On the 1st May, 1840 a revolution in industry was started by the introduction of the Penny Black. This simple postage stamp caused a dramatic explosion in communication from 76 million letters sent in 1839 to 350 million by 1850. It wasn't a case that postal services didn't exist before but the Penny Black turned the act of posting a letter into a more standard, well defined and ultimately ubiquitous activity.
The introduction caused a spate of copy cat services through the world, with the US introducing their first stamps in 1847. The 125 million pieces of post sent through their system in that year mushroomed to 4 billion by 1890. From stamps to street letter boxes (1858) to the pony express, railway deliveries (1862), money order and even international money orders by 1869.
The humble stamp changed communication forever. But it wasn't alone. Telegraph lines which later enabled the telephone which later enabled the internet have all led to corresponding explosions of communication.
In all cases it wasn't the invention of the system (the first stamp for example being created by William Dockwra in 1680) but instead the system becoming more standard, well defined and more of a commodity which created the explosion. Each time, we've experienced one of these communication changes we've also experienced significant industrial change. The growth in postal services and telegraph lines coincides with the Railway and Steam Engine era where diffusion of new machine concepts became rampant.
Of course, the origin of industrial steam engines started in the earlier first industrial revolution which itself arguably started with Maudslay's screw cutting lathe and the introduction of interchangeable mechanical components. By providing mechanical components as more of a commodity, we saw a growth in new machine industries and new manufacturing processes. From the Plymouth system for manufacturing which later became the Armory system in the US, an entirely new method of manufacturing was started by the humble nut and bolt.
The point of this tale, is there is a simple pattern to change. It is when an activity becomes ubiquitous and well defined (whether postage stamps, mechanical components, electricity, currency or mass communication mechanisms such as the internet) then as a consequence we see an explosion of new industry and new management practices. Often many of these changes overlap because of interdependencies for example the age of electricity was really the age of steel, electricity and engineering. Today's internet age is really the age of internet, cloud and most likely 3D printing.
Our economy is governed by waves of change which are regular in impact but irregular in terms of time i.e. we cannot predict when they occur just what the impact will be. Their effect can be local to an industry or at a macro-economic level. Each wave in turn is driven by a standard process of evolution which itself is driven by competition between users and suppliers.
The effect is always the same.
A once innovative activity become more of a commodity and a component that enables new higher order industries to develop. Interchangeable mechanical components beget steam engines beget utility electricity beget modern electronics beget the internet. With each cycle, new management practices appear from the Armory System to Fordism to Web 2.0.
Each wave also involves three distinct phases. Beginning with a time of war when disruptive change exceeds sustaining and new entrants commoditise an industry precisely because they're not encumbered by an existing business model. This is followed by rapid growth in new industries built upon the components produced by these new players. This is followed by a time of peace, where sustaining change exceeds disruptive change and those new industries that formed settle down until the next wave starts.
What controls these stages is inertia, both user and vendor, to the change. Those companies that developed in the growth phase to become dominant players in the peace phase also build up huge inertia barriers to change because of their past success. It's why those companies tend to be disrupted in the next phase of war and why we all gasp - "But [Kodak / Blockbuster / add your favourite] was such a successful company once".
Of course, our gasping in amazement of failure is overtaken by our gasping in amazement of wonder as the growth phase enables new industries to form. Whether it's in the electricity age and Hawkin's comment on how it brought about the dream of magic (electric lights, radio, telephone) or the internet age and the growth of companies like Google, Apple and Amazon or even to today with the commoditisation of IT through cloud and the rapid changes we are experiencing.
Competition begets evolution begets past history begets inertia begets disruption begets another wave of change.
The consequences of this, the changing nature of work and disruption of past skills such as the gas lamp lighters disrupted by electricity, the fears over what people will do such as Hawkins concerns that electricity would lead to mass unemployment and strife for the average worker to the arguments over classification of the abundant data that the change creates from Cutter vs Dewey to NoSQL vs SQL, are all part of the same cycle.
Change and reoccurring consequences of change are a constant in life.
In business, one thing we have to always be mindful of is our inertia to such change. The attempts to recreate the past rather than adapt to the future is almost always behind the death of great companies. For example, when your business revenue is stagnating or falling, a "peace" time mentality is to reduce costs to regain profitability. That's fine if you're industry is in a “peace” stage of the cycle, however if instead the activities you provide have evolved to more of a commodity and a war phase has been initiated then such cost reduction strategies are often fatal. That's the tricky thing about management strategies, what works well in one phase is often fatal in another.
This is why many in the hosting industry will not survive the onslaught that Amazon, Google and others are creating in the cloud computing space. For those in that space it is a time of war and as any general will tell you, if your lines of red coats are being outgunned by a smaller guerrilla force then cutting down the size of the army won't make things better, you'll just lose the war faster. The problem is your strategy and techniques - those lines of red coats may have worked in the past but no more. You must adapt.
Even great companies like Microsoft struggle with inertia and past success. I would suspect it is a testing time for their CEO because on one hand the company has a successful past that their culture celebrates but on the other hand their past business models are in danger of demise. Adapting to the new techniques of growing ecosystems based around commodity services and exploiting open source as a tactical weapon are not options but a necessity for survival. In our modern world, even the old stalwarts such as Porter's three strategies are long gone with companies such as Amazon using ecosystems to become simultaneously innovative, customer focused and efficient.
Whilst parts of Microsoft are clearly adapting with the recent creation of an open source entity and its steps into the cloud, other parts still fall back on old techniques such as the recent exposure of lobbying efforts in the UK open standards consultation. Open source is not the real enemy of Microsoft instead 'old' Microsoft is.
The past unfortunately rarely goes quietly because it has all the evidence to show you how good it was and the future, well that hasn't happened yet and so it's dismissed as gut feel. Failing to deal with this past is lethal, ask Kodak. Despite its early leadership in digital still cameras, it was a combination of catastrophically poor management, inertia from past success, an absence of a good strategy and weak execution that dragged the company down. You can blame markets, culture or anything else which makes it more palatable but the problem was a failure of the CEO to see the storm that was coming and to lead that company to new pastures despite the company's insistence to stay put.
Adapting to an environment basically boils down to a judgement call of a CEO and a willingness to drive that change through, however execution is also critical. Whilst the biggest enemy to a company's future survival is often its own past success, this can be reinforced by external markets and analysts. Even if your strategy is close to perfect any flaw in execution can be seized upon. As in the case of HP, its CEO Leo Apotheker was ousted because of poor execution combined with external pressure and a board that buckled too quickly.
Equally you can push it too fast. No-one should be in any doubt over the necessity of NetFlix to divide into an online and traditional media delivery business as a precursor to focusing solely online. However, a couple of poor moves and customer inertia to the change was whipped up into a storm by analysts. NetFlix's Reed Hastings had to pull back from that strategy … well, at least for the time being.
