In this era of absolutely instant obsolescence, business needs to know what's happened in the last 10 minutes. Organizations are faced with the challenge and opportunity of the high-velocity economy. Rapid growth, collapsing product lifecycles, and the need for a focus on" time to market", all these characterize the competitive business landscape of today, around the world. I like reading this piece by Jim Caroll, where he points to high performing organizations adopting the innovation streak in a more formidable way in these changing circumstances. He finds that such winning organizations, who run faster and focus on being innovative have some common denominators amongst their processes: • operational excellence is a major focus • there are high expectations for growth, and an IT infrastructure that enables such growth • they have a need for instant, need driven relationships with their partners • they focus on rapid agility for new market demands • they are religious on "fast time to market" • they focus on quick marshalling of resources to accomplish velocity • they provide for instant scalability, given market volatility and rapid change
While traveling back home from Marco Island last week, my colleagues drew my attention to the ascending influence of Second Life. While the discussions began to center around Avatars and business implications, I was thanking myself to be in the company of incredibly smart people – being in the company of such smart people, always takes discussions and understanding to a different level. Nissan embracing second life is quite an endorsement of the power and reach of Second Life, so went the discussions.Coming right after being part of a global summit focussed on innovation,the discussions were more interesting.
In this age of contribution economy – a phenomenon that we are seeing ever since the Internet started to connect everyone to everyone else all the time, people from around the world can more easily contribute leading to exploding results - caused by the coming together of energy, ideas, and knowledge. Some of the more familiar examples of these collaborative efforts include blogs, open-source software, podcasts, and even the nonprofit online encyclopedia Wikipedia. We are also seeing customers leading the charge of innovation and the economist article on user led innovation exemplifies a new form of collaboration. The rise of online communities, together with the development of powerful and easy-to-use design tools, seems to be boosting the phenomenon, as well as bringing it to the attention of a wider audience, says Eric Von Hippel of MIT, author of the well known book Democratizing innovation.
Eric Von Hippel in this Gartner Fellow Interview opines that the economy clearly is in a major paradigm shift - - shifting from manufacturer-centered to user-centered innovation at a great rate. He shares interesting points.
He points out that when innovation becomes democratized, many traditional assumptions about innovation and the best ways to innovate are upended. For example, the advantages that the traditional machinery firms have in place with respect to innovation come into question. When innovation resources are cheap and well diffused, what firms ought to do is let a thousand flowers bloom, as they say, and then select the best flower. It no longer makes sense for corporate marketing researchers to go around asking passive consumers what kind of flower they would like, if only they could have it and then, after huge process efforts, decide to develop that flower.He would like to see this as the emergent solution and emergent market model. Here, users develop solutions - and manufacturers can therefore build their new product ideas by examining user-developed solutions as well as user needs. While tracing the sources of innovation, he claims, we find that users actually are the ones that typically develop the functionally new products that later become major commercial successes. He gives a few interesting examples:
A. The first heart-lung machine and the first skateboard as well, both were first prototyped and applied by users.
B. Years ago in computers, fault-tolerant computers were developed by leading-edge banks - not by computer manufacturers; not the mainstream software vendors - because it was the banks that couldn't afford to lose the transactions if the computer went down.
He argues that it makes great economic sense that users would be the innovation leaders in the development of products that define new markets. Manufacturers always prefer to serve larger and more-certain markets - so who but users will be willing to be the pioneers, he asks.
Finally he finds that user innovation is getting more and more frequent, as the cost of the investment innovating users must make to achieve their goal steadily drops.
The interview is extremely insightful, focusing itself on the evolution, growth and management of innovation and in looking through what conventional collaborative mechanism in fusion with powerful mechanisms like internet enabled collaboration could help achieve –all these point to a world of immense possibilities. With a dominant number of internet users poised to take a dip in the virtual world, the virtual world could become more and more real!!
Friends from Infosys pointed me to Mr.Narayanamurthy’s pre-commencement lecture at the New York University (Stern School of Business). A very inspiring speech with lot of reflective thought built inside. I particularly liked this part wherein he says that the mindset one works with is also quite critical. I never get tired when I get to read /listen to his various speeches – every one has a key message. Here, he points to Carol Dweck’s work as quoted by Marina Kravosky, on the fact that it matters greatly whether one believes in ability as inherent or that it can be developed. ( The Effort Effect is my favourite as well – briefly the theory is that with occasional tumble’s one can reach far greater heights). A fixed mind set creates a tendency to avoid challenges, to ignore useful negative feedback and leads such people to plateau early and not achieve their full potential. The latter view, a growth mind set, leads to a tendency to embrace challenges, to learn from criticism and such people reach ever higher levels of achievement. Read Carol Dweck’s book, The Mindset : The New Psychology of Success. Carol believes that personalities can be changed and holding a growth mind-set bodes well for one’s relationships.
Some of the lessons that Mr.Murthy points to are very telling – excerpts with some edits:
1. I will begin with the importance of learning from experience. It is less important, I believe, where you start. It is more important how and what you learn. If the quality of the learning is high, the development gradient is steep, and, given time, you can find yourself in a previously unattainable place. Learning from experience, however, can be complicated. It can be much more difficult to learn from success than from failure. If we fail, we think carefully about the precise cause. Success can indiscriminately reinforce all our prior actions. 2. A second theme concerns the power of chance events. As I think across a wide variety of settings in my life, I am struck by the incredible role played by the interplay of chance events with intentional choices. While the turning points themselves are indeed often fortuitous, how we respond to them is anything but so. It is this very quality of how we respond systematically to chance events that is crucial. 3. Of course, the mindset one works with is also quite critical. As recent work by the psychologist, Carol Dweck, has shown, it matters greatly whether one believes in ability as inherent or that it can be developed. Put simply, the former view, a fixed mindset, creates a tendency to avoid challenges, to ignore useful negative feedback and leads such people to plateau early and not achieve their full potential.
The Takeaway : The message is perhaps the best possible one that once can hope to get for the event. Around the world, corporates need not just managers but leaders with entrepreneurial mindset, capable of taking the organization to its next levels and help break open new frontiers. The message is very powerful considering that it has come from a person of his stature . His reflections , risk taking abilities, determination and moreover his idea of moving from operational management of infosys, an organization that he has so passionately chiseled and built over a long time and finally giving way to others – all are testimony to his greatness. Mr.Murthy's approach towards his life and the dogged determination to shape his own destiny,his beliefs in being ever hopeful, creating and distributing wealth all point to set of core beliefs – the likes of which are essential for entrepreneurship and growth. Depending on the context, the general approach can change- its like changing the template/skin as when new developments happen and when the world keeps changing – new prescriptions and beliefs may necessarily spring up but the core values are timeless and priceless.
