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Wednesday, February 28, 2007

The Omnipowerful VC Community!

Owen Thomas has an interesting post on the VC money that’s chasing Web 2.0 ideas. He thinks that it's a well-established truth of today's Silicon Valley that startups don't really need venture capital. Recalling his conversation with an entrepreneur, he says VC money is taken for connections and introductions. Taking money from a VC also gets you a virtual guarantee that they won't fund a competitor. Like any good Mafia don, a VC takes care of his family. VC money, most often than not, he contends is not about providing capital for growth and creating great companies. Today's venture capital is just an elaborate protection racket, making sure no one breaks your startup's virtual kneecaps.

The situation in India is very different. It’s a case of too much money chasing too good deals but depth of managerial talent available to involve in startups look to be limited. Its therefore critical argues,Sramana Mitra that India needs Incubator Funds. 3-4-5 Partners with solid entrepreneurial experience, rolling up their sleeves, with strong ties to the valley, experience of the cultural nuances of the country, with strong understanding of product and strategic marketing, up-to-speed, current.

Well – I think both the views are extreme – while VC’s can genuinely help entrepreneurs by providing backup and freeing him to focus more on making the vision happen through operations, it can’t be definitely viewed as a safety net providing mechanism. The issue on keeping active VC’s are the fact that most of the western VC firm executives tend to think of them as demigods and the know-all of everything in the tech ecosystem. Several of them take a prescriptive approach (though some have institution building mindsets) that entrepreneurs complain about. I think we need coaches and advisers who can gently advise on nudging the entrepreneurs to keep taking reasonable risks – that’s the way frontiers can be pushed. An informal sounding board is OK but not a definitive framework that funded firms need to factor in their operational plan.These bodies can perhaps help in creating a good support ecosystem – networking opportunities, databases and industry level marketing and nothing beyond. Anybody promising better value add need to demonstrate that and good things and potential assistance can seldom go unnoticed and unutilized. These would anyway get tapped in various forms by any growing business.

The indian ethos is particularly risk averse and there is a challenge in attracting good management talent but this will change with time and already it is indeed changing. More venture success would help change that.Some cultural changes in running the organizations are indeed needed. India needs a mindset where people begin to beleive that failure to realize business success in a startup is not such a big stigma - I think if significant parts of indian society gets this, there will be a seachange in the situation. The truth is that the marquee indian tech firms are driven by self made entrepreneurs and professional managers – VC’s missed the bus to participate in the growth of the indian service industry(In fact any number of reasons were thrown by western executives and indians who have made it big in the west as to why these would not make the cut). It's time for them to demonstrate their unique abilities to help entrepreneurs to utilize beyond funding in other areas like product development and emerging technologies. It can’t be a given right and there may be many ways to attain success. As a matter of fact, I find that several VC firms have limited understanding of indian operations, on some issues even bordering on ignorance. I know of desperate big western names – both individual and institutions wanting to be part of the well evolved indian headquartered service providers. Its true that the next Google or the mobile app killer may not come out of indian ecosystem for now but the beauty is the potential ability of the ecosystem to keep growing and pushing the frontiers. Significant talent that have had experience in building such firms/ideas are beginning to enter the indian tech ecosytem – that way the fusion of such practices are an ongoing phenomenon.I think the onus is on the VC firms to win the confidence of entrepreneurs to play additional roles besides funding and general advice. The indian tech success mix is quite unique. We may very well see the evolution of new success formula therein. This may sound optimistic but truly we are at the onset of a new inflection point. New ways of doing business and finding success are going to get unlocked herein. The entrepreneur has to be at all the times driving the wheels. The journey may be long but it WILL BE A SUCCESSFUL ONE.


Tuesday, February 27, 2007

Offshore Firms & Potential Business Model Innovation

John Hagel shares his perspectives on the future growth and opportunities for the Indian IT ecosystem. I could not attend John’s session in the Nasscom summit- I had to be in china for a different meeting. John summarizes his perspective on the growth possibilities and correctly identifies that the continued growth of the industry hinges on the ability to access and develop talent. He highlights the issues that the industry is grappling with - turnover rates ,wage rates & emerging competition from other low cost locations. The responses to these issues are on a wide-ranging front - The Indian IT services continue to invest heavily in scaling their recruiting and training efforts, increasingly branching out and establishing facilities in second and third tier cities in India to reach a broader pool of talent, including establishing development and operations centers in other low labor cost countries. Indian firms are also investing in developing more value added services to generate more revenue per employee and in general are focused on operational excellence to enhance profitability per employee and to become more responsive to increasing customer expectations. McKinsey & Co. has come out with a report with a framework for benchmarking operational performance and found a high dispersion of performance across Indian offshoring service companies. The report highlights rightly so, that offshoring service companies could do a much better job of absorbing increasing wage rates if they focus more aggressively on enhancing the productivity of their operations. One of the interesting sidelights in the report was the finding that third-party service providers generally outperform captive offshore facilities – a point that I have repeatedly highlighted.
So, what next? – the story looks good so far and is likely to be as good moving forward. John highlights that the biggest opportunity of all requires a different form of innovation. It also requires a very different mindset for the leadership of the Indian IT service companies. He eggs the industry to look at a different model to scale up - rather than continuing to focus on attracting and retaining talent within their own companies, these firms could create enormous value by developing the management techniques required to mobilize and leverage specialized talent wherever it resides. This would require building scalable talent networks encompassing a broad range of smaller, more specialized companies.
He points to the fact that where the Indian headquartered companies don’t have the capability already in place, they may go out and acquire a smaller, more specialized company, but their instinct is to bring the capability in house. As an alternative, John argues, these companies could take their emerging skills in partnering with technology product companies and apply them to building talent networks to mobilize and leverage large numbers of more specialized service providers. The real power would be to master the techniques required to accelerate the development of talent across such a distributed network of partners, thus creating stronger incentives for partners to join the network. He believes that this would call for innovating in learning and training capabilities and help these firms in creating new IT architectures –one that are focused outside-in. This echoes my thought about the emergence of global networks.
A very illuminating proposition - this needs to be reviewed seriously. I know for a fact that today possibly every IT major is looking towards acquisition and spreading globally for both resourcing and servicing markets – a different business model of operation could provide them with a competitive edge. Indian compnaies have been extremely innovative and ruthlessly efficient in scaling up their operations. They are helping may western enterprises to focus on innovation by offshoring/outsourcing their works. Its time for the indian headquartered majors to focus on innovation as a way to move to the next orbit in a concerted way. This may need to start today rather than later as early adopters like in other industries would reap disproportionate benefits, if executed well.


Monday, February 26, 2007

From Vertical Integration To A Globally Distributed Process Network

I wrote a note for the Deep End column @ Sandhill.com on the emerging shifts in global talent distribution and orchestration. I submit that in the flat world, due to the ever changing dynamics of the business world, emerging countries are beginning to be recognized as primary centers for carrying out research and related activities. While views like cost of labor and research aimed at tapping the bottom of the pyramid appeals as the plausible reasons for such investment, in reality, labor costs, the quality of local infrastructure, favorable tax regimes and government incentives all play a role, but skills are the biggest magnet for R&D investment. The labor and cost arbitrage wave is slowly morphing into a talent arbitrage force. The “Well-Designed Global R&D Network” begins to deliver goods when organizations configure their innovation networks for cost and manage them for value. The world is beginning to see a shift from a Vertically Integrated Model to a Globally Distributed Process Network.