From the postage stamp to electricity to the internet, there's a long long list of great companies that failed to adapt to the new world that was created around them. So, will Microsoft be among that list? At this stage of the cycle it all depends upon the CEO, Steve Ballmer. If the culture isn't dealt with, if Microsoft fails to adapt, if the board buckles to external pressure ... well lots can go wrong. If it didn't then great companies would never die.
Wednesday, May 02, 2012
Tuesday, May 01, 2012
The battle for open standards needs you.
Many of you are probably not aware but at this moment in time there is a battle ongoing within the UK which will help shape the future of the UK tech industry. It's all about open standards.
Last year, the Cabinet Office ran a consultation on open standards covering 970 CIOs and Academics. The result of this consultation was a policy in favour of royalty free (RF) open standards in the UK. I'm not going to go through the benefits of open standards in this space other than to note that they are essential for UK's future competitive position, for spurring on innovation and creating a level playing field within the tech field. For those who wish to read more on this subject then Mark Thompson, the only academic I know to have published a paper on open standards in a quality peer reviewed journal, has provided an excellent overview.
Normally, I put these battles into a historical context and I certainly have a plethora of examples of past industries attempting to lobby against future change. However, to keep this short I'll simply note that the incumbent industry has reacted to the Cabinet Office policy with attempts to redefine open standards to include non open FRAND (fair, reasonable and non discriminatory) licenses and portray some sort of legitimate debate of RF vs FRAND which doesn't exist.
Whilst this is clearly wrong and underhand, there's another story I wish to focus on. It relates to the accusations that the meetings have been filled with "spokespeople for big vendors to argue in favour of paid-for software, specifically giving advocates of FRAND the chance to argue that free software on RF terms would be a bad thing" as reported by TechWeek Europe.
The back story is, that since the Government policy on open standards was put in place, the Cabinet Office was pressurised into a u-turn and running another consultation by various standards bodies and other vested interests. The arguments used were either fortuitous misunderstandings of the policy or wilful misinformation in favour of current business interests. The Cabinet Office then appeared to relent to the pressure and undertake a second set of consultations. What happened next shows the sorry behaviour of lobbyists in our industry.
"Software patent heavyweights piled into the first public meeting" filing the room with unrepresentative views backed up by vendors flying in senior individuals from the US. It apparently seems that the chair of the roundtable was himself a paid lobbyist working on behalf of those vested interests, a fact that he forgot to mention to the Cabinet Office. Microsoft has now been "accused of trying to secretly influence government consultation"
What's surprising is that the majority of this had been uncovered by two journalists - Mark Ballard at Computer Weekly and Glyn Moody. Both work mainly outside the mainstream media which has remained silent on the issue with the notable exception of the Guardian.
The end result of the work of these two journalists is that the Cabinet Office has had to extend the consultation and "rerun one of its discussion roundtables after it found that an independent facilitator of one of its discussions was simultaneously advising Microsoft on the consultation"
So, we have two plucky journalists who stand alone uncovering the bullying of Government by large corporations protecting profits worth hundreds of millions through misinformation and rigging by paid lobbyists. Our heroes journey uncovers gerrymandering, skullduggery, rampant conflicts of interests, dubious ethics and a host of other sordid details and … hold on, this sounds like a prototype Hollywood script not real life.
Why on earth isn't mainstream media all over this especially given the leaked Bell Pottinger memo on exploiting citizen initiatives. Their silence makes me wonder whether investigative journalism into things which might matter and might make a positive difference doesn't sell much advertising? Would it help if the open standards battle had celebrity endorsement? Alas, that's not the case and the battle for open standards might have been extended but it is still ongoing.
This issue is as important to the UK as SOPA / PIPA was to the US but rather than fighting against a Government trying to do something which harms the growth of future industry, we are fighting with a Government trying to do the right thing and benefit a nation.
If you're too busy then that's understandable but just don't ever grumble about why the UK Government doesn't do more to support open standards and open source. The UK Government is trying to make a difference, it's trying to fight a good fight against a huge and well funded lobby but it needs you to turn up.
The battle for open standards needs you, so get involved.
Life is all about competition whether individuals, companies or nations. Open standards and open source are both tactical weapons that can drive competition and efficiency in IT markets whilst enabling the innovation of new industries. In today's age, Governments that ignore this do so at the peril of their own future industries. It's upto us to make sure that our Government doesn't get bullied by lobbyists into adopting a position which is not in our national interest.
P.S. On another note, since Microsoft seems to think it's ok to lobby the Government in this way for naked self interest ... does anyone know how much revenue Microsoft makes in the UK and also how much corporation tax it pays here?
Tuesday, April 10, 2012
Be Wary of Geeks Bearing Gifts
[Repost of my Forbes Article]
For many, the words open source conjures up concepts of hippy idealism where geeks in a spirit of free love give away their work to others for nothing. For many, it’s about as anti-capitalist as you can get.
Those many are as gullible as the citizens of Ancient Troy.
Open source is one of the deadliest weapons in the arsenal of any experienced strategist. It can be used to remove barriers to entry into an opponent’s business, to encourage standardization around your practice creating a cost of transition for opponents, and it can be used to develop ecosystems to strengthen your position as part of a land grab for new sources of value or even as a source of recruitment of talent.
Whilst customers delight in the benefits that open source brings, for a vendor the successful application of an open source approach by a competitor can be fatal.
But really … are technology companies that smart?
Take Facebook’s open compute project, which in effect open sources the design of large-scale data centres. You might view this as a generous act by Facebook to encourage and enable efficiency in the hosting business. T he benefits for customers and those in the business of providing data centres could be significant. Bravo, Facebook.
But wait, isn’t the ability to operate and maintain efficiently large-scale data centres a barrier to entry into Google‘s search business? Facebook wouldn’t be presenting this gift in the hope of undermining Google’s position … would it?
Take Google’s open source Android project that in effect provides device manufacturers with the software necessary to compete with Apple and IOS. You might view this as a generous act by Google.
But wait, wasn’t IOS and the devices Apple builds a threat to Google’s value chain around data? Has Google created a competing ecosystem to Apple in order to protect itself? Google wouldn’t be presenting this gift in the hope of undermining Apple’s position … would it?
There is a long list of open source projects that on the surface seem generous acts of kindness – a beautifully presented wooden horse. What are often hidden inside are the competitive machinations between companies. Open source is a deadly serious business and those who exclude this tool from their arsenal put themselves at a considerable strategic weakness.
As someone who spent several years developing strategy for the large and rapidly growing open source operating system, Ubuntu, you can bet your bottom dollar people think very carefully in these terms.
The latest arena where open source is being deployed is in the infrastructure layer of the cloud computing stack. For me, this represents a bit of personal journey … to explain I’ll start at the beginning of my involvement.