A new study finds that about 15 percent of pay-per-click advertising dollars could be lost due to clickfrauds, contends a new study. Pathological traffic that impacted a small sample of less than a dozen websites resulted in advertisers being billed for illicit clicks that the search engines did not catch. The early results of a Fair Isaac study of click fraud showed some channels could hit ad campaign budgets at a rate of 10 to 15 percent. Also, Fair Isaac contends that Google's specific estimates of what their unsupervised detection efforts find in click fraud is "not believable," based on their experience detecting fraud in other industries. Without advertiser data, search engines cannot defeat click fraud.
The 10 to 15 percent rate of pathological traffic hitting Fair Isaac's small sample of advertisers, less than a dozen sites, far exceeds the 0.02 percent rate touted by Google. Earlier, Danny Sullivan wrote Google’s declaration that self clicks are traced and offset looks like a wrong claim as its feasibility looks suspect. Some of those who have been blacklisted by Google for adsense misuse cry about Google’s highhandedness in dealing with them by stopping their accounts without sharing much details of the suspected fraud. With Google poised to massively increase its revenue owing to conquering more marketshare, it is only fair that there is some more openness from Google into their fraud detection methods, which they guard closely for the protection of their advertisers, or more results from the Fair Isaac test, it's hard to tell who to believe right now.
I listened to Gen.Powell speak in a private meet few days back - he said amongst other things that barring Iraq, around the world, things are beginning to look manageable and promising and hoped that with the impending change in the US administration, even the situation in Iraq could change. On my travel back to Singapore read this thought provoking article about the futility in dealing with the Middle East. I quote:
We devote far too much attention to the middle east, a mostly stagnant region where almost nothing is created in science or the arts—excluding Israel, per capita patent production of countries in the middle east is one fifth that of sub-Saharan Africa. The people of the middle east (only about five per cent of the world's population) are remarkably unproductive, with a high proportion not in the labour force at all. Not many of us would care to work if we were citizens of Abu Dhabi, with lots of oil money for very few citizens. But Saudi Arabia's 27m inhabitants also live largely off the oil revenues that trickle down to them, leaving most of the work to foreign technicians and labourers: even with high oil prices, Saudi Arabia's annual per capita income, at $14,000, is only about half that of oil-free Israel. And global dependence on middle eastern oil is declining: today the region produces under 30 per cent of the world's crude oil, compared to almost 40 per cent in 1974-75. In 2005 17 per cent of American oil imports came from the Gulf, compared to 28 per cent in 1975, and President Bush used his 2006 state of the union address to announce his intention of cutting US oil imports from the middle east by three quarters by 2025.
The only city that is making some forward looking moves apppears to be Dubai - see the video about the construction activities in Dubai. Unless compelled by immediate danger, the world says, Edward Luttwak should therefore focus on the old and new lands of creation in Europe and America, in India and east Asia—places where hard-working populations are looking ahead instead of dreaming of the past.
Dan Dodge concludes, 1% of search market share is worth over $1 Billion'. His math concludes that each search query produces $0.12 ad revenue, which gives a value of $1B for just 1% of total search market share.
The world internet population is in excess of 1.2 B internet users and Google leverages the internet through search and adsense – of 50% of internet search happens through Google, and a portion of revenue coming through adsene.
We are going to see the explosion of internet moving forward. Jakob Nielsen points out that with usability scene improving, in the long run, every time companies increase the value of their online businesses, they end up handing over all that added value to the search engines. Any gain is temporary; once competing sites improve their profit-per-visitor enough to increase their search bids, they'll drive up everybody's cost of traffic. This is great news for search engines: they can double their income by doing nothing. Google is improving its market share consistently – we are likely to see a disproportionate share of revenue growth moving forward – it is likely that Google’s revenue growth would rise faster than the rise of its search marketshare. That’s why it is interesting to see Microsoft beginning to focus on advertorial market in an aggressive manner – after all revenue streams in the internet revolve around search and advertorial market. Having lost the search game, Microsoft wants to atleast build some revenue streams – one will have to wait & see how this would pan out. But one thing is clear : short of a technological shift in the internet/search technology, google is poised to vastly improve its revenue as the internet begins to reach more and more people around the world.
Making it easy to launch a new enterprise is one of the many ways in which the U.S. has led the world in fostering a dynamic entrepreneurial class. Other structural factors, from bankruptcy laws to tax policies and employment regulations, help small businesses thrive here. And those moves have been copied into the playbooks of other nations eager to see their homegrown entrepreneurs create jobs and spur economic growth. Geoff Lewis in a Fortune Small Business article reports on his search to find the most entrepreneurial nations. “Our quest for startup-friendly countries began with the World Bank's doing Business reports (doingbusiness.org), which every year measure the entrepreneurial climate of 175 nations in two ways: starting and operating a business. But the lists give an incomplete picture. France, for example, ranks in the top 10% for ease of starting a business and in the top fifth for operating one, but it has notoriously low rates of entrepreneurship. Global Entrepreneurship Monitor (GEM), an annual study produced by Babson College and the London Business School. Its 2007 High Growth Entrepreneurship Report provides a glimpse at national rates of high-expectation entrepreneurship - how many American-style entrepreneurs a country produces.” Amongst the other things that the report finds is that the world’s two largest emerging economies, China and India, exhibit significantly different levels of high-expectation and high-growth entrepreneurship. Emphasizing on the role models that young people adore in all countries, one of the quotes indside the article points out "Every high school kid in the United States knows who Sergey Brin and Larry Page are". Now this cultural revolution is spreading to China, where newly minted billionaires such as Zhengrong Shi, chairman of Suntech Power Holdings (suntech-power.com), are becoming folk heroes. Read - Who in the world is entrepreneurial?. As i see it,These surveys typically ignore how majority of people get things done –engaging specialist firms and taking expert advice may substantially alter the cycle time – but in some cases, it can be worse than what has been published. For instance, am surprised at the better ratings given to Thailand over other asian countries. Business friendliness also need to be assessed along the lifecycle of the business. Martin wolf wrote a couple of days back that asian countries are creating their own course of progress chart, and they are so successful that multilateral agencies like IMF are getting thrown out of business and the multilateral bullying institutions are cut to their size and are getting more and more irrelevant to most of the world’s population. While there is no doubt about the rise of asia in a big way, its attractiveness index for entrepreneurs need to go up – substantially. I do believe that in general the entrepreneurial cult will get more and more strong in the days to come – around the world. Seeing the rapid change that is happening all over the world, I can safely say that this list would look different five years from now and much more different in a decade.
This is a clip about the welcome said to be provided by Aditi Technologies for software engineers joining the company. My feelings ranges from fun to amusement !! Look at it and decide for yourself.