Wide spectrum and massive scale are key things for a service oriented business with wide reach and supporting multiple verticals. The reality is that global networks may make these happen faster, better and cheaper. Starting from the fundamentals, it can be seen that a truly lean global innovation network that operates with optimal efficiency across borders and cultures in a seamless way , in real life is an uncommon thing but where one exists, it can be seen as quite beautiful. Setting up these is not rocket science. At its core, it is easy. Most companies have the core factors that can be leveraged already in place Viz : cost-effective node location, well-designed product development platforms, an innovation-friendly global culture, and a well-aligned set of incentives & the urge and passion to make this succeed through best-in-class leadership etc - These are all available to leading companies. In reality, it may be termed an innovation by itself, if companies could pull up such a well running global network – given the challenges, commitment and energy needed to make this happen. We are also beginning to see that across industries and regions, there is a subtle but a potentially massive shift is happening: Leading edge forward looking firms are slowly moving away from pursuing vertically integrated innovation approaches and are moving towards setting up what looks like a globally distributed innovation networks. Such networks are characterized as global partner ecosystems that in alignment with the core business entity engage in activities such as co-developing and co-marketing new products, services, and enable opening up new business models. Needless to say such radical changes executed will bring in significant benefits. Read the full note here.

Francisco D’Souza,the new CEO of Cognizant argues in the op-ed of the same edition that in the future, DNA will increasingly be de-linked from geography and suggests that by extension the future of services is global. In fact, the globalization of services delivery will form the basis for competitive advantage in most industries – and software is no exception. He opines that software vendors that understand the globalization of services and internalize the new set of best practices associated with it will be best positioned for leadership in the coming decades. His recommendation : Services firms must start thinking in terms of “fine slices” and see what makes most sense talent-wise, and then orchestrate it in a way that is seamless and makes sense for its clients. An excellent article - highly recommended for reading and adoption of the ideas stated therein.

Clearly interesting times ahead and the global talent arbitrage and the emergent opportunities would transform the nature of services business in many profound ways and service organizations need to sieze such opportunities to gain and maintain enduring competitive advantage..

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Sunday, February 25, 2007

Convergence & Competitive Strategy Of Service Players

The services market (based on various estimates) – is expected to grow from 600 plus billion to a little less than a trillion dollars in the next five years). What are the trends that we see here?. We are seeing forms of different business models co-existing here. There are service players with 30X valuation and there are service players with less than 1X valuation.

The services industry is still a fragmented market where the top 20 global players account for approximately 35% of the market opportunity. Best illustration of fragmentation – An analysis of top 100 global consulting & outsourcing deals show that over a period of years the number of players competing for such deals have steadily increased! – from 26 to 45, tracked annually in the last three years. Today, the mix of outsourcing contracts service players are getting have a large quantity of smaller and medium sized outsourcing deals. Mega-deals are few and far between. This makes room for many service players to survive and some grow faster than others.

Be that as it may what are the threats to service players? The disruptive threats are SaaS & Utility computing. For all the success of SaaS players, the general feeling is that the service providers have not benefited proportionately. For most of the service players, attracting and retaining talent would be a key differentiator for success. The weaker entities would be eventually on a death march but it’s a long time to come and not a slam bang affair like what we typically see in product space. A typical due diligence of service firms for acquisition throw up lot more issues – people centric, unique & strange legal commitments extended to customers etc making acquisition a tougher process.

The whole service industry and enterprise software industry plays on the customer inertia and lack of a real 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 towards managing growth/improving operating metrics shall have deleterious effects.

To answer Sharad Sharma’s question on convergence and competitive strategy of service players , the answer is – there is no doubt it would be very difficult for well established players to change their business models and their organizational DNA to come out with a winning competitive strategy. The offshore players /global players with significant offshore presence (Accenture, IBM) have in a way grown faster on this count. All indications are that the stronger players would continue to do so in the near future. Consolidation is a far away but tiering of service providers in terms of scale, expertise, geographical reach growth rates and capabilities would happen and this would happen faster than were seen in the past.


VMWare & Microsoft : Contours Of Business Model Conflicts

This New York Times article by Steve Lohr on VMWare and Microsoft today is an interesting read for those interested in understanding the direction where the software business is going over in the near future. While the emphasis of the article is on enterprise virtualization, it is clearly something that would influence every class of users associated with computers – the entire spectrum from consumers to enterprise users. VMware, a leader in the rapidly growing market is unexpectedly running into Microsoft as a competition.The way a virtual machine works is quite interesting – it mimics a computer so that several copies of an operating system can run on one physical machine.So what? As the article explains it allows computing chores to be done on fewer computers,using less electricity and taking up less space, promising a way to control costs at corporate data centers straining to keep up with the ever-increasing demands of the Internet age. That’s where the attractiveness increases manifold times.
Its not that virtualization is such a new thing - afterall virtual-machine software dates to the 1960s, when I.B.M. used the technology to coax greater performance from costly mainframes. The beauty of VMware is that it has brought virtualization benefits to personal computer technology and is becoming a powerful force multiplier of computing power. As a layer of code that resides in between a computer’s hardware and operating system, usurping some tasks, it can potentially undermining the importance of the operating system. This is a space that traditionally been characterized by two things- big players have loathed to get into this space and this is the only space where one can seriously challenge Microsoft’s O/S dominance – this opens up chances to seriously undermine Microsoft and other O/S players hold on the stack. No wonder Steve Ballmer thunders that they would “compete very aggressively with VMware.”
It is an amusing play - O/S players like Apple & Microsoft are trying to attack VMware’s offering with comparative offerings from their respective stable and they think that virtualization is just a bottom- listed feature of their O/S system. Internally they would be terming this as a play akin to the tail wagging the head. That’s reflected in Microsoft’s view that “virtualization is something that should be built into the operating system.” Remember most serious competition to systems always start from the periphery or from proximate spaces. No body can question Microsoft, the market leader in O/S thus far why it did not push this aggressively in the last three years while VMware was building mindshare & market share in this space aggressively.
One thing that Microsoft has lacked is a hypervisor, the lowest level of software that rests on the hardware and partitions the computer so it can cleanly and efficiently run several virtual machines. Microsoft focusing on this space, for obvious reasons can not be taken lightly – I have seen CEO’s sweat when Microsoft decides to intensely focus on competing with their offerings in the PC technology centered system application space. Remember the cases of Netscape, Novell etc.. No wonder, characteristic of its style as per VMware, of late Microsoft has introduced new restrictions on how Microsoft products can be used in virtual machines in new ways, beyond simply dividing a single physical computer into several virtual ones. Microsoft’s bundling strategy has thrown many emerging ideas out of currency and many competitors out of business.
This is an important battle – at stake is the business model of computing itself. Seen from analyst’s perspective – "This next wave of virtual technology, includes software that lets virtual machines move freely across many physical machines, juggling computing chores, so that applications do not crash and Web response times are faster. Another promising new ability is running desktop personal computers as virtual-machine software, hosted and managed securely from a data center."