Back in 2005, I was running a subsidiary of Canon providing software systems throughout the group. I had given a talk at a conference in the previous year on the commoditization of IT activities and how our industry was changing. We were building such a system within the company and we had visions of a worldwide ‘grid’ of utility computing providers.
The idea of providing computing as a utility and the analogy to electricity dates back to Parkhill’s visionary 1966 book. Hence, this obviously wasn’t new in 2004. We understood the cycle of economic change and how once innovative activities (such as electricity or a thousand other business activities) then evolve to become ubiquitous, well defined and more like a commodity. We understood that each time this happened it caused an explosion of growth of new, higher order industries.
We were well armed, we understood the principles, we knew we didn’t need to fear the incumbents because of their inertia – but we needed an edge. It didn’t take long to find it but I’ll come to that soon.
In early 2006, we launched ‘Zimki’ – the world’s first dedicated platform as a service enabling others to build applications. Of course, we didn’t call it a platform as a service – the term hadn’t been invented back then. The service was provided as a utility and contained all the basics a platform should offer. It was designed to make it easy for anyone to build entire applications by removing all the unnecessary muck of worrying about installing machines, configuring systems and so on. You simply wrote code and launched.
The resultant speed of development was revolutionary. As Zimki grew, Amazon entered the fray with EC2 and we were joyful with the validation of the market. We looked like we had a potential but imperfectly formed winner in our small Canon subsidiary. We also had our edge – our secret weapon.
We understood that customers would have inertia through concerns over governance, transparency and lock-in. Some of these we could tackle with education but for others, we needed to remove the fear. Hence, in late 2006, we announced that we were open sourcing the entire platform. We were going to enable competitors and customers to build their own Zimki environments. We were going to create a competitive market of utility providers with an open source system at the heart of it.
One strategist told me I was “mad” to give away this advantage. However, our eyes were on bigger prizes. Yes, we would have a small piece of a larger pie but we were looking further up the value chain to capture the exchange, the assurance and the switching services that such a market creates.
We had our secret weapon, we knew the big prizes, we could deal with customer inertia by creating a competitive market, we were rapidly growing, we were a profitable company, we were at the vanguard of a new industry in early 2007 … we had everything. What could possibly go wrong?
Alas, I made a mistake and didn’t counter the internal politics and build the right sort of internal alliances. As a result, when the parent company focused on outsourcing IT, I didn’t have the political capital to counter.
Despite this failure, the game plan itself was sound. So, when I started to run Cloud strategy for Canonical (the providers of Ubuntu), my focus was on using open source to both solve lock-in issues and make a land grab whilst co-opting Amazon’s growing ecosystem.
It was this search that brought us to Eucalyptus – a start-up providing open source technology to create an equivalent of Amazon’s cloud.
Unfortunately this game is always full of twist and turns. Eucalyptus was our anointed target to dominate this space but they soon embarked on an open core route mixing both open and proprietary elements. Despite its uptake and the growth of Ubuntu, the lack of a strong open source community raised concerns.
At that time, one of my colleagues had moved to Rackspace where he was instrumental in Rackspace and NASA’s own open source play – OpenStack. Their approach was clearer – an open source equivalent of Amazon … what could go wrong?
Unfortunately, for reasons which today are still unfathomable, OpenStack appeared to focus on competing rather than co-opting what had become the de facto standard of the industry, namely the Amazon Cloud APIs of EC2 and S3.
The screw then recently turned again.
With the failure of OpenStack to capture the space combined with a new highly experienced open source CEO at Eucalyptus, there has been a flurry of recent announcements including a partnership with Amazon to ensure fidelity of Eucalyptus’ APIs with Amazon’s.
Hence, on one hand we have the EC2/S3 equivalent cloud that isn’t quite open sourced (yet), and on the other hand, the entirely open sourced cloud that isn’t quite an EC2/S3 equivalent (yet).
What a pickle.
An unkind observer would comment that Eucalyptus has built its wooden horse but debates over who pays for what whilst OpenStack can’t quite decide whether it wants a wooden horse or a wooden cow? The Trojans can sleep quite soundly.
Except, Citrix has today rolled out onto the battlefield a bright shiny wooden horse packed full of soldiers. It’s an obvious move but the point is that Citrix has now done it.
Citrix has taken CloudStack – a technology used by many companies for building infrastructure clouds – and entirely open sourced it under the Apache foundation. They’ve announced significant funding for the project and openly discussed fidelity with the Amazon EC2 and S3 APIs. They have a list of supporting companies to make you gasp.
For us customers, we’re increasingly heading towards a future of competitive utility computing markets based around open source systems providing the de facto APIs of Amazon.
Will it be CloudStack, Eucalyptus or OpenStack? That depends upon what moves they play next.
However, for competitors in this space, if you’re not wary of Geeks bearing gifts, you should be.
Pet Rocks of the Software Kind
[Repost of my Forbes Article]
Napoleon Bonaparte once said “Never interrupt an enemy when he’s making a mistake”. For those in the business of organizational warfare, this rule is golden.
It is one of the reasons why we are a fairly secretive bunch about the finer points of value chain evolution and the games to play – blocking strategies, choke points, positioning, barriers to entry, exploitation of ecosystems and tactical weapons such as open source. Anything that gives an advantage is secret, everything that doesn’t … well, write a book on it.
I thought I would let you in on a ‘secret’ which you already know. Most of us are spending far too much money in IT on things that don’t really matter. It is the software equivalent of paying high prices for builder’s rubble because someone called it a ‘Pet Rock’ which you could customize.
You can guess what I’m going to talk about – the suspects are already forming in your mind ... Financial Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) must be top of most people’s list.
It’s not that these things aren’t necessary; they’re an essential part of every modern business. However, it’s precisely because most businesses need them to compete that they are ubiquitous and therefore of little differential advantage. Of course, heavy customization is where we gain the advantage … or at least we are told, whilst quietly ignoring that everyone else is also doing this. It’s not that these systems didn’t at one time create a differential advantage, they did. However, this was when not every company had them, when CRM and Financial ERP were less common.
Alas, things don’t stand still. All business activities evolve from the once rare, poorly understood sources of differential advantage (genesis) to more commonplace, well-defined commodities that are simply a cost of doing business. No matter how you dress it up, a rock’s a rock and something that doesn’t differentiate doesn’t differentiate. Failing to understand this can lead to poor investment choices. I know, I’ve made a few. I’m not alone.
Two years ago, I discussed this issue with over a hundred CIOs. We examined Financial ERP and it became clear that whilst everyone was heavily involved in customizing their system, we were spending significant amounts of resource and effort doing exactly the same thing. We were chasing differential advantage that didn’t seem to exist.