Joshua Greenbaum writes, salesforce.com is the next Siebel, the next CRM has-been, the next low-priced software buyout opportunity, unless somehow the company embarks on a remarkable turnaround from its current moribund strategy. It may take a couple of years, and there may be some big blockbuster announcements and a couple of good quarters in the interim, but it’s gonna happen, and it’s gonna be ugly. I definitely see merits in Greenbaum’s argument – SFDC may need to recreate itself to grow - the sustainable next big thing is still awaited from SFDC.
Bob Cringley writes that Google is sowing the seeds of its own eventual destruction. His point is by investing in so many good people and chartering them to generate and execute good ideas, Google is overstretching itself. His point: good ideas alone are not enough. The real money is in taking existing ideas and twisting the idea just far enough to make it work in a fantastic new way. Somehow I do not think that Google can be that easily written off – they have remarkable depth in their thinking and reasonable degree of strength in execution. Remarkable are the ways that law of nature plays itself!!
Update : Jason Wood comes with an outstanding piece in support of SFDC, in response to Josh Greenbaum's criticism on SFDC. Josh responds to Jason's criticism. I do not agree with Josh on the two quarter decline but I do think that SFDC needs to come with something significant to sustain the growth rates(despite customer lock-ins/deferred revenues - these would be seen as tail wind effect(s) when future numbers begin to roll out. There still remain lot more questions in front of SFDC to sustain its phenomenal growth rates - more particularly we have to see the speed at which it is able to establish itself inside fortune 500 enterprises.
I have been highlighting the challenges in scaling up in china – when I wrote that resource scaleup disappoints.
Forrester finds that while Chinese services firms are supporting a vibrant local IT market, China has not achieved the offshore growth that people expected. Japan remains the dominant location for China's offshore clients. But given the lack of offshoring and IT services sophistication of most Japanese firms, it has not been a growth engine. The report shows that to date the market has not taken off as expected. While there continues to be demand from Japan and multinationals with operations in China, the offshore business from the US and Europe has been slow to materialize. In fact, China's percentage of GDM resources for the top services firms like Accenture has dropped, while India and the Philippines have seen far greater investment. The report rightly points to set of concerns impeding growth - attrition, captive centers bidding up wages, and a lack of experienced managers and technical leads. In addition, the appreciation of the yuan against the dollar hurts .Most of the local players work on project mode and their account reach is quite limited in numbers. In contrast the scaleup that we notice in Indian headquartered companies are beginning to see more momentum. In short, the market demand does not match government & service provider expectations and so it continues to be a story – testing, data management, and product development services may be a focal area for growth.
Estimates suggest that the top 10 local chinese service providers have together in all employ 12000 consultants for offshoring engagements. To understand the way the top 50 service players are executing lets looks at this - The top 50 IT services vendors employed 1.7 million employees at the end of their most recent reported financial years. This is almost an increase of 13% of the comparable total of 1.5 million from the previous year. Much of this growth has been driven by the major offshore sourcing suppliers, with the top five players adding 88,000 new staff last year taking their combined total headcount to 307,500. TCS, Wipro, Infosys, Satyam and Cognizant are poised to add a further 100,000 new recruits between them in fiscal 2007. Its just not the scale alone matters but again it is an important issue to be considered. China may never become a big force on IT services. At best it can play a supplementary role but it remains to be seen how this evolves.
I find Forrester’s coverage streets ahead of its competitors particularly when it comes to global delivery and enterprise software – very timely, extremely well focused, matter-of-fact research all based on actual data. Others are mostly getting drowned by their own arrogance while AMR comes a close second. I liked Bruce Richardson’s and by extension AMR’s coverage of offshore market dynamics – this got further reinforced when I met AMR’s Bruce Richardson - I like his perspective on the potential advances that the Indian headquartered service providers could be making in the near and medium term.
The 45 people strong Technorati currently track over 250 million videos, blogs, photos, podcasts, events, and other social media objects in addition to more than 80 million blogs, says its founder Dave Sifry. Today search is getting faster, more personal and covers a broader range. Over a period of time, my usage of technorati has been coming down - sensing such happenings amongst other things- technorati seems to be getting relaunched with a different focus. While introducing the newly launched Technorati he writes that the world has changed and isn't just about blogs anymore. In line with this he says, the search silos are being eliminated on Technorati – users needed to know in the past the difference between keyword search, tag search and blog directory search in order to make use of the full power of the site. With a new simplified experience, technorati, he claims would be able to assemble the freshest, hottest, most current social media from across the Live Web - Blogs, posts, photos, videos, podcasts, events, and more. All this with a brand new user interface that looks simpler , and more intuitive.
What I liked about the new launch is its stated promise of providing more context around more stuff like videos, music, and blogs. Over time, these pages need to get richer and more comprehensive with the promised addition of information about the thing itself, like where it was published, who links to it, what other things are similarly tagged, and more. Google’s launch of universal search is an important milestone in the evolution of search market. I think the search market is also undergoing a massive change and niche search engines may fall apart. Vertical search engines may have to come out with new business models – the search world is never going to be the same again. The search market is also a tough market to enter, sustain and grow and with the changing face of web, its growth and powerful technology, it is going to get more and more tough marketplace. Yahoo/MSN needs to brace itself for a more tough search marketplace.
James Suroweicki is one of my favorites to read. In this article, he brings out how bullying is endangering moral legitimacy for developed countries when it comes to advancing global causes. Intellectual-property rules are clearly necessary to spur innovation: if every invention could be stolen, or every new drug immediately copied, few people would invest in innovation. But too much protection can strangle competition and can limit what economists call “incremental innovation”— innovations that build, in some way, on others. It also encourages companies to use patents as tools to keep competitors from entering new markets. Finally, it limits consumers’ access to valuable new products: without patents, we wouldn’t have many new drugs, but patents also drive prices of new drugs too high for many people in developing countries. The trick is to find the right balance, insuring that entrepreneurs and inventors get sufficient rewards while also maximizing the well-being of consumers. He is bang on when he points out that history suggests that after a certain point tougher I.P. rules yield diminishing returns. Recent incidents involving Thailand & the drug lndustry point to pent up feelings and defiance, however wrong , they may appear to be on paper.. Suroweicki is again at his best when points out the anamoly between positions taken by rich nations when it suits their interest. The U.S. when it comes to labor standards, argues that we shouldn’t impose developed-country standards on developing countries, but in the case of intellectual property its position is exactly the opposite. Global powers can definitely do better on many fronts when it comes to dealing with free trade.
