Empirical Rationalism and Other Oxymora
Posts tagged Strategy
Do More With Less
Jun 25th
In an uncertain market, it is important for organizations to learn to do more with fewer internal resources. In a recent study of over 4600 respondents, nearly a third (31%) believed that shortage of labor / talent is a top challenge for their organization. Furthermore, on a year-over-year basis, staff development/expansion was down significantly as a top strategy to achieve business goals (from 31% to 22%). Although business execution (34%) and new products / services (34%) remained the top strategies most often cited in aggregate, 37% of CEOs believed that strategic partnerships are a top strategic priority in 2008 (second only to business execution at 40%). Furthermore, the research indicates that there has been a marked increase in the outsourcing of select functions. For example, in 2007, 24% of organizations engaged in IT outsourcing with 10% predicting outsourcing in the future; in 2008, 42% of respondents are engaged in ITO. Similarly, there has been a rise in the outsourcing of select manufacturing processes (a rise of 13% to 23%).
As part of a defensive strategy in a down economy, organizations should consider a multi-pronged strategy to address the shortage of talent. First, organizations should be prepared to outsource increasing complex functions to achieve strategic goals. However, it is important to note (and understand) that outsourcing does not necessarily mean off-shoring. With rising transportation costs and a falling dollar, America may yet become a low cost country source (LCCS) Second, organizations should consider engaging in partnerships to rapidly develop new products, services and competencies. Next, managers should review the competencies of the current staff against the newly aligned strategic plan – and cut dead weight where possible. Lastly, you should use the perceived downturn in the market as an opportunity to identify and aggressively recruit top performers into the business.
Mr. Customer… You’re Fired!
May 8th
After my post on my upcoming research, an article was sent to me on IBM “firing its customers”. The big news in the article is a rumored restructuring at IBM, but buried toward the end of the article was this tidbit:
… Global Services will be eliminating not just employees but customers, too — customers whose contracts were underbid and whose projects may never be profitable for IBM. Maybe such axing of customers is necessary, probably it is inevitable, but it hardly has a ring of corporate honesty. Customers to be dropped haven’t yet been notified, either.
Overall, I believe it a good strategy to proactively cull unprofitable customers, but I suspect this aspect of the program will be lost in the hoopla of off-shoring and restructuring.
The Unintended Consequences of Defensive Strategies
Feb 27th
Commentary in yesterday’s WSJ BreakingView’s section (hard copy, not available online) suggested that “Google is making some of the same mistakes that doomed scruffy start-up Napster nearly a decade ago”. Apparently, according to the authors, “Google has used its position as the Internet’s 800-pound Gorilla to take a hard line in negotiations with the television industry over YouTube.” and “if it doesn’t start cutting deals it may be swamped with copyright infringement lawsuits” potentially squandering its lead in the Internet Video. Now, this may be true. However, if so, I would be far more concerned about fate the television industry.
The recording industry used its might and the antiquated copyright laws to squash Napster — at best, a momentary battlefield victory. However, the recording industry has far from won the war on file trading and copyright infringement. According Brafman and Beckstrom, authors of The Starfish and the Spider, the recording industry was successful in stopping Napter because it was a centralized business with an identifiable leader — i.e., there was someone to name in the lawsuit. However, Napster spawned Kazaa (a decentralized service that allowed users to share music with each other directly). But again, since Kazaa had a recognizable leader, the record companies were able to marginalize it through legal action. The same thing happened with another P2P network called eDonkey. However, hackers took the Kazaa and eDonkeny code and went underground resulting in completely open source and decentralized peer-to-peer (P2P) networks with no identifiable leadership (Kazza Lite and eMule)… and, thus, no one to sue. Now the recording industry has to fight a faceless enemy that has no infrastructure, no chain of command and, even if identified, has a complete disregard for the authority of a court of law.
The television may be able to fight GooTube through aggressive legal action. However, they may want to consider if dealing with an 800-pound, easily identifiable, market-leading, bully is better than the alternative.
More on Platforms and Open Product Acrhitectures
Feb 22nd
In 2006, the concept of platforms moved into the mainstream business conscience. The emergence of SalesForce.com’s AppExchange, Amazon’s e-commerce platform and Google’s APIs has stirred the imagination of industry pundits and entrepreneurs alike. Despite the recent hype, open product architectures are not a new concept. In 1993, the Harvard Business Review ran an article explaining “How Architecture Wins Technology Wars” (purchase required). Although many of the examples are dated, there are a few concepts in the article that are timeless. In introducing the concept of open systems, the authors (Charles Morris and Charles Ferguson) assert that:
In an “open-systems” era, proprietary architectural control is no longer possible, or even desirable. In fact, the exact opposite is true. In an open systems era, architectural coherence becomes even more necessary. While any single product is apt to become quickly outdated, a well-designed and open-ended architecture can evolve along with critical technologies, providing a fixed point of stability for customers and serving as a platform for radiating and long-lived product family. Proprietary architectures in open systems are not only possible but also indispensable to competitive success — and are also in the best interest of the consumer.
As far back as the early-nineties, the Morris and Ferguson suggested that “good products are not enough”. In their view, point-product vendors are at the mercy of the platform vendors and there is a significant risk when the architectural leader “changes the rules of the game”. In the beginning, “products distribute architectures”. However, over time, architectures become the become the distribution channel for additional products and services. Although a familiar story now, the authors suggest that this is how Microsoft beat Lotus in the spreadsheet wars. While Lotus was developing a “grab-bag” of applications, Microsoft focused on building out the platform (i.e. Windows). In the end, Microsoft was better able to leverage its own platform to push Excel and Word.
The above-mentioned article also contends that “successful architectures are proprietary, but open” because “closed architectures do not win broad franchises”. As discussed in the previous post, Apple has used a platform approach to the development of the iPod, but it is not an open product architecture. It does seem that they have won a broad franchise though — at least for the moment. However, the article points out that Apple made the same mistake in the early nineties by bundling the Mac OS too closely to its own hardware. If they are right, iTunes/iPod will ultimately end up with single-digit market share as well as customers and innovators migrate to more open options.
The authors go on to suggest that “general purpose architectures absorb special purpose solutions”. We see this all the time in the open source world where someone makes a cool modification that ultimately gets rolled into the core product. I think that this is going to be a real challenge for the open, but proprietary, platform vendors such Salesforce.com. It is only a matter of time before they begin to roll some of the functionality provided through AppExchange into the core product — it will be interesting to observe how the partners react and how they are compensated for their innovative efforts. Lastly, the article also suggests that “low-end systems swallow high-end systems”. Although they started out as a SMB application provider, over the past two years there has been plenty of evidence that Salesforce.com is heading up-market. And over the past couple of days, Google has announced that it is going to market its previously free individual productivity applications to SMBs. These low-end systems are definitely evolving to address previously higher-end needs.
In a future post, I’ll look at phases of architectural competition and strategies for platform dominance.