We do this because as customers we don’t talk transparently enough with each other. We believe that our ‘customization’ will give us an advantage, hence we keep it ‘secret’. We’re unaware that everyone else is doing the same. How many ways can an invoice be printed? How much differential advantage can be gained through invoices? What are the odds that everyone else is ‘secretly’ working on a customization that has the ability to share, create or print invoices via an iPad?
This is where we make our mistake. When something is common there is no differential advantage, only operational efficiency. And something can be common without us realizing it, including our most cherished customizations. Of course, that doesn’t mean differential advantage can’t be created on top of these systems – that is, by moving up the value chain and creating higher order systems.
History teaches us that it wasn’t the innovation of electricity with the Parthian battery, but instead the introduction of utility electricity services by Westinghouse and Edison that changed our world. It did so by enabling higher order systems and industries to form from the telephone to radio to Hollywood to Silicon Valley … an awful lot of value built on top of a commodity. Differential value is never in underlying systems that are common and well understood. The value is in what can be created on top of these.
So why isn’t a commonplace activity like Financial ERP provided as a utility service? This is already happening to infrastructure with the likes of Amazon EC2 as well as other parts of the computing stack.
The problem is inertia. As business activities evolve from genesis to commodity, they move through three economic states:
• One of build.
• One of peace.
• One of war.
What limits that movement is inertia from customers and vendors.
In the peace state which is characterized by relative competition between vendors, the incumbents build huge cultural inertia to any change due to their own past success. As the activity becomes suitable for utility provision, it’s normally an outside player who initiates the war, a time where disruption tends to exceed sustaining change and competition becomes a fight for survival.
Think about provision of electricity as utility services, the corresponding explosions of growth of new activities (telephone to radio) and the disruption of past industries (for example, gas lamps). This pattern of evolution, from genesis to utility, from build to peace to war constantly recurs in our industrial history and we’ve no reason to suspect the pattern will stop.
In the case of computing infrastructure, which has evolved from its genesis in 1943 with the Z3 to utility services, then the outside player who initiated this ‘war’ was Amazon. A retail company not encumbered by a hosting business model is forcing the hosting industry to evolve.
But with Financial ERP, aren’t the incumbents changing? Both SAP and Oracle have cloud offerings and Microsoft has, in the last few weeks, announced it’s getting in on the act. As both Blockbuster and Kodak taught us from different industries, even if you were first into a field, this doesn’t seem to help if you can’t deal with the past industry you’ve built up. Is it likely the incumbents will truly initiate and embrace the war and disrupt their own business? Or will it be the new entrants such as NetSuite, Infor and Workday who will change the game?
The million, or should that be billion dollar question, is “who is really going to shake up this space?” An obvious candidate would use Financial ERP extensively but not be encumbered by any past business model. They would need to overcome trust barriers that enterprises adopting such a service would inevitably have, and they must have a financial interest in doing this. By interest, it could mean their existing business model is under attack and they need to move up the value chain and secure relationships with large enterprises in other ways.
I’m not convinced we’re just going to replace one set of software vendors with another because retail banking could be such a candidate. Am I seriously proposing that banks might provide utility services for Financial ERP? It sounds odd, but no more than an online retailer providing utility infrastructure. Given the potential impact of mobile banking in this sector, I wouldn’t be surprised if some move up the value chain to strengthen their relationships with enterprise customers.
So this brings us to the mistake. The question we really need to ask is whether spending on customizing and upgrading Financial ERP systems is sensible given the likelihood of a change? Doesn’t sweating existing assets makes more sense? I’m all for opponents charging ahead especially when it might involve spending vast sums where it’s not necessary. But I would be mindful that Financial ERP will evolve just like every other business activity and if everyone is doing this then it’s only a matter of time. I expect those existing models will start to be disrupted and commoditized to utility services in the next few years despite the dismissal of many.
I’m used to a world of “it’ll never happen”, “it’s too complex”, finding simple ways of happening. In a case like this, there is a good argument for procrastination.
As Napoleon also said “A revolution is an idea which has found its bayonets” … well currently utility approaches are making a charge on former hosting models. Financial ERP can’t be far behind.
Monday, March 12, 2012
Ten graphs on organisational warfare
The presentations I've given over the last seven years have been a gentle introduction into the battle between companies. Unfortunately as an industry we're not only overwhelmed with glib phrases such as "culture eats strategy for breakfast / lunch" but also a paucity of data behind many of these statements.
Alas, competition isn't simple. Well more specifically, simple forces create a complex world and we inhabit that world. To demonstrate this and in honour of the general detritus that is "the ten habits of successful organisations", I thought I'd bring you Ten graphs on organisation warfare and why competition isn't simple.
Graph No. 1 - Evolution
First, I hope you're familiar with Everett Rogers work on the diffusion of innovation which was subsequently made popular by Geoffrey Moore in his book crossing the chasm. There are two things I'd like to highlight with Roger's work other than its startling brilliance.
First, it's time based and therefore despite popular notions, diffusion curves are not identical and in some cases there is significant initial lag. Secondly, it's all about diffusion and hence whilst it will tell us how a particular product spreads it won't tell us about how an activity will evolve. For example, electricity has evolved from the parthian battery to modern day utility provision - diffusion doesn't tell us about that process but it will tell you about how utility electricity provision has been adopted.
Unfortunately, we operate in a constantly evolving world so getting a handle on evolution is a pre-requisite for any form of strategy. The graph below provides a standard pathway for the evolution of any business activity based upon user and supply competition. It's not a time based sequence, the axis being ubiquity (how common something is) and certainty (how well understood and defined something is).
For reference, I've approximately marked onto the graph the positions of one activity - computing infrastructure - from the innovation of the Z3 to utility provision of EC2. For general reference, commoditisation is the commonly used term for this process of evolution.
Graph No. 2 - Evolution and Value Chains
Major changes in our society are rarely due to the introduction of some new activity. It almost always occurs because some previous existing activity become ubiquitous and well defined - whether it's nuts and bolts (Maudslay's screw cutting lathe), electricity (Westinghouse and Edison) or computing infrastructure (Amazon EC2).
The reason for this, is that the commoditised activity becomes a component of higher order systems e.g. nuts and bolts for machines, electricity for fridges etc. Herbert Simons showed that the provision of standard components rapidly accelerated agility and creation of new higher order systems. Hence, we have commoditisation enabling growth and agility of higher order systems.
Now all those higher order activities evolve through the same pathway as the lower order systems. We can actually break this down into three phases - chaotic, transitional and linear - based upon the characteristics the activity has. For example, in the chaotic phase an activity will be uncertain but a potential source of future worth whereas in the linear phase the same activity will be more standardised and a cost of doing business.