I like this quick assessment of the Microsoft + aQuantive deal. Though, I do feel that Microsoft is in general losing the edge, through this move, they are showing some determination to fight back, after losing the search game - where it is getting almost marginalized. Look at the benefits that can accrue to Microsoft here:
where Microsoft has control of the - Through RSS, Office integration and other means, if they bring web access closer to the desktop/mobile, they would try and extend their reach of influence. - The larger presence in display, merchandise and advertising arena's.
I think Microsoft has a fighting chance here - though going by their botched efforts in their online initiatives, it may look like another strange move. We have to see if microsoft is able to break the jinx about the success of its online initiatives.
Am travelling to the US to be at Marco Island, Florida. Updates could be sporadic for the next few days.
Then we heard about the rumours & denials about Yahoosoft.
WPP Group announced that it was buying 24/7 Real Media & Silver Lake Partners and ValueAct Capital announced earlier that they were buying Acxiomand taking it private. Now comes the big ticket acquisition – Microsoft buying aQuantive for a big number – 6billion US$ in cash. aQuantive is a public company had a market cap of just $2.8 billion as of yesterday & the acquisition price of $6 billion is a roughly 2x premium on yesterday’s closing price – indication that there was competition in acquiring this and in more ways than one shows microsoft’s desperation. Google shelled 3bn for DoubleClick and Yahoo paid about 650 million for Rightmedia. Real Media deal is valued at 650 million and Axciom deal valued in excess of 2 billion dollars. Microsoft claims that it has been a customer of aQunative for sometime and its justification for acquisition makes interesting reading : As it sees the online ad market is $40 billion annually and growing 20% per year. It claims that the next step in the evolution of its ad network from its initial investment in MSN, to the broader Microsoft network including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet. Microsoft says it is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity and sees this deal as giving them a more complete end to end solution (paid search, display ads, CPA). Microsoft says the deal will make their time to market much quicker and says the advantages to the stakeholders are manifold:
Advertisers and ad agencies will benefit from a world-class media planning, buying and campaign management solution to drive maximum ROI and optimize their reach to audiences across the increasingly fragmented, interactive media landscape. Media owners/publishers will gain access to best-in-class inventory optimization and monetization solutions across a full suite of rich media, video and targeting capabilities.
Microsoft has really upped the ante here - having learnt what Google could do with its big ticket acquisitions like YouTube. I think this shows one more thing – talks of Microsoft buying out Yahoo at Yahoo’s terms goes down and this move could potentially put more pressure on Yahoo. This is a precursor to bigger changes that could happen in the larger internet space.
Nicholas Carr points to interesting statistics : between the end of 2001 and the end of last year, the number of Internet domains expanded by more than 75%, from 2.9m to 5.1m. At the same time, however, the dominance of the most popular domains grew substantially. At the end of 2001, the top 10 websites accounted for 31% of all the pages viewed on the net. By the end of last year, the top 10 accounted for fully 40% of page views. Google now handles 65% of all web searches, up from 58% just a year ago. Despite aggressive attempts by Yahoo!, Microsoft and Ask to boost their own shares of the search market, Google continues to widen its lead. There are more destinations online, but we seem to be visiting fewer of them.
He therefore concludes that the internet has failed to live up to its promise as an "open, democratic medium" as the top sites come to resemble the major media networks of the past.
While data points look interesting, in reality the internet has really liberated the users minds in exerting choices. Fact remains that the composition of the top ten sites was different as recent as three years back and one does not know, in the collaboration hungry world, what would be the dominant platform(s). Due to considered choice, there may be more convergence towards preferred sites – but traffic in internet appears more promiscuous and fact remains that the possibilities around the internet remains endless – which means a lot more is yet to come out. Even assuming that the net grows at the current rates in a predetermined trajectory, newer business model centric players would begin to become very important – for example players like techmeme, twitter all show signs of providing more and more choices to users. What can explain the phenomenal growth of the blogosphere. More growth, newer business models and newer players would offer better and varying choices to users.
I wrote a brief note on Oracle’s acquisition of Agile Software. While the top-tier vendors boast of wide ranging integrated functionalities with deep pockets, specialized solutions like PLM, SRM, MDM, Content management, BPM, Document management, Compliance solutions, Vertical solutions coming from best - of - breed players continue to remain attractive to buyers of different spectrum. Finding it difficult to beat them in their own game, cash rich mega vendors are doing what they are best at doing : buying out point vendors.
I was sitting next to the amiable Bryan Stolle, Agile's chairman in a recent meet. Agile is the last standalone PLM standalone solutions company, after the acquisition of its closest competitor, Matrix One, by Dassault Systems last year. After its 2003 acquisition of Eigner, which gave the company a solid foothold in the European discrete manufacturing market, it acquired Cimmetry in early 2005. Cimmetry’s visualization flagship product, AutoVue, now has over 9,500 customers in a number of vertical industries, including manufacturing, electronics, architectural/engineering/construction, and industrial. Agile is expanding its product portfolio to support the CPG industry. In mid-2006, Agile announced the acquisition of Prodika, a PLM applications vendor with a focus on CPG.
Oracle has acquired more than 25 companies – of varying size & color to shore up its strength in the enterprise application space. The acquisitions have been in almost every enterprise category, ranging from ERP (enterprise resource planning) to CRM (customer relationship management) and grid computing to business intelligence. This is part of oracle’s stated strategy of acquiring scale and depth by acquiring complementary products and customer bases which it can cross sell a wider range of products to, in competition with MIS players in the MISO family. Agile provides Oracle with a decent set of solutions in the SCM and PLM enterprise solutions space. The thinking behind the merger is that there is limited or no overlap between oracle’s existing product range and that of Agile. Oracle has committed approximately 5.0x maintenance revenue multiple for Agile – a position that is more or less its benchmark based on previous acquisitions. On paper, this appears to be a sound deal for Oracle - Agile has a significant customer base and its maintenance renewal ratio is also said to be on the higher side. For Oracle, looking at increasing its footprint in the manufacturing space, this opportunity is a god send one.
In the enterprise PLM software space, clearly vendor consolidations will reduce the number of players and further strengthen those that already hold a substantial share of the PLM market. This would force collapse a number of products to be highly feature rich. This would mean that typically functionalities that two years ago were still offered as separate modules/products may become part of larger product suites. Oracle shall clearly gain with this acquisition as it braces to take on the likes of IBM, Dassault & SAP. Read the full note here.
Microsoft & Open Source movement are traditional antagonists. Just as we thought that Microsoft was extending an olive tree to the open source movement, here comes the news that is upping its ante against the open source movement. Microsoft asserts that one reason free software is of such high quality is that it violates more than 200 of Microsoft's patents. And as a mature company facing unfavorable market trends and fearsome competitors like Google, Microsoft is pulling no punches: It wants royalties. If the company gets its way, free software won't be free anymore.