The reach virtually spans all types of connected devices with processor powers built inside.The challenge for any consumer today is their inability to choose between O/S, various solution stacks inside that would support all commonly available desktop applications and have these run in a efficient manner with no lockins to a specific technology stack – that’s a long felt dream for which answers are not emerging that easily and towards this pursuit any choice offered by various players need to be welcomed and frankly that’s the way to expand market as well. The days of vertical integration need to go for the ecosystem to win the game and benefit the consumers. This is a genuine requirement and it’s an irony that only a business model conflict like this one seen here can potentially take us to such a desired state.


The Act Of Blogging

Seth Godin writes,

The act of writing a blog changes people, especially business people. The first thing it does is change posture. Once you realize that no HAS to read your blog, that you can't MAKE them read your blog, you approach writing with humility and view readers with gratitude. The second thing it does is force you to be clear. If you write something that's confusing or in shorthand, you fail.

Respectful and clear. That's a lot to get out of something that doesn't take much time.It does indeed force you to be clear. There's no doubt - blogging helps one to be clear in your writing for one, but also clear about your point of view. Anybody blogging can relate to the fact over a period of time one gets aware of this and its truly edifying. Regularly we need to ask ourselves whats that value that one has added to society and keep pushing oneself to share genuine insights and be fearless in expressions, be humorous wherever it’s possible . Come to think of it, blogging helps one to express thoughts and ideas with multimedia tools – audio, videos & words . Like any evolving art, nothing would be fully rounded – but the power of online democracy is indeed strong and some in the world ranging from teenagers to seasoned professionals actually leverage this very well.



Saturday, February 24, 2007

Technology Twist (Just For Fun)

Vinnie has an interesting post on tech twists & holy cows. Someone sent me the following as a spam mail but is fun to read. (Reproduced below - Just for fun, but some of it looks close to being true!!) - No offence meant to any entity listed herein.
You have a 1000 poor cows. You put them on a nice campus, & send them one at a time to the US for milking.
You have 10 cows. You make them work so that they give milk of 100 cows.
GE has a cow. You take 49% of the milk.
Intel has a Goat. Samsung has a Camel. Buy milk from both & sell it as Cow's milk.
You have old stubborn cows. You sell them as pet dogs to innocent small businessmen.
You have a cow. Force the world to buy milk from you. Spend a million dollars to feed poorer cows.
You have a bull. It doesn't give milk. You hate Microsoft.
You have a cow. You don't know which side to milk, so you sell tools to help milk cows.
You don't have a cow You sell milking solutions for cows implemented by milking consultants.
You have a cow. You sell iMilk.
You have a cow. You spend $50 mn to develop the world's thinnest milk.

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Friday, February 23, 2007

Oscar's Accounting & Recounting

The Academy Awards ceremony is said to be the most highly wagered-upon nonsporting event in the world. PricewaterhouseCoopers, the accounting firm that has coordinated the Oscar vote for the last 73 years, oversees everything from mailing and counting ballots to guarding and distributing the envelopes containing winners' names. Secrecy and surprise are the key to this whole operation. The process runs like this - nominations are mailed out, received and counted at an unspecified location. Once nominations are made public, the Academy votes again and sends in their final selection just days before the ceremony –utmost secrecy is maintained herein.
Friday evening, when the results are finalized, both men commit all 24 winners to memory and make duplicate copies of their names, which are kept in separate briefcases by the two PwC men who then retreat to separate undisclosed locations. Then on the day of the show, they are each accompanied by one of the LAPD's finest, accompanying them while they hold their briefcases with details of the results inside. They not only handover the results to the presenters, but then listen carefully to the announcement to ensure its accuracy!.
This is an extremely interesting article – names of audit firms generally bring an association of trust and reliability and this is an excellent example of this phenomenon in action.

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Thursday, February 22, 2007

TechTarget's Favourite Enterprise Technology Blog List

TechTarget lists its favorite blogs in various categories here. The Editors of TechTarget write,"While blogs can be on nearly any topic, we've found the blogs listed below to be particularly relevant to particular subjects or a "must-read" about information technology in general".

I was pleasently surpised to see this blog making to the list in the enterprise category - My thanks goes to the readers for visiting this blog and also to those who recommended the blog to the editors of TechTarget.

Of note is the fact that the Enterprise Irregulars just about swept that category. Prof. Andrew McAfee, Dion Hinchcliffe, Ross Mayfield, Rod Boothby and Vinnie's blogs were also selected besides Google's enterprise blog. Thomas Otter's blog was selected in the SAP category.



Tuesday, February 20, 2007

Reality Is No Hype!!

Vinnie shares his perspective on my post ERP’s center of gravity shifts to India. I respect his views as well as his perspective on undifferentiated clustering of service offerings. However, I disagree with him on this part alone:

Most of India's ERP experience is in post-live apps support. When it comes to first time implementations, many clients still use Western firms ( I had 3 clients last year in different vertical markets which were uncomfortable using Indian firms for their implementations, even though they have used Indian firms in other IT areas). The feedback around India is the level of functional knowledge in many areas is still pretty shallow. So considerable work is in the coding, testing, diagnostics

While many different sets of data can clearly demonstrate that it is otherwise, I just want to show three different things herein:

1. AMR’s 2004 assessment of the various type of engagements that the Indian players were involved in ( the scene now has substantially improved – there are more implementation opportunities that the Indian vendors are involved in)

2. AMR Update in 2007 :
"Today 97% of references we spoke with used their service provider(Indian service providers) for functional as well as technical ERP skills. 90% used their service provider for project management".

3. In Gartner’s ERP magic quadrant for 2006 – some Indian service providers have been rated comparably to the likes of Oracle consulting & SAP consulting.

These are just a representative demonstration of the changing landscape and the upward value chain movement of the indian headquartered service providers in the ERP space.Just some other perspectives from the analyst world.


Monday, February 19, 2007

Supply Crunch @ Offshore Majors

The supposed talent shortage in India is again making the rounds. While talking about some difficulties in the sourcing front,the Tier 1 Indian headquartered offshore majors – TCS, Infosys, Wipro & Satyam all have exceeded guidance for the last quarter and have revised their guidance upward for the financial year. All the four Indian majors are working almost at near peak loading, as reported by them. The results of Cognizant, another significant player with substantial presence in India shows more strong trend confirming this. The Tier 1 Indian headquartered firms continue to make huge strides and despite some attendant difficulties in scaling up(which they are addressing quite well) they are seen to be executing very well, restrategising and as needed realigning their approach - seen from an operational, financial, competitive value add, efficiency perspectives. The middle tier enterprises are getting hurt and may eventually get squeezed out - the possibilities look higher on this front. The surging confidence is palpable. As I wrote recently, on all conventional financial metrics – Growth, margins, offshore firms have established new records. Average attrition levels at offshore firms are far less than that reported by the likes of Accenture – across quarters – an important trend to watch. Talk of some having mastered the global delivery model gets decimated by the fact the average billing rates for firms in the commercial firms stand approximately three- four times more than that of the offshore firms. The expanding opportunity for offshore services is indeed real for all to see. A model built to study this interplay and to evaluate various scenarios for different industries shows that approximately 35 percent of the work that could potentially be offshored, worth $110 billion and divided equally between IT services and business processes, actually will be offshored by 2010. Mckinsey believes that India's offshoring industry, which has captured two-thirds of the current global market for offshored IT services and almost half of the global market for offshored business processes is poised to grow faster, The spotty area is of course means to correlate productivity increase. Industry captains exude confidence about the Indian education system with some rejig can help in the supply situation and help maintain the leadership position. The sustainable advantage and favorable drivers are indeed proving to be real and gaining strength.