Hence as a once valuable activity becomes a commodity, the margin associated with it tends to rapidly decline but at the same time it enables rapid formation of higher order systems which have potentially high future worth. Hence, it is the destruction of value in the old that enables the creation of value in the new higher orders. This is known as creative destruction by Joseph Schumpeter.
The consequence of this, is that the process of evolution continually drives up the value chain to higher order systems.
Graph No. 3 - Co-evolution of activities and practice
So far, I've talked about the evolution of activities but there's more to life than what we do (the activity), there's also how we do it (the practice). Practice and activity often co-evolve together.
Activities undergo a transformation from chaotic to linear involving stages such as genesis, custom built, product and commodity. Practices also undergo a transformation from chaotic to linear involving stages such as novel, emerging, good and best (the Cynefin framework).
The link between practice and activity is fairly simple and I'll use computing infrastructure to demonstrate. When computing infrastructure was provided as mainly products then novel architectural practices developed for scaling and resilience which became the best practice for a product world. These included concepts such a scale-up, N+1 and disaster recovery tests.
As computing infrastructure evolved to more a utility then novel architectural practices developed for scaling and resilience which are spreading and becoming the future best practice for this utility world. These include scale-out, design for failure and chaos engines (i.e. constant introduction of failure to ensure resilience).
In other words, best practice for the product world is not the same as best practice for a utility world.
Unfortunately this also creates a problem. As we build with certain types of practice we also incur a debt to that practice. For example, in the computing world when we built applications based upon architectural practices such as scale-up and N+1, the applications that resulted depended upon these architectural practices i.e. applications assumed the underlying infrastructure was resilient and could scale.
In a more utility world where highly resilient and specialised infrastructure is replaced with massive amounts of good enough components, the architectural assumptions of our legacy applications no longer holds. Hence along with a debt to past practice we have a cost of transition to the new architectural forms.
This cost of transition is one of many types of inertia to change and inertia is a critical controlling point in evolution.
Graph No. 4 - Inertia as the controlling point to change
Inertia breaks down into two principle forms - customer inertia to adopting a change (usually referred to as Risk) and vendor inertia to providing the more evolved form of the activity.
To explain this, I'm going to use a simplified version of value chain evolution and simply represent the change as a cycle of commoditisation enabling the genesis of new activities through componentisation. For this reason in the graph above, the value chain axis has disappeared.
When it comes to customer risks (i.e. inertia to adoption) which are generated by concerns over a changing market and technical debt, these can be categorised into :-
Once this happens, businesses who consume the more evolved form will find a triple whammy of benefits including :-
Inertia therefore acts as a gate to this flood and once broken, rapid change is inevitable. A by-product of this gate is that it creates three eras of economic change - build, peace and war.
The peace era, a time of products and product services, is one where competition between providers can be considered relative. One day Nikon is in first position, the next day its Canon etc. This is a time where sustaining change tends to exceed disruptive change and the likelihood of a major player being wiped out tends to remain low (unless you're either unlucky or highly incompetent). It's also a time of the highest margin, of increasing maturity of activities and practice and where feature differentiation is critical for competition. In this peaceful era, inertia to change is beneficial as it maintains the state between the providers.
Alas, as the activity becomes more widespread and defined then it becomes suitable for the next evolved state - a time of commodity and utility. All it takes is one player, not normally in that space, to kick of the war.
The introduction of more commodity approaches to providing the activity initiates a fight for survival. The incumbents are normally stuck behind inertia barriers and are hence in denial that their world might change (cultural inertia). Businesses start first to lightly consume the new service due to their own inertia (customer risks) but due to the Red Queen effect, a trickle becomes a flood. As margins reduce in this space and the focus becomes increasingly on operational efficiency, the incumbent providers often respond by trying to cost cut rather than trying to adapt - this is almost always fatal. Hence in the war era, disruption (both direct and indirect) tends to exceed sustaining change and many once proud names fail.
Along with the war, a build era occurs for the development of new higher order systems based upon the ubiquitous and well defined supply of a commodity. These higher orders are where capital flees to chase the new opportunities as the past is commoditised and future industries are created (see creative destruction). This is often a time of wonderment and amazement with new technological marvels.
These eras of build, peace and war can be localised to a specific industry or in certain circumstances be seen at the macro level in what are known as K-waves which are more commonly referred to as ages (e.g. the age of steel, electricity and heavy engineering).
One thing that is worth noting is the evolution of activity often involves co-evolution of practice and hence the formation of new forms of organisation. Hence in the age of electricity, new organisational forms appeared that exploited new practices resulting in what was called Fordism. In the internet age we had the Web 2.0. Today, cloud computing (which is all about commoditisation of discrete IT activities) is creating a next generation of organisation.
Finally, it is worth noting that each build era is often associated with rapid increases in un-modeled data and corresponding debates over how to manage this. The origin of this increase in data is a combination of commoditisation of past activities and creation of new activities. The modern example of this is known as Big Data.
Graph No. 5 - Ecosystem
Currently within information technology rich industries, we're undergoing one of those shift from peace to war and the formation of new organisations that exploit these practices. I provide this in much more detail on the LEF website covering areas such as new practices, use of open source as a competitive world, focus on disruption etc.
However, I thought as an aside I'd mention one of the changes that is occurring which relates to the use and exploitation of ecosystems. The principal model behind this is known as ILC - innovate, leverage and commoditise.
Under ILC, a company seeks to provide activities that it currently produces (or more likely consumes) as utility services provided through APIs in order for others to consume them. The focus is on developing a wide ecosystem of other customers.
Since, the activity is provided as a utility service then it enables others to reduce their cost of failure with any novel pursuit. This encourages genesis of new activities.
However, as those new activities diffuse, the provider of the utility services can detect this and leverage the ecosystem to identify early successes. By copying or acquiring such activities and commoditising to utility services then the provider can feed the ecosystem by enabling further genesis through componentisation effects.
The net result is the provider appears to be both highly innovative (by enabling others to create new activities), highly customer focused (by leveraging an ecosystem to identify future requirements) and is inherently efficient (through provision of utility). This triple whammy is counter to Porter's assertion that you can only do one of these things. It's what makes companies like Amazon so dangerous to their competitors.
Critical in all of this is the size of the ecosystem, the speed of feedback and the speed of action. Hence, you can create an ILC model in a product world but it's much more effective with utility services such as those provided through APIs today.
In many information technology industries, we're entering a world where it's not companies that compete but ecosystems.
Graph No. 6 - Profile
In the last section I referred to information technology industries because this enables me to introduce a concept known as profile.
Firstly, a company consists not of one activity but many. Even if you take a single type of activity such as IT, it will consist of many discrete IT activities. These activities are likely to be at different stages of evolution and hence not all IT is the same. Some IT will be in the chaotic phase, some will be in the more linear.