Microsoft deserves to get fair and reasonable returns on the investments that it made to develop its patent basket. The anti-microsoft sentiment is running dangerously high.While raising all this noise, Microsoft seems to be looking at collecting royalties, like the way it pays Novell, and perhaps not sue an entire agitated open source community and its users. After all OIN itself has powerful backers.
Sometimes buyer power and influence can dictate the course of such moves but lager enterprise and open source adoption look still sticky. Interestingly, in the enterprise space, large consulting & system integrators are taking a cautious approach towards supporting open source software, in order not to upset theirsizeable and profitable revenue stream from implementing and supporting proprietary software. While the realization is there to be more engaged in open source, fact of the matter is that they don't know exactly how, nor do they understand the impact on their business model. The problem, it appears to me is in the process of patent granting itself.While covering Microsoft's recent frenzy of patents acquisition, I wrote that, it may be time to abolish software patents. Microsoft had filed very high number of patent applications in the US in the last few years - the pace of filing made news: 60 fresh, non obvious patentable ideas every week. Reason for sudden increase in applications - Microsoft found that others file about two patents for every $1 million spent on research and development. Microsoft had not taken an interest in patents in its early years because, as it thought it could rely on copyright. Microsoft says that the courts changed the rules, and Microsoft had to respond like everyone else. Eliminating software patents would give Microsoft another chance to repair its relationship with open-source users. Microsoft has repeatedly pointed out to "intellectual property risk" that corporate customers should take into account when comparing software vendors. This has now led to an interesting situation :On the one side, Microsoft has an overflowing war chest and bulging patent portfolio, ready to fight - or cross-license with - any plaintiff who accuses it of patent infringement. On the other are the open-source developers, without war chest, without patents of their own to use as bargaining chips and without the financial means to indemnify their customer.
I think far reaching changes need to be done in the space of patenting and till such time Microsoft and others are better off by talking and working out reasonable arrangements. Litigations would complicate things further.
I was looking at some available data(collected from various sources) on IT spending geographically – sometimes it is indeed counter intuitive to see the distribution of the spend besides its scale. While the delta in maturity levels are quite easy to understand, a number of factors like cost of service, currency rates, investment lifecycle, sunk investments in legacy,historical returrns on investment etc contribute to the huge difference in the spend composition. Fig I shows the scale difference. Approximately UK is expected to spend twice as much as china on IT, while the US is expected to spend 10 times more.
Fig II shows the distribution of the IT expense. Look at the huge diversity in the composition of the mix –while developed nations spend almost 40% to 50% on services alone, emerging nations like china spend about 15% on services. Hardware spend in china is almost 75% of the total IT spend whereas the spend in US/UK hovers around 30%.
Next time, when you hear various tech players talk about booming economies in emerging nations, use this insight to find in what specific ways their product/service offering could benefit - ofcourse, an assessment of next level drill down of spend categories is crucial there.
Architecting high volume sites is a challenging task – Many engineering disciplines come together in creating a highly available site that users around the world can access routinely by typing a URL address. Recently, I called the architectures of high performance sites such as eBay, Amazon & Google as modern wonders of the world. Web site performances are becoming more and more important - once might see while downloading, users are asked to select their servers of choice from which to download – mostly geographical proximity /traffic bandwidth information helps users to choose from where to download. For an ordinary user, website availability and speed of loading the site is of paramount importance – whatever be the bandwidth availability – very often users think that fast loading sites are an important measure of the quality of the site. Jacob Rosenberg points out the range of variance that users may experience owing to location. Keynote tests of a single-site web application -Digg.com delivered from the West Coast of the US to: - San Jose, CA: 403ms (.4 seconds) - New York, NY: 1,993 ms (2.0 seconds) - Frankfurt, Germany: 3,658 ms (3.7 seconds) - Bangalore, India: 6,224 ms (6.2 second) Some believe that faster loading sites get better traffic. Yahoo’s chief performance Yahoo man, Steve Souders is writing a series of blogs on Yahoo! Developer Network describing best practices he’s developed at Yahoo! for improving performance. He advocates that 80-90% of the end-user response time is spent downloading all the components in the page: images, stylesheets, scripts, Flash, etc. Rather than starting with the difficult task of redesigning your application architecture, it's better to first disperse your static content. This not only achieves a bigger reduction in response times, but it's easier thanks to content delivery networks. A content delivery network (CDN) is a collection of web servers distributed across multiple locations to deliver content more efficiently to users. The server selected for delivering content to a specific user is typically based on a measure of network proximity. For example, the server with the fewest network hops or the server with the quickest response time is chosen. Steve’s recent presentation(made along with Tenni Theurer) on the topic of High Performance Web Sites emphasizes the optimizing website performance by focusing on front end issues. The content richpresentation is full of so much of data and covers several underlying principles. The golden rules of performance are: 1. Make fewer HTTP requests 2. Use a CDN 3. Add an Expires header 4. Gzip components 5. Put CSS at the top 6. Move JS to the bottom 7. Avoid CSS expressions 8. Make JS and CSS external 9. Reduce DNS lookups 10. Minify JS 11. Avoid redirects 12. Remove duplicate scripts 13. Turn off ETags 14. Make AJAX cacheable and small
In the end the advise boils down to: • Focus on the front-end • Harvest the low-hanging fruit • User response times can be controlled
Defying conventions and set procedures isn’t a job and making unconventional initiatives to be demonstrably successful is no easy job. Google is known for its voluntary program. eBay has constituted a disruptive innovation team. Its leader Mancini and his team are going after their task quite admirably, judging by what seems to have been achieved. As Mancini sees it, his job is to identify "things that take the company forward the next 10, 20 years." He knows such brainstorms can come from outside as well as inside company walls-which is why he oversees the eBay Developers Program. The earlier approach is to make auctions easier and more profitable for eBay's customers, and more people will bid, buy, and sell-meaning lots more revenue for eBay, which takes a cut from every auction.