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Sunday, February 18, 2007

ERP’s Center Of Gravity Shifts To India

Its heady times for the last two years for the Indian headquartered service providers’ enterprise applications practices. Its now cleat that for the top 5-6 players, both Oracle apps & SAP practice head counts have on average more than doubled in the last two years alone. Some practices for some of these companies have trebled or quadrupled in the last two years. This is somewhat unexplainable – the enterprise apps space has become easier for big offshore players to muscle in – they did it when established methodologies for offshoring in development, integration, enhancement and production support were not put in place by product players themselves who boasted of having invested in millions and millions on their R&D. Its entirely to the credit of the offshore players that they were able to spot such opportunities, lay out good methodologies and frameworks for such developments & gaining customer confidence and goodwill to engage and grow this opportunity pie. There’s also a discernible shift from more technically focused engagements to a more balanced, function-led approach -Global rollouts, instance consolidations, integrations,upgrades are being executed in increasingly big numbers by offshore firms a lot more. From their perspective, such balanced portfolio of service offerings enables them to effectively compete against traditional global integrators and outsourcers. Some people do not recognize the strategy of offshore players while they scaled up. In reality - “Production support” and “staff augmentation” should not be considered pejorative terms. In fact while working on such opportunities in the early days of offshore enterprise application opportunities these players gained substantial visibility into the overall ERP opportunity within a client helping in mining and deepening opportunities and in the process help themselves to tap servicing new prospects across the value chain.

Bruce Richardson sums up the
capabilities and the real stature that the offshore players have managed to win for themselves. He writes,

If you want to know what’s really happening with SAP or Oracle software, get a visa and book your flight to India. I would argue that many of the Indian firms have the best insights into what’s really happening at customer accounts. They may lag some of the insights into emerging technologies, but they catch on quickly. Looking back at my notes from the last two trips, I would estimate that the total number of SAP consultants and developers in India is likely to be around 50,000.As for Oracle applications skills, many firms told me that their “Oracle business is about 80% of the size of SAP.” That would yield somewhere around 35,000 to 40,000 consultants and developers. He adds, If you look at the “Contributor Recognition Program”, you’ll see that Indians continue to play the key role in the development of the ecosystem.

To be fair, he also notes that it has taken longer for the other “New Dimension” products to take off. Supplier relationship management is likely to be the next big category based on the amount of work currently underway. Few firms talked about any SAP projects in supply chain management or product lifecycle management, as of now.

My sense is Bruce will definitely get a different impression on this front when he visits the offshore firms next time around. Sure there's room for improvement in capabilities but the fact is the pace of change is indeed very real - they are climbing up the sphistication curve much faster than ever. The offshore players strength/global players with big offshore presence are set to grow faster and faster and they may take the dominant share in the enterprise apps place in the global market.

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Project Yucca : KPMG Caught in Spies & Lies Web!!

I just can’t believe this. Can highly paid experts and well established reputed firms be so easily fooled and their internal control mechnisma fail to detect such gross deficiencies in maintaining client secrecies and their own top secret findings! I am sure that Businessweek is reporting the truth – with explicit details of all key happening including naming the actors and their present whereabouts. The article reports that evidences revealed in court documents and interviews show how far some in the corporate investigation business will go. I liked the way the plot has been captured and reported in the article. Its irony that KPMG which advises businesses -large & small around the world on so many matters including forensic services became a victim of corporate spying!! I am sure it will strengthen its internal processes lot more having learnt from this trap.

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Saturday, February 17, 2007

Management Tools and Management Lists

Bain and HBR present such a mixture of tools, methods, principles, concepts and paradigms - of management tools and management lists. No doubt, this is absorbing reading. I particularly liked the fact that we are seeing an increasing recognition of the fact that really emerging concepts like social software, collaborative and open innovation , knowledge management , business model innovations all take a significant role to play. I notice that technology shall play a significant role in every one of the toll/body of knowledge identified in both the lists.
Bain’s research highlights that with operations spanning the globe, companies have become more complex, adding to the challenging decisions corporate leaders face. Fortunately,they now have an expanded toolset at their fingertips, thanks to the emergence of faster, less expensive information delivery systems. The key management tools used in business includes new tools this year (Consumer Ethnography, Corporate Blogs, Lean Operations, Mergers and Acquisitions and Shared Service Centers),along with a set of tools that made to this list in the past. The List:
1. Balanced Scorecard
2. Benchmarking
3. Business Process Reengineering
4. Collaborative Innovation
5. Consumer Ethnography
6. Core Competencies
7. Corporate Blogs
8. Customer Relationship Management
9. Customer Segmentation
10. Growth Strategy Tools
11. Knowledge Management
12. Lean Operations
13. Loyalty Management Tools
14. Mergers and Acquisitions
15. Mission and Vision Statements
16. Offshoring
17. Outsourcing
18. RFID
19. Scenario and Contingency Planning
20. Shared Service Centers
21. Six Sigma
22. Strategic Alliances
23. Strategic Planning
24. Supply Chain Management
25. Total Quality Management
HBR’s Feb 2007 issue has a number of articles on breakthrough ideas for 2007. I particularly enjoyed reading Eric von Hippel’s,“ An Emerging Hotbed of User-Centered Innovation” by Eric von Hippel, The Best Networks Are Really Worknets by Christopher Meyer and “Innovation & Growth – Size Matters” by Geoffrey West:
In an array of industries, producer-centered innovation is being eclipsed by user-centered innovation—the dreaming up, development, prototyping, and even production of new products by consumers. These users aren’t just voicing their needs to companies that are willing to listen; they’re inventing and often building what they want. (Von Hippel)

The assumption is that if you build a network platform, people will come. If you expect to get real value from your initiative, though, you must think hard and in advance about exactly what function you want the network to perform. That will help you choose the participants, the nature of their experiences, and the technology. In other words, put the work in “network” first. (Meyer)

By almost any measure, the larger a city’s measure, the larger a city’s population, the greater the innovation and wealth creation per person. (Geoffrey B.West)

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Dell 2.0 : Good Move

I was speaking to a very senior ex-Dell executive few days back and solicited his views about Michael Dell returning at the helm of Dell Inc. My friend, now a colleague used to report to Michael Dell himself in the past,while working at Dell. He told me that things can only get better at Dell – He opined that Micheal would make a huge difference to the fortunes of Dell Inc, for sure.

