing sustainability with need, accepting (slightly) higher costs or lower reliability to provide a more timely, available or agile solution while still meeting business requirements. (I wonder if I should have called this one “balance”.)

[[7]]Decisions are more important than data @ PEG[[7]]
[[8]]Having too much SOA is a bad thing (and what we might do about it) @ PEG[[8]]
[[9]]Understanding the sport: Tyres @ formula1.com[[9]]

While by no mean complete or definitive, I think that’s a fair set of rules to start the discussion.

The IT department we have today is not the IT department we’ll need tomorrow

The IT departments many of us work in today (either as an employee or consultant) are often the result of thirty or more years of diligent labour. These departments are designed, optimised even, to create IT estates populated with large, expensive applications. Unfortunately these departments are also looking a lot like dinosaurs: large, slow and altogether unsuited for the the new normal. The challenge is to reconfigure our departments, transforming them from asset management functions into business (or business-technology) optimisation engines. This transformation should be a keen interest for all of us, as it’s going to drive a dramatic change in staffing profiles which will, in turn, effect our own jobs in the no so distant future.

Delivering large IT solutions is a tricky business. They’re big. They’re expensive. And the projects to create them go off the rails more often than we’d like to admit. IT departments have been built to minimise the risks associated with delivering and operating these applications. This means governance, and usually quite a lot of it. Departments which started off as small scale engineering functions soon picked up an administrative layer responsible to the mechanics of governance.

More recently we’ve been confronted with the challenge with managing the dependancies and interactions between IT applications. Initiatives like straight-through processing require us to take a holistic, rather than a pieces-parts, approach, and we’re all dealing with the problem of having one of each application or middleware product, as well as a few we brewed in the back room ourselves. Planning the operation and evolution of the IT estate became more important, and we picked up an enterprise architecture capability to manage the evolution of our IT estate.

It’s common to visualise these various departmental functions and roles as a triangle (or a pyramid, if you prefer). At the bottom we have engineering: the developers and other technical personnel who do the actual work to build and maintain our applications. Next layer up is governance, the project and operational administrators who schedule the work and check that it’s done to spec. Second from the top are the planners, the architects responsible for shaping the work to be done as well as acting as design authority. Capping of the triangle (or pyramid) is the IT leadership team who decide what should be done.

The departmental skills triangle

While specific techniques and technologies might come and go, the overall composition of the triangle has remained the same. From the sixties and seventies through to even quite recently, we’ve staffed our IT departments with many technical doers, a few less administrators, a smaller planning team, and a small IT leadership group. The career path for most of us been a progression from the bottom layers – when we were fresh out of school – to the highest point in the triangle that we can manage.

The emergence of off-shore and outsourcing put a spanner in the works. We all understand the rational: migrate the more junior positions – the positions with the least direct (if any) contact with the business proper – to a cheaper country. Many companies under intense cost pressure broke the triangle in two, keeping the upper planning and decision roles, while pushing the majority of the manage and all the do roles out of the country, or even out of the company.

Our first attempt at out-sourcing

Ignoring whether or not this drive to externalise the lower roles provided the expected savings or not, what it did do is break the career ladder for IT staff. Where does you next generation of senior IT personnel come from if you’ve pushed the lower ranks out of the business? Many companies found themselves with an awkward skills shortage a few years into an outsourcing / off-shore arrangement, as they were no longer able to train or promote senior personnel to replace those who were leaving through natural attrition.

The solution to this was to change how we brake-up the skills triangle; rather than a simple horizontal cut, we took a slice down the side. Retaining a portion of all skills in-house allows companies provide a career path and on the job training for their staff.

A second, improved, go at out-sourcing
A second, improved, go at out-sourcing

Many companies have tweaked this model, adding a bulge in the middle to provide a large enough resource pool to manage both internal projects, as well as those run by out-sourced and off-shore resources.

Factoring in the effort required to manage out-sourced projects
Factoring in the effort required to manage out-sourced projects

This model is now common in a lot of large companies, and it has served us well. However, the world has a funny habit of changing just when you’ve everything working smoothly.