The outcome measures are quite significant indeed: Traditionally , eBay used to charge developers, Mancini’s team got rid of ed those fees to the developer. Since eBay got rid of the fees, the number of third-party developers, just 300 back then, has soared more than a hundredfold. That indie force has created 4,200 programs, far more than eBay could have built itself. And the apps accounted for about a quarter of eBay's 2.4 billion listings last year. This means 45,000 software developers are thinking of ways to make it easier to use eBay - that's nearly four times the number of actual employees and a lot more brainpower applied to the challenge of fueling eBay's growth. The developers are not doing some reporting or enhancement functionalities. Among other things, their tools adjust sellers' pricing, manage inventory, and tailor eBay to every imaginable niche market. eBay undertakes responsibility to help the add-ons reach its community and actively promotes the products and leverages the virtual community to steer creative disruption into areas that eBay is most eager to explore, such as social networking. What a powerful example of showcasing success by going against the tradition and developing far better solution through purposeful collaboration – often, a commercial agreement brings all these together . Geoffrey Moore recently wrote "The more established your company, the less likely it is a type for you to specialize in. Alternatives include application innovation, product innovation, platform innovation, line extension innovation, design innovation, marketing innovation, experiential innovation, value engineering innovation, integration innovation, process innovation, value migration innovation, and acquisition innovation. This last one, in particular, is usually an established enterprise's best bet for dealing with disruption". I do think that there are some pointers available here for Yahoo in it’s quest to change the rule of the game to compete against Google. Sharad,(whom I met with the US last week in the US) taking over as the CEO of Yahoo’s emerging markets team clearly has an enviable and a challenging job ahead. There’s a powerful lesson for open source friends as well here.
Optimism & growth sentiments were palpable throughout the software 2007 meet. McKinsey’s Ken Berryman made some insightful closing remarks – these were quite pointed and very interesting as well. Underlying the fact that innovation was the focal theme of the meet, Ken brought a number of related points relevant to the software industry:
• Amongst the various type of innovation, he argued that for the software industry,clearly disruptive change sparks waves of innovation. • The good news is that in the software industry - the innovative wave of software is markedly on the rise and shows good promise of continuing that way. • Innovation may not be the panacea for all players in all times – Innovation need not happen at all for a few players under some circumstances - in such cases, status quo and predetermined trajectory might suffice – old models may still prove to be successful. • The power of the net and the flat world pushes everyone to think bottom-up, not top-down, and recommendation is to use communities to build software more aggressively (open source or otherwise) • Many roads can lead to the success zone – There are indeed several models for building a software business – everyone of them has merits specific to needs. • Key advise to software companies – Always seek new source of value. Unless done that way, opportunities to monetize using advertising would have never occurred even as a possibility. • Its clearly heady times for established players - big & small. The software industry is growing fast, with 30%-50% margins • Needless to repeat the interest and actual investments being made in software companies from venture and private equity is at an all-time high – consumer spending on software is also getting bigger. Its heady times ahead for the vendors. Would this help in creating significant changes to the industry – we will have to wait and see.
I wrote this brief note for sandhill.com on SAP acquiring OutlookSoft. BI/CPM is clearly the fastest growth area in enterprise application space today. The consolidation in the BI space was expected for sometime. I wrote immediately after the oracle -Hyperion deal that Outlooksoft looks promising. I heard their CEO Phil Wilmington present at Enterprise 2006 , on why predictive performance management is the next killer enterprise application and how OutlookSoft has the competitive technology advantage. The company was chosen as one of the next big thing winners in the meet. OutlookSoft’s focus was providing modernized solutions for the CFO leveraging Web 2.0 technologies to enable collaboration across the enterprise and delivering real-time, predictive analytics capabilities and finance-ready business process flows, using an extensible library of procedures guiding business users through all performance management activities and facilitating collaboration. This is an important function in an enterprise enabling, “closing the loop” between analytics and operation.
In essence, SAP's purchase of OutlookSoft is more or less a quick move in protecting its installed base following Oracle’s acquisition of Hyperion. In the recent past Hyperion had been seeing SAP as the competitor in many deals and so the acquisition of Outlooksoft, a company where ex-hyperion executives are key people running it, makes sense from SAP perspective. Besides, this is also significant as this gives the opportunity for SAP to protect itself against moves by ORCL to penetrate into SAP's installed base since a large number of them already use Hyperion’s consolidation capabilities. While public details of valuation are not available, informed sources indicate a valuation of $250-350mn, probably representing about 6-8x the street estimates of $40mn in LTM revenues.
SAP has always stayed away from large-scale, multibillion-dollar acquisitions and looks at buying focused smaller companies that fits in their vision of meeting enterprise information needs. It’s a cash acquisition and moving forward, integration challenges, from a product technology perspective would be the key – organizational challenges may be less given that OutlookSoft used to have a small operation while culturally adjusting into the SAP world would have been clearly assessed by Outlooksoft team. The 700 + customers of OutlookSoft would now be eager to see support and investment plans for the future – particularly the non- SAP customers of Outlooksoft. Overall a good move for all involved herein. Now we have to see how the rest of the gang in the BI & CPM space( particularly BO & Cognos) prepare to respond to this. Please read the full notehere.
Tom Peters demystfies the hard path to be taken to stay innovative. In this brief YouTube clip, the legendary management guru Tom Peters says that the business of innovation is actually easier than what it is assumed to be. His formula for fostering innovation : "Hang out with weird, and thou shalt become more weird... Hang out with dull, and thou shalt become more dull..." It's as simple as that - the best chance for a business to succeed is to hang out with "rogue employees, disgruntled customers, off-the-scope competitors and fringe suppliers”, a reference taken from the book –“wide angle vision”. Tom further points out that benchmarking is an inappropriate step(if done within the industry, if I may add) – he again quotes Seth Godin’s – “The thing that all these companies have in common is that they have nothing in common. They are outliers. They’re on the fringes. Superfast or superslow. Very exclusive or very cheap. Extremely big or extremely small. The reason it’s so hard to follow the leader is this: The leader is the leader precisely because he did something remarkable. And that remarkable thing is now taken—so it’s no longer remarkable when you decide to do it.” Thoughts definitley worth considering -atleast in determining who all should be steering innovation within enterprises.
Innovative software ecosystem is propelling the recovery and growth of the high tech industry – this is the key message of the sandhill customer survey of enterprise software users. Pointing out that innovation is happening at the industry level and not at the product level –MR in his opening note at Software 2007 said the innovative streak can be seen in advances in the form of SaaS, SOA, Vertical Apps, Enterprise 2.0, Delivery innovation etc. Taken as a whole – these have far reaching effects when these intersect.
Such a model of innovation gives more than adequate role for small players to participate and at a time when IT spend is expected to be more or less flattish, the investment commitment made for software in the sandhill.com administered survey shows an increased outlay for software purchase! Good news indeed. This time the event has become really big with internal pavilions & innovation showcase areas. It was good to see Hasso talking about the new SME focused product that SAP is all set to unveil – the key is this is fully centered on on-demand model(though on premise model shall also be supported). Plattner says the yet-to-be-named project involves a completely new code base different from SAP's existing suite - this is a massive one - Hasso says that this has been under development for over three years, with more than 3,000 developers. Key takeaway - The system shall have all services exposed - this means that all features of the software will be accessible either through a Web browser or through “smart client” software - additional functionaliites would be rendered here.