Just came across this development -Michael unveils two new components of Dell’s digital media strategy: Dell IdeaStorm and a new functionality in StudioDell that will allow users to upload their own video testimonials. Dell IdeaStorm is aimed at allowing users submit their ideas about improving Dell's products and services, and the community votes on the best ideas. Its like a combination between a message board and Digg.com. While it was the case that partner/customer sites and user forums used to host messageboards – they would be normally hidden under authorizations for access. Dell is taking a refreshingly open approach in making it accessible by the public at large. I saw Mr.Dell’s video introducing the new features. It’s a great feeling to see business trying out true community building initiatives like this. By bringing a focus on business related issues while retaining the flavour(as promised by Dell) of user generated content available – Dell Inc is taking such applications to new heights. This is something that other business need to closely watch nay imitate /innovate likewise to reach out to customers.

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Friday, February 16, 2007

Left Hand Drive & Right Hand Defense

The traditionally held view is that right handed people used to drive on the left side so that their stronger hand can be used for any needed defence!! I always used to wonder how come various countries decide on which handed drive they would like to embrace for them.

The reasons that countries around the world drive on either the left side of the road or the right side of the road are outlined chronologically. A table of countries lists every country and whether they drive on the left side of the road or the right side of the road. Some links have also been added to the references on the subject of the history of traffic lights. Interesting read.



Thursday, February 15, 2007

The Myth Of Web 2.0 Business Model

Reports suggest that last year, more than 1,500 Web 2.0 companies were started in Silicon Valley. Gilman of Alsop Louie acknowledges seeing a lot of Web 2.0 pitches from young entrepreneurs. The basic pitch: for an investment of $2 to $5 million, they can build a company that Google, Yahoo or Microsoft will buy. And, in under two years, we can get 5-10 times our money back. How could you not like that?!
Gilman says that his firm does not see it that way and adds that they always decline to participate in deals like that. He adds

We think this is a kind of disease, often caught by these youngsters in business school. They are looking to cash in on Web 2.0 fever and flip their companies quickly for a nice tidy sum.These entrepreneurs confuse a feature for a company. Often these ideas depend on a platform controlled by the large company that they want to sell their company to. But they can’t get traction without permission from the large company. Examples include on-deck mobile phone features, new enhancement for a CRM service, or a cool feature for search engines. When someone else controls the platform, someone else controls the market — and the exit.

Interesting indeed. I agree with Gilman that the business model of several firms is not promising. As I wrote almost several months back, Web 2.0 is overdue for a reality check. As I wrote here, I am not so unduly optimistic about the Web 2.0 movement – I had been calling for a reality check for some time. But the enthusiasm shown in building this movement is indeed amazing and some of applications show promise of success. I do know that this web 2.0 is managing to attract a new bunch of entrepreneurs who are generally well regarded for their capabilities and enterprise. Sure the list in the Web 2.0 hall of shame will be longer than the Web 2.0 hall of fame, but still the movement needs some positive consideration. As I wrote earlier, As I see it with mashups transcending known frontiers, Web 2.0’s impact shall be felt more with the emergence of platforms for the development of rich Internet applications and services.

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Wednesday, February 14, 2007

Convergence Of Disruptive Forces?

I enjoyed my conversations with Tom Berquist, CFO, Ingres corporation, when I got the chance to speak to him in the valley last october. Tom has a wonderful perspective about the consulting, services firms and the financial analyst community.I was also pleasently surprised when he spoke about his contacts in the asia pacific markets as well - several of them happened to be known to me as well. Very few western executives develop such lasting contacts in the asia pacific region. He now sees a new trend of convergence of two disruptive forces. I particularly like the way Tom has captured the rationale behind the rise of the offshore service firms. Also read my earlier note on the comeback of Ingres.

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Tuesday, February 13, 2007

The Widget Economy

Came across this interesting viewpoint of Netvibes CEO Tariq Krim:

Question : Will Widgets Kill the Webpage?
Answer : Widgets are killing the Webpage. It is time to go to something else. We are entering the widget economy. We are going there no matter what.

Of late there has been a lot of coverage around Netvibes , Pageflakes, Google Personalized Homepage, Yahoo! Pipes, Microsoft’s Connected Services. I previously wrote about Jeff Nolan’s Teqlo. Vinnie points out that ProgrammableWeb reports over 1,500 mash-ups. Netvibes is a "no-logo" Website where users have total control. it is a place where you can basically create any little information widget you like and arrange it with others on your personal page. You do so by dragging and dropping boxes that contain feeds from your favorite blogs, newspapers, Flickr photos, YouTube videos, weather service, stock charts, Gmail
Mashable writes about Netvibes rival Webwag has quietly enabled a feature that lets users post widgets from Netvibes and Google IG to a Webwag page.

Look at the way the world is changing. Loosely coupled services – we have been hearing this from the early days of web services & SOA, are suddenly getting mainstream – so much so that all these demonstrate that scalable applications can be built using widgets . RSS & Widgets are about to change the frontiers of web technology landscape itself – this opens up tremendous technical and business possibilities. It is also to be noted that by enterprise technology players that the consumer applications are fast embracing cutting edge technologies and are becoming far more successful – in terms of innovation & reach. The enterprise players need to be relevant in the changing world – by being more innovative and caring for the customers in rolling out leading edge features. When will we see large enterprise software players coming up with such things without raising noise levels(just publicity, conference talk and analyst endorsements) and let the results speak for itself.

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Monday, February 12, 2007

MIT & Vista

(Via Informationweek) Tech staffers at the Massachusetts Institute of Technology arewarning professors and administrators at the school - host to one ofthe country's most prestigious computer science departments - not toupgrade desktops or laptops to Microsoft's new Windows Vistaoperating system because the software isn't yet ready for "productiveand safe computing," according to an internal statement posted onMIT's Web site.Specifically, MIT's department of information services and technologyis warning computer users at the school away from the EnterpriseEdition of Windows Vista. The reason, according to the Web posting,is that many critical security and productivity applications aren'tyet compatible with the OS.... But this is not the end of the road for Vista. MIT shall indeed be embracing Vista in a big way. The document indicates that MIT as a whole will begin to migrate to Windows Vista once more compatible applications and utilities become available. One reason: Vista's enhanced energy utilization features alone will save the university more than $1 million annually in reduced energy bills.

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Sunday, February 11, 2007

Innovation : History & Geography

Stanford ‘s C. Pascal Zackary writes in NY Times when it comes to technology innovation, the silicon valley is the place to be in. Pointing to success stories like Google, iPod etc , he highlights how the US is leading the wave of global innovation. I have always endorsed the Silicon Valley edge. The VC Ecosystem and the US – known for its first adapter status and scale fanned this cycle of innovation & consumption. Many of the players in the Asia Pacific/BRIC markets are focusing on other type of opportunities and their innovation focus are slightly different. Innovations that meet mass market needs and are cross cultural in nature begin to be found useful for western markets as well. But I do believe that the traditional advantage may not hold for long – significant changes are happening in the emerging economies –but by no means do I suggest that the valley would lose its leadership status. I would like to point out to a few such relevant themes here:
Read my earlier note here wherein amongst other things I noted that more than 95%( again my estimates based on feel) of the web2.0 setups have primarily come from within the US. Kudos to the technology leadership that the US is showing here - Forget Asia or Europe - initiative, speed and zest for trying out in the tech sector still remain a US vestige - Good for America and by extension good for the world. As I see it, Its time for action in places like India right now. Some like CK.Prahalad expect China & India to dramatically change things in the years ahead.