This itself creates a huge problem, because each of the phases has different characteristics. Hence, when it comes to something simple like project management - the methods you use for an activity in the chaotic phase (where deviation is necessary and the activity is uncertain) are not the same methods that you would use for that same activity when it has reached a more evolved, linear phase (where deviation is undesireable and the activity is predictable).
This leads to the endless and pointless debates between methods such as Agile (or Scrum) vs Six Sigma (or Prince 2 or ITIL). The simple fact is that Agile methods are more suited to the chaotic phase whilst Six Sigma is more suited to the linear and seeing that IT consists of many activities at different phases which are all evolving then you need to use BOTH appropriately.
There is no such things as the one size fits all method because the underlying characteristics of the different phases are polar opposites.
This isn't just an IT thing it also applies to all other activities and hence we have other pointless debates such as push vs pull marketing (answer - you need both). Fortunately since we're all in competition, if we all apply one size fits all then no-one has an advantage. Alas, organisations have evolved beyond that point and so if you are doing this then you're already behind the game.
Now, if we plot frequency of activities across the evolutionary path we get a profile for a company. It's best to subdivide activities between those you supply to others and those you consume yourself. Not only do companies have a profile but industries do as well, hence a mining industry does not have the same profile as a media company. This is also why changes impact industries differently.
For example, cloud computing is likely to directly disrupt hosting companies, indirectly disrupt banking industries (through reduced barriers to entry) and it is unlikely to have a major impact (bar some efficiency gains and changes in relative position) for highly commoditised industries such as mining.
In the graph above I've also added an example value chain consisting of something that is sold which is built from multiple underlying components. Now, each activity in such a chain continuously evolves (due to supplier and user competition) and is effected by Porter's five forces.
For those needing a refresher, those five forces are supplier vs buyer power, new entrants, substitution and competition with others.
Graph No. 7 - Forces, Eras, Evolution and Value Chain
At this point we can start stitching together many of the concepts covered in the previous graphs to discuss change.
Now each activity evolves due to supply and user competition and in the above one component activity of a value chain has changed phase from transitional (custom built, product and rental products) to linear (i.e. commodity and utility service). Along with initiating the war phase for that activity where new entrants, substitution and disruption of incumbent suppliers becomes more likely it can also have more subtle effects by reducing barriers to entry for competitors into the supply chain.
For example, let us assume the top activity is news. The component activities might be the means of mass communication, collation and editing. If we take newsprint then the means of mass communication was previously printing combined with a distribution channel both of which are capital intensive activities. The commoditisation of the means of mass communication would not only reduce operational costs of news organisations but also potentially reduce a barrier to entry into their space. This is exactly what the internet did leading to increased competition higher up the value chain.
Hence, the commoditisation of an activity and the initiation of war is not only directly disruptive to past providers because of the new entrants, substitution and inertia that the past incumbents have but it can also be indirectly disruptive higher up the value chain due to reduced barriers of entry.
Interestingly, as a buyer you always attempt to push component activities to more of a commodity (buyer pressure) but as the above examples shows this can actually have a negative effect by increasing competition in your main business.
There are a host of effects you need to concern yourself with regards to strategy :- evolution, value chains, buyer vs supplier pressure, barriers to entry, choke-points, inertia, profile, positioning, ecosystems, phase, era ... it's a long, long list of things. Managing this is complex, even though the premise that this all extends from evolution driven by user and supply competition is trivially simple.
Graph No. 8 - Who's running the show anyway?
Previously, I talked about how commoditisation of the means of mass communication has reduced barriers to entry into the "news" organisations value chain. This caused a rapid growth of competitors, one of which is the general public consumer through blogs, twitter and other social networks.
Now, a critically important point to consider when examining a strategy is who governs evolution?
When I talk about evolution being driven by user vs supply competition, the obvious question to ask is which user are we talking about? Do we mean an enterprise or a general public consumer?
Well, unfortunately the answer can be both and in these circumstances what matters is which group governs the process of evolution. Take for example, email.
Email was being used within Enterprise organisations for communication before it became popular with the general public. At one point in time, most members of the public were first exposed to email through their workplace. Email services and products evolved in the workplace driven by the pursuit of ever more functionally complete systems with todo lists, calendars etc.
However, email also spilled out into the general public where it was aggressively commoditised by providers such as AOL then Yahoo and Google. A consequence of this is that in the general public space, highly commoditised services became the norm and most people found their public email service had more capacity at a lower cost than their workplace service. Eventually this created pressure for enterprises to adopt the more consumerised form and hence Google Mail (among others) became more common in work.
What happened here was that email switched from being governed by enterprise competition to being governed by consumer competition. Eventually Enterprises have to adopt these more consumerised services. This is the process of "consumerization", a term quoted by Doug Neal of LEF fame back in 2001.
Graph No. 9 - Structure and Ashby's
Given the mass of management complexity that evolution, profiles, value chains, economic eras, consumerisation, co-evolution and inertia creates - how can we ever hope to manage it? Well, we do so through structure and an interesting application of Ashby's law of Requisite Variety.
Ashby's law states that in order for a system to be stable then the number of states of its control mechanism must be greater than or equal to the number of states in the system being controlled.
Now there are two ways to solve this problem. Either you accept the complexity and variability of the management issues at hand and build a control system (i.e. the executive team) who are capable of dealing with it or you find someway of simplifying the complexity of what is being managed. Hence our tendency towards KPIs and traditional organisational structures.
Now simplifying the complexity doesn't mean effective or efficient management, it means simply making it more manageable. Fortunately we're all in competition, so as long as we all sacrifice efficiency and effectiveness for simplicity of management then no-one gains an advantage.
Alas, as we saw earlier organisations evolve and one of the noticeable patterns of the latest next generation organisation is their increasing ability to cope with change and the flow of activities from chaotic to linear.
I highlighted flow because whilst linear activities can be outsourced to utility providers and the genesis of chaotic activities can be achieved through exploiting ecosystems, what is increasingly critical to business sustainability of an organisation is how it manages the transition from chaotic (genesis) to linear (commodity).
Unfortunately our organisational structures aren't based upon concepts such as flow or even mindful of the constant process of evolution. We instead tend to organise by type (e.g. IT, finance, marketing).
Organising by type creates a host of problems such as alignment issues, one size fits mentality and ineffective outsourcing to name just a few. There are fortunately more effective organisational structures such as the more cell like structures of the two pizza method used by many of the next generation companies.
But two pizza, use of ecosystem isn't the end of the organisation story. A prototype of a pioneers, settlers and town planners structure demonstrated quite remarkable effects. In all cases, there are far better ways of managing flow than use of KPIs and traditional organisational structures and we're far from understanding an ideal structure.
Graph No. 10 - Entropy and Jevons'
... and so to my final graph. For this I'll return to value chain vs evolution path and overlay what I think are vastly more interesting than the meandering progress of activities - the end consequences.