HP’s Shane Robinson succinctly captured the shifts that are happening forcing giants like HP to shift their R&D allocation from software – hardware ratio of 30:70 to 70: 30 today. Some of the shifts he brought out are quite interesting:
Consumer Vs Enterprise to Consumer + Enterprise Hardware Vs Software to Hardware + Software Individual Productivity to Communication + Collaboration Connecting Devices to Connecting users to services
And a few more…
No wonder all the recent acquisitions of HP is in the software field. Mark Benioff was his usual self – very articulate & humorous while the CIO panel moderated by Ernest von Simson, Senior Partner, Ostriker von Simson with Panelists - Neil Cameron, CIO, Unilever; Rob Carter, CIO, FedEx; Patricia Morrison, CIO, Motorola; Tony Scott, CIO, The Walt Disney Company was quite focused and had a great advice to vendors: Tony Scott,Disney: Drop this "we are the greatest in the world" thing and give me an implementation strategy so I can bring this across my company. Motorola: 12k engineers and we have tons of software that isn't warranted and indemnified. My plea to the industry is quality. The amount of time we put down bugs. Neil Cameron,Unilever: Fantastic. Absolutely. Rob Carter, FedEx: Every time we add something new, we get more cost an complexity. This is a relationship oriented business and you have to cut through the noise, provide technology migration strategies. We just don't have time for all the opportunities that come at us. Bullishness, growth, innovation, a sense of recognition that small players would also begin to not only survive but also force change on the larger ecosystem – all bode well for the enterprise software industry’s future.
The Sandhill- Mckinsey state of the software report findings & recommendations make insightful reading. The sandhill customer survey shows 59 percent of respondents expect the greatest level of software innovation to come from small software vendors, while only 19 percent believed larger vendors would deliver this level of innovation. The solution in this wave of innovation, writes Mckinsey's Ken Barryman & Sandhill's M.R.Rangaswami, may lie in the bottom-up nature of the innovation diffusion itself – particularly with innovative easy-to-deploy software-as-a-service models, end users and business leaders may take on the role of the IT experimenter and shift the focus and spend on innovative smaller vendors outside of the IT department and into the budget of the line-of-business departments directly. In this scenario, the advise to the vendors: They need to adapt to the bottom-up and center-out diffusion model within this innovation wave. Ensure that your investments in product and technology innovation are well balanced with similar investment and focus on business model and process innovations. Focus on the monetization of recent disruptive technologies from this wave, embracing new business models when and where appropriate. Increase your overall transparency to customers and developers and work hard to operate with greater external leverage across your full business system. Well said.
A recently released Gartner report summarises amongst other things the type of changes that are expected to happen on account of the varying changes in technology and customer expectations. It predicts that in the next two years that at least one of the top five IT professional services providers worldwide will have sufficiently mastered the use of SOA and Web services for service industrialization and will permanently alter the cost structure of traditional outsourcing and system integration (SI) business models.
And the Gartner report goes on to predict that in the same timeframe, SOA and Web services will reduce the demand for packaged application implementation services, resulting in the demise of 15% of existing SI vendors, who will not be able to shift to a component assembly business model.
All this points to one thing -elements of change are happening at varying levels and they are waiting for the right moment to fuse together. Clearly the battle for the enterprise IT dollar is getting more and more interesting – this time faster and smarter people stand a better chance – being plain big alone may not mean much here. The customer is definitely going to demand a lot more – justifiably so in this new era of innovation.
Am there in software 2007 and shall be posting on significant things happening there.
Blogs as part of the net movements fulfills an important objectives of the net by being a key means to fulfilling enhanced freedom and advocating free communication of ideas and opinion. These by itself becomes an end in itself. Along with this new found freedom comes in a whole host of challenges – in making sure that one is genuine and completely legal and ethical in leveraging the power of the net.
In the recent past, we have seen even forward looking organizations suing bloggers, for what they believe to be violation of certain laws – they may even be right about their positions.
Therefore, it becomes quite important for bloggers to know what’s right or wrong and this list of important laws for bloggers stands out.
While the Internet still retains some of the “wild wild west” feel, increasingly Internet activity, and particular blogging, is being shaped and governed by state and federal laws. For US bloggers in particular, blogging has become a veritable land mine of potential legal issues, and the situation isn’t helped by the fact that the law in this area is constantly in flux. In this article we highlight twelve of the most important US laws when it comes to blogging and provide some simple and straightforward tips for safely navigating them.
The article covers issues ranging from deep linking to usage of images to domain name issues to ownership of user generated contents and a whole host of related issues.
WSJ reports that talks happened between the two companies & that the merger discussions are no longer active, but that doesn't preclude the two companies from some other form of cooperation. So the merger possibilities have died down – temporarily!! To me it points to a couple of things – both indisputable: There is no logic to say that large deals may not happen – as a matter of fact, I feel that in this current age, no deal, no matter how large, or one that appears audacious ,is out of the realm of possibility. Secondly, stakeholders are expecting Yahoo to act decisively to regain the lost edge it had in the internet space – where Google is sees as smartly marching ahead.Yahoo is massively under leveraging its brand strength, content and platform superiority. Companies like Microsoft, eBay and Yahoo would always keep talking about possibilities and frankly they should be talking and it is fair to expect some action centered around Yahoo in the days to come.
Will Microsoft buy Yahoo? That’s the prospect that’s gaining currency this morning . I wrote a brief note at Sandhill.com on this emerging development. Few days back, I wrote that Google’s aggression is not only going to help its cause but very likely to drive Yahoo and Microsoft to come together. Its interesting to see what all a shrewd market leader can do – expand the market, consolidate its position and define what competition needs to do!! The increased likelihood for consolidation within the Internet space given the challenges of running the optimal mix of businesses, which we have identified as content, portal, search, marketplace/e-commerce, communications (IM, e-mail, VoIP), and payments looks like is waiting to happen. Every advance being made in anyone of the spaces here needs resources to build and expand but Google’s money making machinery makes all these advances from players like MSN & Yahoo look puny. How can the competition get on an even keel – perhaps when Microsoft buys out Yahoo. It needs a sustainable critical mass in terms of content, infrastructure and advertiser base and Yahoo comes in handy there. Chances of organic growth look too dim for Microsoft to look at alternate ways of getting there center stage and literally fight eyeball to eyeball with Google for traffic and monetization opportunities. Outside of Yahoo, the only other player that Microsoft can look at is eBay. The acquisition can provide Microsoft with powerful assets – proven scalable platforms, stakeholder relationships, monetizable content and channels drawing eyeballs. On the flip side, mega deals always carry huge risks – no one can forget Time Warner – AOL fiasco . I get a sense that something might happen – but as again execution would be the key – the opportunity to change the rule of the game is very bright if these two players choose to come together. Read the full note here.