BRIC nations boast not only large talent pools but also a combined market of 3 billion consumers. BT’s externally sourced inventions contributed to nearly ₤500 million in potential new product and service revenues since 2002.The number of qualified engineers in the US is growing by 2% a year, compared with 6% a year in both India and China. Jeffrey Immelt believes that developing new offerings for BRIC markets like India can’t happen through “defeaturization” – a western product stripped down to meet an Indian price - but only through a truly Indian product designed from the ground up to carry an Indian price.

Strong indications that are available suggest that a new high-tech world order is emerging. Some view that the center-of-gravity of supply and demand for high-tech products and services is shifting on a global scale — moving ever further away from its historical single-country locus within US borders. IT-hungry Chinese, Indian corporations and cities outspend American firms in enterprise IT. India and China will collectively invest more than $1.1 trillion in the coming decade in new infrastructure to develop whole new cities — China's urbanization rate is poised to double from 31% today to 60% in 2020 — and in the process enabling entirely new industries. Already, America's share of total revenues of 35 of the largest enterprise IT vendors is shrinking while we see a corresponding increase with that of Asia Pacific countries. The share of the US computer hardware market is falling while it is clear now that when it comes to telecom equipment, Asia Pacific is now the largest market for communications equipment.

Am writing a detailed note separately on the evolving global innovation ecosystem –watch out for it sometime next week. For now, time to go – its already late to catch the Monday’s early morning flight.

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Steve Jobs & DRM For Online Music

Paul Kedrosky argues that he is not impressed with Mr. Jobs latest views on removing DRM restrictions for online music

As he sees it Mr. Jobs has options - Instead of carrying out Mr.Jobs suggestions, he could license his FairPlay DRM to other music-player companies. That way they could play Apple music on their players, thus breaking down the iTunes wall. He argues, however, that if he did there is a chance that some of the tricky bits that make FairPlay work would become public, thus opening it up to piracy and forcing music companies to pull their entire collections from his iTunes, and everywhere else for that matter. So, no music for you!.... Mr. Jobs knows that there is pretty much zero chance the music industry will eliminate DRM. That move would sound a death ringtone for their struggling business, making online piracy dead simple and destroy the livelihood of an entire generation of artists

I tend to disagree with Paul on this. Lets look at the basics - Steve Jobs wants the major music licensing companies to examine the relevance of DRM technology. He comes from the perspective that online music shouldn’t be unnecessarily protected when music CD’s do not have any DRM restriction. After all Apple makes far more money from iPods than from music sales, so one will have to assume that Jobs shows sincerity in this idea. Ofcourse there are litigations in some European nations on the closed standards of iTunes that need to be resolved very quickly. Jobs would like to see that this has to be seen in the context of the DRM restrictions imposed by the music industry players.

Apple today commands a dominant share of the online music market and with DRM restrictions removed, one can see more action in the areas of tagging, search, personalization etc and this also opens up opportunities for pursuing new business models as well – thus benefiting the consumer and if in the process he can take potshots at Microsoft’s Zune with it splanned proprietary standards – so much better for him and the world at large. It is ironical that wih iPod, Microsoft got the short shrift owing to DRM restrictions and removing DRM restrictions this time around would neutralize Microsoft’s plan for imposing its own standards on online music!! Look carefully – who wins here – Obviously the consumer and the entertainment and more particularly the online music world-at-large.

I agree with Jobs that the best option is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. The cost of DRM enforcement and the distribution chain of online music industry adds to its cost strcuture- it's better that the root cause Viz. DRM is entirely abolished for online sales.

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Friday, February 09, 2007

The Coming Explosion Of Massive Scale Systems

I was speaking to the head of emerging technologies and research of a top analyst firm yesterday and one of the things that he highlighted as a key trend in the massive surge of investments focused on infrastructure virtualization and consolidation. His firm specializes amongst other things in tracking data and he definitely has the numbers to back him. What next is the question that both of us were trying to grapple with. The answers seem to be slowly emerging. Don’t confuse commoditization of computing with commoditization of computers – they are very different argues, Dr. Greg Papadopoulos, in what could be a defining model for the future of tech players. While recollecting the progress of 100,000 to 1M Times More MIPS/$ in 25 years, he highlights the 30X improvements in size, 24x improvements in power, 40X improvements in weight, 2x improvement in performance – all that has happened in the last ten years, achieved partly by exploiting massive parallelism in the core services, platforms, O/S instances and servers, storage & switches. Courtesy of Jonathan Schwartz saw his CTO’s analyst meet presentation, the shift is captured more succinctly here –in the past, Computer + Storage + Network + Power + Cooling+ Software= Blackbox ,as we move forward redshifting of services would mean that enterprises need to accommodate features like identity & security, SOA& Web 2.0, new clients etc. The Enterprise bridge shall encompass new players like eBay, Google, SFDC, Webex etc.. The power of leveraging these elements would demand more computing powers than the advances extended by Moore’s law, characterized as Redshift. Lot more computing cycles are needed and the resultant expectation of system administrators shift from virtualization & consolidation towards achieving efficiency at massive computing scale. Obviously there will be some early embracers of this and many who would wait and watch and this opens up different strata of markets for tech players, consulting powerhouses and system integrators.

In other words, you're going to need a lot more computers (or at least a lot more computing cycles). Whereas the focus of those organizations running traditional business-computing operations is cost cutting through consolidation, the focus of those operating the new mega computing operations (like Google, say) is achieving efficiency & predictability at massive computing scale (through, for instance, reducing electricity consumption). The huge advances that are being made and stratification of customer classes that demand about scale and efficiency in new ways would call for different approaches towards serviceability. There's a fundamental split opening up in the market, in other words: two very different sets of customers (one with stagnant demand and one with burgeoning demand) with very different needs. This is a precursor to a potentially change in business models of tech players and its not clear how consumers would benefit cost wise on this – normally such shifts come with tremendous increase in unit prices for early adopters, while providing the tech edge. Clearly, interesting times ahead.

Update : Nick Carr adds his perspective here on the same topic.

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Thursday, February 08, 2007

Caritor Folds Up Keane!!

Here comes the news, Keane getting acquired by Caritor, a company several times smaller. While news of caritor looking for acquistions and that Keane could get folded up was always there, the combination is indeed amazing. Keane has more than 10,000 employees, and Caritor, a 14-year-old firm, has more than 3,500.The combined company is expected to generate more than $1 billion in annual revenue in services.

This makes one prediction made last month come true :

9. Flush with cash/ access to cash, and spurred by constant pressure to grow faster, all firms irrespective of their tier status would announce overseas acquisitions in 2007. Global players shall increase their offshore sale aided by big ticket acquisitions.

Caritor claims that the resulting private company, with anticipated annual revenues over $1 billion and more than 14,000 professionals, is expected to be well positioned to deliver comprehensive IT and business process services to its clients, bringing together the strength of Keane’s IT delivery and client service capabilities with the flexibility of Caritor’s leading US-based global IT services business. Keane had its share of problems - Turmoil and turnover in the executive suite, coupled with a challenging restructuring that was taking time to materialize. It's sad to see a well known name like Keane fall like this. Almost 7/8 years back I have seen 200 mill dollar service companies talking internally about becoming as good as Keane. The talk of big ticket acquisitions has always been heard. We can see some more like this happening this year. Its in a way a clarion call to service companies – yesterday’s success is no guarantee to today’s survival/success. More on this at a later time.