The recent global financial criss has fundamentally changed the business landscape. We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order. Many are even talking about the emergence of a new normal. The impact this will have on how we run our businesses (and our IT departments) is still being discussed, but we can see the outline of this impact already.

Companies are becoming more focused, while leaning more heavily on partners and services companies (BPO, out-sourcers, consultants, and so on) to cover those areas of the business they don’t want to focus on. We can see this from the global companies who have effectively moved to a franchise model, though to the small end of town where startups are using on-line services such as Amazon S3, rather than building internal capabilities. While this trend might have initially started as a cost saving, most of the benefit is in management time saved, which can then be used to focus on more important issues. We’re all finding that the limiting factor in our business is management time, so being able to hand off the management of less important tasks can help provide that edge you need.

We’re also seeing faster business change: what used to take years now takes months, or even weeks. The constant value-chain optimisation we’ve been working on since the 70s has finally cumulated in product and regulatory life-cycles that change faster than we can keep up. Nowhere is this more evident than the regulated industries (finance, utilities …), where updates in government regulation has changed from a generational to a quarterly occurrence as governments attempt to use regulation change to steer the economic boat.

Money is also becoming (or has become) more expensive, causing companies and deals to operate with less leverage. This means that there is less capital available for major projects, pushing companies to favour renting over buying, as well as creating a preference for smaller, incremental change over the major business transformation of the past.

And finally, companies are starting to take a truly global outlook and operate as one cohesive business across the globe, rather than as a family of cloned business who operate more-or-less independently in each region.

We can draw a few general conclusions on the potential impact on IT departments of these trends.

  • The increase reliance on partners, the broader partner ecosystem this implies, and an increasingly global approach to business will create more complex operational environments, increasing the importance of planning the IT estate and steering a company’s IT in the right direction.
  • The need to reduce leverage, and free up working capital, is pushing companies toward BPO and SaaS solutions, rather than the traditional on-premisses solutions, where the solution provider is paid per-seat, or might even be only paid a success fee.
  • The need for rapid project turn-around is pushing us toward running large portfolios of small projects, rather than a small number of large projects.
  • A lot of the admin work we used to do is now baked into web delivered solutions (BaseCamp et al).

This will trigger us to break up a the skills triangle in a different way.

A skills/roles triangle for the new normal
A skills/roles triangle for the new normal

While we’ll still take a slice down the side of the triangle, the buldge will move to the ends of the slice, giving it a skinny waist. The more complex operational environment means that we need to beef up planning (though we don’t want to get all dogmatic about our approach, as existing asset-centric IT planning methodologies won’t work in the new normal). A shift to large numbers of small projects (where the projects are potentially more technically complex) means that we’ll beef up our internal delivery capability, providing team leads with more autonomy. The move to smaller projects also means that we can reduce our administration and governance overhead.

We’ll replace some skills with automated (SaaS) solutions. Tools like BaseCamp will enable us to devolve responsibility for reporting and management to the team at the coalface. It will also reduce the need to develop and maintain infrastructure. Cloud technology is a good example of this, as it takes a lot of the tacit knowledge required to manage a fleet of servers and bakes it into software, placing it in the hands of the developers. Rumor has it that that a cloud admin can support 10,000 servers to a more traditional admin’s 500.

And finally, our suppliers act as a layer through the middle, a flex resource for us to call on. They can also provide us with a broader, cross-industry view, of how to best leverage technology.

This thinning out of the middle ranks is part of a trend we’re seeing elsewhere. Web2.0/E2.0/et al are causing organisations to remove knowledge workers — the traditional white collar middle layers of the organisaiton – leaving companies with a strategy/leadership group and task workers.

Update: Andy Mulholland has an interesting build on this post over at the Capgemini CTO blog. I particularly like the Holm service launched by Ford and Microsoft, a service that it’s hard to imagine a traditional IT department fielding.