This is a continuation of Bob Cringley's latest post on IBM. Any change is painful - massive change would bring out more massive upheavels - this is true of all organizations around the world. I have no idea whether Bob's information is right or not - am assuming that he has all the facts with him. Since it aligns with general news that we hear in the marketplace, it is worth examining the changing marketplace and leave it for readers to assess if IBM is indeed making the right moves. Recent studies of the global services market clearly rank IBM Global Services as the he largest services vendor in the world – a position it has held for more than a decade. It reportedly reported $48bn in sales in 2006 - this is more than double that of its closest competitor EDS, with $21.3bn. IBM’s individual market share stood at 8.7%, and the services market is highly fragmented. The point to note here is that IBM’s top line rose by just 1.8% last year, a consequence of slow contract signings in previous years. In contrast, some of IBM’s closest competitors – notably EDS, Fujitsu and Capgemini - reaped the benefits of successful restructuring programs during the last few years to return healthy growth rates of 7.6%, 8.3% and 10.3% respectively.
To understand the way the top 50 service players are executing lets looks at this - The top 50 IT services vendors employed 1.7 million employees at the end of their most recent reported financial years. This is almost an increase of 13% of the comparable total of 1.5 million from the previous year. Much of this growth has been driven by the major offshore sourcing suppliers, with the top five players adding 88,000 new staff last year taking their combined total headcount to 307,500. TCS, Wipro, Infosys, Satyam and Cognizant are poised to add a further 100,000 new recruits between them in fiscal 2007. Its just not the scale that matters alone. I firmly believe that investments make the difference in securing the future of service players. The whole service industry and enterprise software industry plays on the customer inertia and lack of an alternative. Whats that disruptive model that would shake up the services industry – clearly offshoring played that role to an extent but the laggards seem to be catching up here/atleast make up an appearance of catching up. Seen from a service industry perspective, next technology breakthrough heralding new opportunity could help them rejig their model – like what BPR/ERP wave did earlier or the dot com era – SOA is still many years down the line. Seen from a customer perspective, how does one lock themselves out of this ? Seen from an investor perspective, how to value service companies where increasingly the differentiation factors seem to be just the scale and historical presence.These are definitely key concerns. Innovation inside consulting and service organization needs a different mindset to foster and manage - clerical approach shall have deleterious effects. The key thing would be to see the level of innovation and differentiable IP’s that service firms can showcase – this needs to be tied to increased productivity and reduced cost for customers. Ultimately, service players that have invested in emerging areas well ahead and in right measures, stayed close to customers, and focused on efficient execution are well positioned to capitalize on the market as it improves. Companies that will succeed in the services market going forward will be those that embrace the evolution of the software environment, collaborate closely with partners and customers, possess a strong understanding of industry-specific business processes, and have a mature and seamless global delivery capability – all these are achievable only by making right quantum of focused investments in the right direction at the right time. So, if you want to see where the well established service firms are headed – I would think look at their business model, closely scrutinize the investments that are being made – the quantum & nature of such investments. All other things being equal, this would make the difference between winners and laggards. IBM's reported move as spelt out by Cringley shold be seen against this background of global change and challenges that service players face moving forward.
Months back, Bob Cringley wrote IBM- Disaster In The Making. In an update post he writes, problems continue to abound within IBM writes,Bob Cringley. He thinks that close to last weeks layoffs of 1300 people,another 100,000+ layoffs would no later than the end of this year. He explains,LEAN, an IBM initiative is aboutoffshoring and outsourcing at a rate never seen before at IBM. He estimates that for one overseas hire within global services, one may get the axe in the US. This, he contends is aimed at eliminating 150,000 posiitons within the US. He adds, initiatives are on within IBM to identify common and repetitive work now being done that could be automated or moved offshore, and to find work Global Services is doing that it should not be doing at all. Implicit in LEAN is that 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.All this is supposed to happen by the end of 2007, by the way, at which point IBM will also freeze its U.S. pension plan. there is a broad expectation at all levels of IBM familiar with the LEAN plan that it will cause huge problems for the company. He concludes that this may just speed up the death spiral of IBM. (All these are Mr.Cringley's view).
In the follow up post to this, let's see whats changing in the services marketplace.
While writing on captives, I concluded that today’s reality is that barring those that are focused on product development, or support functions involving multiple of hundreds of people working or those focusing on research – the R part of the R&D line item, most of them are grappling with which exit option to choose - ranging from closure to outright sale.
Vinnie points out that the drivers for setting up captive units are margin protection, IP protection, ability to realize some capital gains upon eventual sale. Vinnie – you are definitely right, Symphony & GlobalLogic have reportedly bought over a few captives( Forrester points out that those bought out were actually stagnating/struggling units).I have also pointed out earlier that firms that are focused on product development on a medium to large scale, or support functions involving multiple of hundreds of people working or those focusing on research – the R part of the R&D line item would find it attractive to run captives. Software product majors employing huge numbers or those focusing on niche(s) generally manage to run captives to their corporate satisfaction. But cost advantages and scaling up are proving to be far more difficult things to achieve.
My experience in talking to captive managers who have run captives suggest a sense of dissatisfaction and a majority of them have failed to meet their HQ expectations – on multiple fronts. The issues that run captives to the ground include busting of the myth that they can be in general be more profitable – the loaded costs of captives are on an average more than the loaded costs of third party service providers( even when factoring in a reasonable margin for service providers). Forrester is bang on when it reports that generally, over time, service providers can manage the inflationary pressure, improve productivity measures much better, for high end works.
Hindustan Lever sold its captive unit Indigo recently to Cap Gemini. The valuation, it was widely believed was very subdued as Levers made it look as if a cost center was getting sold. HLL, one of the largest multinational operating in India (it recently lost its largest multinational status in India to Nokia) unarguably India’s corporate icon and Unilever’s crown jewel would not have taken such a decision without working out its near and medium term benefits. Its likely the case that HLL must have thought that sustaining captive BPO center may not be the best option available in front of it – seem from an expertise, economics ascaling up perspective & near-medium-long term valuations. Apple failed in running a successful captive unit in India. There are number of additional examples that come to my mind - Citi, Deutsche and a lot more. Firms like Yahoo & BEA are fine tuning their approach. Amongst the notable exception in running a successful captive is Dell,which seems to be going from strength to strength. In my view, where having a captive is not a strategic decision( should be well justified and unbiased), the era of having captives for the sake of having one, in the hope that in present or in future, in some form benefits may be forthcoming looks doubtful.
Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld "All views expressed are my personal views are not related in any way to my employer"