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Interesting Conversation

I enjoyed reading this very interesting conversation between Indra Nooyi of Pepsico & Nandan Nilekani of Infosys. I expected the conversation to have some discussions around technology and how its helping the business competitiveness therein (it was not there), but on the whole a very absorbing conversation. A sample:

NANDAN: Sure. And in terms of performance of the company in markets, you have generally outperformed most indexes and most competitors...

INDRA NOOYI: We are listed in the New York Stock Exchange and we performed very well. Very good returns. We are the highest PE in the food and beverage space and amongst the highest in CPG space. That is good news and bad news because there is no place to go but down if you make a mistake.

NANDAN: And we have the same problem...

INDRA NOOYI: We got to sustain that very high level of performance. We are proud of where we are and I think the people at PepsiCo really would like to keep us there.

The simplicity and frankness shown by Indra Nooyi is indeed amazing. Very rarely do we come across a high pitch talk by CEO's without jargons and her statements and observations are straight to the point and as simplified as it could be. Recommended read.

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The Transition Journey From The Print World To The Net

With Newspaper circulation continues to decline,it forces them to think in new ways and sometimes taketough decisions. The newspaper industry, already suffering from circulation problems . Around the world, newspapers face the prospect of an accelerated drop in circulation. The slide is fueling an urgent industry discussion about whether the trend can be halted in a digital age and is forcing newspaper executives to rethink their traditional strategies.

Profits from the paper have been declining for four years, and the Times company's market cap has been shrinking, too. Its share lags far behind the benchmark, Arthur Sulzberger, owner, chairman and publisher of NYTimes,the most respected newspaper in the world found that his business is losing money. Sulzberger says he is focusing on how to best manage the transition from print to Internet. The Times, in fact, has doubled its online readership to 1.5 million a day to go along with its 1.1 million subscribers for the print edition.

He says the New York Times is on a journey that will conclude the day the company decides to stop printing the paper will mark the end of the transition. It's a long journey, and he realizes that there will be bumps on the road. He admits that while classifieds have long been a major source of income to the press, but the business is moving to the Internet.

Some interesting perspectives shared therein:

- What papers lose, Web sites gain.
- As Internet advertising doesn't involve paper, ink and distribution, companies can earn the same amount of money even if it receives less advertising revenue.
- The costs of development and computerization - he adds that time when NYT made a major investment in print, it cost no less than $1 billion, site development costs don't grow to that magnitude.
- Some notable differences - The average age of readers of the New York Times print edition is 42, and that hasn't changed in 10 years while the average age of readers of its Internet edition is 37.
He would like to see the Times as a curator of news and that special position would attract more online subscribers.

As I see it, The NYT is a pioneer and is taking the right steps but putting their news behind firewalls does not look like a positive step and the NYT needs to really assess whether the growth that they are seeing in the online world is really all that great considering the global reach of the internet. The Alexa Trends of NYTimes.com are not exactly encouraging. As I wrote previously, the future of newspapers is to change from a news organization into a news community. Readers would like to do a lot more with news. They would like to see the different angles of a story. They would like to understand it. They would like to know what it means for them. They would like to know how to deal with the consequences. The Magazine section of the NYT may also face interesting transformational challenges ahead. While we do see that the spate of early online-only magazines has largely subsided, with Salon and Slate still standing as survivors but not as the vanguard to what comes next. Innovation in long-form magazine journalism online is coming from the edges, in the shape of thoughtful audio podcasts, on-the-scene video blogs and in the plethora of thoughtful essays on Weblogs maintained in academic and professional realms. The "power of many" means that in-depth magazine pieces that once took a reporter months to amass might one day be accomplished by an online community that has a strong interest in the subject - with a reporter or editor prodding them on.

In the digital world, aggregation, personalisation, adaptability and deep degrees of contextualisation along with pervasive availability shall characterise content distribution of tomorrow - news shall be an instance of this. And readers would would like to know what others think. In other words, the news is the beginning of a process, it's not the end. NYT management needs to find a new business model to drive growth and mere net presence, howsoever strong it may be won't suffice.


Tuesday, February 06, 2007

The 100$ Un- PC - Innovation On A Global Scale?

I was speaking to Desh Deshpande almost a week back. While taking about innovation that are happening in India, I spoke about Novatium to him, given that he knows Nicholas Negroponte and the MIT connection.I have written about Novatium in this blog earlier.On the flight to Shanghai yesterday, I read two articles on Novatium – One from Newsweek & another a reprint from Washington Post that appeared in Strait Times.

From the Newsweek article :
The NetTV, which hooks up to any television, could be the first in a family of devices that connect the next billion people to the Internet. NetTV and NetPC, a similar product that uses a normal computer monitor - both are based on cheap cell-phone chips and come without the hard-disk drive, extensive memory and prepackaged software that add hundreds of dollars to the cost of regular PCs. Instead, they are little more than a keyboard, a screen and a couple of USB ports—and use a central network server to run software applications and store data. Novatium already sells the NetPC for only $100—just within reach of India's growing middle class—and Jain believes he can soon drive the price down to $70.
Despite the country's rise as an outsourcing hub, PCs are selling slowly - far more slowly than mobile phones or motorbikes - because they are too expensive, too complicated to use and too difficult to maintain. What people have been waiting for, some experts think, is a new approach to computing that boils the essence of Internet access down to its lowest cost - and lowest risk. Jain plans to offer all this in lease deals that include easy-to-use hardware, Internet connection, application software and service - for $10 a month. This formula could provide a long-sought bridge over the digital divide - and may just change the way the average person thinks of computing. The solution would open up a huge new market for Internet service providers, starting in India but possibly spreading to other emerging markets, a possibility that is already attracting the attention of the world's biggest computer companies. It would become a target for innovation on a global scale, forged by immense competition for new customers, and that would have a big impact on the PC world in the West and it could kill the PC altogether.

I particularly liked Rajesh’s quote : "It's taken a quarter century for computer makers worldwide to get to 700 million users," he says. "The utility and network computing model can double that number in the next five years. That means there's a huge opportunity for the likes of Dell, HP, Lenovo, Intel, Microsoft and so on, and the entire existing computer value chain. But they'll have to reinvent their businesses. They have to look at an entirely different model." Some of my ex-colleagues – Alok Singh, Yuvaraj are all working to make this dream come true. Interesting to watch.

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The Chinese Determination

Today,I am in shanghai. I am skipping the Nasscom Leadership Summit in India – as am in China to participate as an invited speaker to the Strategic Product Management & Product Innovation summit meet in Shanghai. I shall write about my speech in this blog a little later. I was speaking to so many here and in particular liked the affable Dr.Wen-Hann Wang’s explanation of the way Intel is growing in China.