The constant snake like progress of our economy through those k-wave ages of the industrial age, the age of steam, the age of electricity each with its own build, peace and war era is driving us further up the value chain with higher order systems continuously evolving from chaotic to linear.
We are continuously moving away from a disordered, primitive and information poor position to a highly ordered, sophisticated and information rich position. Now ignoring the fact that we waste energy, the shift to a more highly ordered position always requires more energy than the previous position. It also has some other consequences.
Firstly, as lower order systems become more efficient we also tend to consume vastly more of them in the pursuit of the higher order capabilities (Jevons' paradox). For example, computing resources are a million fold more economically efficient than 20 years ago but this doesn't mean we spend less on IT, instead we just do vastly more higher order stuff with it and hence we consume more.
Secondly, as we move to a higher position the lower order systems become less visible and consequentially we become vastly more dependent. The solar storm of 1859 known as the Carrington event had fairly minimal impacts on the society of its day. A similar storm today would impact many of those invisible, taken for granted, lower order subsystems that our society relies upon for its supply chains, production and computing. It would have a far greater impact.
Final comment
The above is just a tiny glimpse into the world of organisational warfare and how companies compete. Whilst no cats were harmed in the making of my presentations or blog post, tens of thousands of data point have been chomped through.
Some of the graphs are complex, which is also why I use a highly visual build up in presentations. The subject matter is built from simple rules but creates a complex environment. I will however look at finding simpler ways of representing the concepts.
The hypothesis above is pretty old and has become widespread enough that it is of limited value. Given this, I will probably now finish the book I've been meaning to do ... but then again.
Alas, competition isn't simple. Well more specifically, simple forces create a complex world and we inhabit that world. To demonstrate this and in honour of the general detritus that is "the ten habits of successful organisations", I thought I'd bring you Ten graphs on organisation warfare and why competition isn't simple.
Graph No. 1 - Evolution
First, I hope you're familiar with Everett Rogers work on the diffusion of innovation which was subsequently made popular by Geoffrey Moore in his book crossing the chasm. There are two things I'd like to highlight with Roger's work other than its startling brilliance.
First, it's time based and therefore despite popular notions, diffusion curves are not identical and in some cases there is significant initial lag. Secondly, it's all about diffusion and hence whilst it will tell us how a particular product spreads it won't tell us about how an activity will evolve. For example, electricity has evolved from the parthian battery to modern day utility provision - diffusion doesn't tell us about that process but it will tell you about how utility electricity provision has been adopted.
Unfortunately, we operate in a constantly evolving world so getting a handle on evolution is a pre-requisite for any form of strategy. The graph below provides a standard pathway for the evolution of any business activity based upon user and supply competition. It's not a time based sequence, the axis being ubiquity (how common something is) and certainty (how well understood and defined something is).
For reference, I've approximately marked onto the graph the positions of one activity - computing infrastructure - from the innovation of the Z3 to utility provision of EC2. For general reference, commoditisation is the commonly used term for this process of evolution.
Graph No. 2 - Evolution and Value Chains
Major changes in our society are rarely due to the introduction of some new activity. It almost always occurs because some previous existing activity become ubiquitous and well defined - whether it's nuts and bolts (Maudslay's screw cutting lathe), electricity (Westinghouse and Edison) or computing infrastructure (Amazon EC2).
The reason for this, is that the commoditised activity becomes a component of higher order systems e.g. nuts and bolts for machines, electricity for fridges etc. Herbert Simons showed that the provision of standard components rapidly accelerated agility and creation of new higher order systems. Hence, we have commoditisation enabling growth and agility of higher order systems.
Now all those higher order activities evolve through the same pathway as the lower order systems. We can actually break this down into three phases - chaotic, transitional and linear - based upon the characteristics the activity has. For example, in the chaotic phase an activity will be uncertain but a potential source of future worth whereas in the linear phase the same activity will be more standardised and a cost of doing business.
Hence as a once valuable activity becomes a commodity, the margin associated with it tends to rapidly decline but at the same time it enables rapid formation of higher order systems which have potentially high future worth. Hence, it is the destruction of value in the old that enables the creation of value in the new higher orders. This is known as creative destruction by Joseph Schumpeter.
The consequence of this, is that the process of evolution continually drives up the value chain to higher order systems.
Graph No. 3 - Co-evolution of activities and practice
So far, I've talked about the evolution of activities but there's more to life than what we do (the activity), there's also how we do it (the practice). Practice and activity often co-evolve together.
Activities undergo a transformation from chaotic to linear involving stages such as genesis, custom built, product and commodity. Practices also undergo a transformation from chaotic to linear involving stages such as novel, emerging, good and best (the Cynefin framework).
The link between practice and activity is fairly simple and I'll use computing infrastructure to demonstrate. When computing infrastructure was provided as mainly products then novel architectural practices developed for scaling and resilience which became the best practice for a product world. These included concepts such a scale-up, N+1 and disaster recovery tests.
As computing infrastructure evolved to more a utility then novel architectural practices developed for scaling and resilience which are spreading and becoming the future best practice for this utility world. These include scale-out, design for failure and chaos engines (i.e. constant introduction of failure to ensure resilience).
In other words, best practice for the product world is not the same as best practice for a utility world.
Unfortunately this also creates a problem. As we build with certain types of practice we also incur a debt to that practice. For example, in the computing world when we built applications based upon architectural practices such as scale-up and N+1, the applications that resulted depended upon these architectural practices i.e. applications assumed the underlying infrastructure was resilient and could scale.
In a more utility world where highly resilient and specialised infrastructure is replaced with massive amounts of good enough components, the architectural assumptions of our legacy applications no longer holds. Hence along with a debt to past practice we have a cost of transition to the new architectural forms.
This cost of transition is one of many types of inertia to change and inertia is a critical controlling point in evolution.
Graph No. 4 - Inertia as the controlling point to change
Inertia breaks down into two principle forms - customer inertia to adopting a change (usually referred to as Risk) and vendor inertia to providing the more evolved form of the activity.
To explain this, I'm going to use a simplified version of value chain evolution and simply represent the change as a cycle of commoditisation enabling the genesis of new activities through componentisation. For this reason in the graph above, the value chain axis has disappeared.
When it comes to customer risks (i.e. inertia to adoption) which are generated by concerns over a changing market and technical debt, these can be categorised into :-
- disruption risks e.g. loss of political capital, previous investment, skillset changes
- transitional risks e.g. concerns over governance, transparency, trust in providers, security of supply
- agency risks e.g. pricing competition, loss of strategic control, lock-in.
- Cultural e.g. past business models have become institutionalised, disbelief that the past the is not the future.
- Incentives e.g. reward systems are based upon delivery of past models
- External e.g. financial markets and analysts expecting continuation of the past.