The mood in china is one of bullishness – obviously most of them are proud of several things that have been just reported:

A. China is set to over take U.S. as the No.2 exporter worldwide this year and with an estimated $1.4 trillion dollars in exports in 2008, China will surpass Germany in 2008 to become the No.1 exporter in the world. China is already the largest exporter of electronic goods, with total exports of $300 billion, ahead of the US and South Korea.
B. A recent study finds that R&D investments in China shall be the second biggest in the world this year.
I did speak to a lot of chinese executives from the government, business and the academia. While most believe that these investments are made by MNC’s and generally are directed and controlled by them, the chinese are keen that their domestic companies pursue R&D more aggressively and become more innovative. They now want the shift from Made-In-China to Made-By-A-Chinese company tag faster.

What a change! Am able to access my blog from within china, unlike previous occasions.

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Sunday, February 04, 2007

Sustainable Globalization

Stephen Roach writes,

The pendulum of economic power is at unsustainable extremes in the developed world. For a broad collection of major industrial economies - the share of economic rewards going to labor stands at a historic low of less than 54 percent of national income - down from 56 percent in 2001. Meanwhile, the share going to corporate profits stands at a record high of nearly 16 percent - a striking increase from the 10 percent reading five years ago. This divergence is not sustainable. The angst of workers in the developed world has become a major source of tension. .. A shift in political orientation is likely to prompt an equally important pro-labor swing in the pendulum of economic power.

This, he warns is likely to prompt an equally important pro-labor swing in the pendulum of economic power. In the US house(s), topics now on the table are increased minimum wages, higher taxes on the energy industry, and new scrutiny of corporate compensation and excessive returns going to hedge funds and private equity firms. These are early warning signs of a looming shift in America's reward structure - away from the excesses going to capital and back toward labor. The biggest risk is the rising threat of protectionism. Politicians throughout the developed world view trade liberalization increasingly as a serious threat to job and income insecurity.

While, am not an expert in this field, to the extent that I understand these matters – I think that Mr.Roach is overblowing the trumpet. First of all, based on my direct experience in dealing with so many business units, I can state that the vibrancy & optimism levels are infectious. The capital accumulation problem is on account of many reasons and the important ones are linked to productivity and international trade expansion. The labor component of cost of products is perhaps coming down when assessed alongside the trends of other overheads. As operations get more profitable then more of the revenue goes into earnings, investments and reserves and less as a proportion towards labor. Matter of fact assessment of labor situations needs to be sector/region specific – a mixture of all hardly would qualify to be a rational basket for the purposes of assessment. Alternative measures like total employment numbers, average compensation levels in a stratified way, inflation and value of the currency may matter a lot for assessment purposes. In general, if both capital and available labour expands, then their relative rates of expansion would determine the basis of capital allocation. Technological changes have more influence on labor than trade influences. Around the world, corporations talk about shortage of good quality talent - labour and manager included. Technology and skills upgradation are the key and more capital accumulation would help invest lot more on such things. Cheaper imports from places like India or China are just like a tax cut; there is more money left in your wallet at the end of the day. And they create American jobs(ditto for other developed countries),too, which is less intuitive and therefore often overlooked. If you save money on cheaper cotton towels, much of that extra cash is likely to be spent on American goods and services. A DVD player used to cost $500. Now it costs $40. What happens to the other $460 ?. In the din , something substantial is being missed out. The international business volumes of majors from developed countries are expanding quite significantly. The dependence on such markets for their future growth can’t be underestimated. Mr. Roach himself has spoken about the consumption led growth of economies like India, in the process creating major opportunities for global corporations. Charles Wheelon wrote recently that whats good for India is good for America, examining things from socio-economic perspective, a trait that US policymakers seems to be exhibiting less and less these days.
The better measures of labor pool wellness are total employment, compensation rates and inflation. the expansion of the capital to labor ratio that makes wages rise. The world actually needs more and more capital, and lesser the obstacles to capital formation, the better the world would be for the future generation

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Saturday, February 03, 2007

Missing Jim Gray & Satellite Imagery

Computer science icon Jim Gray mysteriously disappeared after a solo trip with his sail boat outside San Francisco Bay. The coast guard has been searching for 4 days but has not been able to locate anything, not even debris. On Thursday 3 private planes searched through the coastal areas and they also returned unsuccessful.
Werner Vogels, CTO - Amazon.com writes that through the generous efforts of his friends, family, various communities and agencies, detailed satellite imagery has been made available for his last known whereabouts( he says from NASA, Digital Globe, Microsoft, Google, Oracle, Amazon and others worked hard get to the data collected and available on a very short time scale) and is asking for help to search the satellite images. The satellite images have been split into smaller tiles that can be easily scanned visually and are stored in the Amazon S3 storage service. Visit the Amazon Mechanical Turk site for details.

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Thursday, February 01, 2007

Private Equity & Enterprise Software Companies

It is a common thing to see private-equity-financed rollups in established industries, but till recently, we have not seen much of its impact in the enterprise software industry. Bill Burnham finds that of the 32 acquisitions of listed software companies that he has tracked last year, private Equity firms accounted for 25% of them, up strongly from 11% of deals in 2005. He goes on to predict that private equity may account for over 50% of deals in a couple years.Rather than targeting fast growing software firms, PE shops typically target "mature" software companies as they not only tend to have lots of cash but they also derive a large percent of their revenues from maintenance revenues. These revenues are seen by private equity investors and, more importantly their lenders, as a stable source of cash flow that can be used to finance lots of debt.

Seven Steps To Carry
The basic private equity software play book goes something like this:
1. Buy software company
2. Do dividend recap in which you simultaneously lever up the balance sheet and dividend out all the cash you just borrowed plus most of the existing cash on the balance sheet.
3. Raise new fund off of massive IRR created by dividend recap.
4. Do lots of acquisitions to make organic growth impossible to discern
5. Raise prices, slash R&D, increase sales and marketing.
6. Take company public/sell it at same PE you bought it for to investor/large company apparently unfamiliar with the concept of enterprise value.
7. Repeat.

While admitting that this is a bit of snarky characterization of PE software deals because software offers some unique scale effects in SG&A, Bill thinks that this characterization is probably closer to the truth than a lot of mumbo jumbo about "value add" "synergies", etc. While the attempted Hummingbird deal did not materialize, the Intergraph acquisition seems to be progressing satisfactorily. Infor’s acquisition spree spurred by private equity financing has made it a noticeable integrated solution provider. In a way the number of rollups that Infor has pulled off is amazing – such attempts on a scale and range is perhaps unparalleled. The early results look encouraging.

The burning question is would customers see this as a safe and attractive model for a software company? Looks like we may see some attempts by others to emulate infor rollup (this is frankly quite similar to oracle’s acquisition strategy – though on a smaller scale ). Would it spur on the startup ecosystem again? As I wrote recently, anything that questions status quo and takes shot at inertia is welcome and more so in this dynamic fast changing world - private equities contribution in changing the nature of business are quite telling. I would like to see the private equity players coming up with a disruptive model on annual maintenance and support charges - they can try out new models - this may spur more action in the enterprise software market affecting the financial planning of the dominant players. I would also like to see private equity players getting more active with deals(not just activities, while I am fully aware of the various regulatory challenges that they face therein) in more promising parts of the world- emerging economies.

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