Once this happens, businesses who consume the more evolved form will find a triple whammy of benefits including :-
- Increased operational efficiency through use of utility services (commoditisation)
- Increased agility for higher order systems through use of standard components (componentisation)
- Increased ability to focus on creation of new activities, the new sources of wealth (creative destruction)
Inertia therefore acts as a gate to this flood and once broken, rapid change is inevitable. A by-product of this gate is that it creates three eras of economic change - build, peace and war.
The peace era, a time of products and product services, is one where competition between providers can be considered relative. One day Nikon is in first position, the next day its Canon etc. This is a time where sustaining change tends to exceed disruptive change and the likelihood of a major player being wiped out tends to remain low (unless you're either unlucky or highly incompetent). It's also a time of the highest margin, of increasing maturity of activities and practice and where feature differentiation is critical for competition. In this peaceful era, inertia to change is beneficial as it maintains the state between the providers.
Alas, as the activity becomes more widespread and defined then it becomes suitable for the next evolved state - a time of commodity and utility. All it takes is one player, not normally in that space, to kick of the war.
The introduction of more commodity approaches to providing the activity initiates a fight for survival. The incumbents are normally stuck behind inertia barriers and are hence in denial that their world might change (cultural inertia). Businesses start first to lightly consume the new service due to their own inertia (customer risks) but due to the Red Queen effect, a trickle becomes a flood. As margins reduce in this space and the focus becomes increasingly on operational efficiency, the incumbent providers often respond by trying to cost cut rather than trying to adapt - this is almost always fatal. Hence in the war era, disruption (both direct and indirect) tends to exceed sustaining change and many once proud names fail.
Along with the war, a build era occurs for the development of new higher order systems based upon the ubiquitous and well defined supply of a commodity. These higher orders are where capital flees to chase the new opportunities as the past is commoditised and future industries are created (see creative destruction). This is often a time of wonderment and amazement with new technological marvels.
These eras of build, peace and war can be localised to a specific industry or in certain circumstances be seen at the macro level in what are known as K-waves which are more commonly referred to as ages (e.g. the age of steel, electricity and heavy engineering).
One thing that is worth noting is the evolution of activity often involves co-evolution of practice and hence the formation of new forms of organisation. Hence in the age of electricity, new organisational forms appeared that exploited new practices resulting in what was called Fordism. In the internet age we had the Web 2.0. Today, cloud computing (which is all about commoditisation of discrete IT activities) is creating a next generation of organisation.
Finally, it is worth noting that each build era is often associated with rapid increases in un-modeled data and corresponding debates over how to manage this. The origin of this increase in data is a combination of commoditisation of past activities and creation of new activities. The modern example of this is known as Big Data.
Graph No. 5 - Ecosystem
Currently within information technology rich industries, we're undergoing one of those shift from peace to war and the formation of new organisations that exploit these practices. I provide this in much more detail on the LEF website covering areas such as new practices, use of open source as a competitive world, focus on disruption etc.
However, I thought as an aside I'd mention one of the changes that is occurring which relates to the use and exploitation of ecosystems. The principal model behind this is known as ILC - innovate, leverage and commoditise.
Under ILC, a company seeks to provide activities that it currently produces (or more likely consumes) as utility services provided through APIs in order for others to consume them. The focus is on developing a wide ecosystem of other customers.
Since, the activity is provided as a utility service then it enables others to reduce their cost of failure with any novel pursuit. This encourages genesis of new activities.
However, as those new activities diffuse, the provider of the utility services can detect this and leverage the ecosystem to identify early successes. By copying or acquiring such activities and commoditising to utility services then the provider can feed the ecosystem by enabling further genesis through componentisation effects.
The net result is the provider appears to be both highly innovative (by enabling others to create new activities), highly customer focused (by leveraging an ecosystem to identify future requirements) and is inherently efficient (through provision of utility). This triple whammy is counter to Porter's assertion that you can only do one of these things. It's what makes companies like Amazon so dangerous to their competitors.
Critical in all of this is the size of the ecosystem, the speed of feedback and the speed of action. Hence, you can create an ILC model in a product world but it's much more effective with utility services such as those provided through APIs today.
In many information technology industries, we're entering a world where it's not companies that compete but ecosystems.
Graph No. 6 - Profile
Firstly, a company consists not of one activity but many. Even if you take a single type of activity such as IT, it will consist of many discrete IT activities. These activities are likely to be at different stages of evolution and hence not all IT is the same. Some IT will be in the chaotic phase, some will be in the more linear.
This itself creates a huge problem, because each of the phases has different characteristics. Hence, when it comes to something simple like project management - the methods you use for an activity in the chaotic phase (where deviation is necessary and the activity is uncertain) are not the same methods that you would use for that same activity when it has reached a more evolved, linear phase (where deviation is undesireable and the activity is predictable).
This leads to the endless and pointless debates between methods such as Agile (or Scrum) vs Six Sigma (or Prince 2 or ITIL). The simple fact is that Agile methods are more suited to the chaotic phase whilst Six Sigma is more suited to the linear and seeing that IT consists of many activities at different phases which are all evolving then you need to use BOTH appropriately.
There is no such things as the one size fits all method because the underlying characteristics of the different phases are polar opposites.
This isn't just an IT thing it also applies to all other activities and hence we have other pointless debates such as push vs pull marketing (answer - you need both). Fortunately since we're all in competition, if we all apply one size fits all then no-one has an advantage. Alas, organisations have evolved beyond that point and so if you are doing this then you're already behind the game.
Now, if we plot frequency of activities across the evolutionary path we get a profile for a company. It's best to subdivide activities between those you supply to others and those you consume yourself. Not only do companies have a profile but industries do as well, hence a mining industry does not have the same profile as a media company. This is also why changes impact industries differently.
For example, cloud computing is likely to directly disrupt hosting companies, indirectly disrupt banking industries (through reduced barriers to entry) and it is unlikely to have a major impact (bar some efficiency gains and changes in relative position) for highly commoditised industries such as mining.
In the graph above I've also added an example value chain consisting of something that is sold which is built from multiple underlying components. Now, each activity in such a chain continuously evolves (due to supplier and user competition) and is effected by Porter's five forces.
For those needing a refresher, those five forces are supplier vs buyer power, new entrants, substitution and competition with others.
Graph No. 7 - Forces, Eras, Evolution and Value Chain
At this point we can start stitching together many of the concepts covered in the previous graphs to discuss change.
Now each activity evolves due to supply and user competition and in the above one component activity of a value chain has changed phase from transitional (custom built, product and rental products) to linear (i.e. commodity and utility service). Along with initiating the war phase for that activity where new entrants, substitution and disruption of incumbent suppliers becomes more likely it can also have more subtle effects by reducing barriers to entry for competitors into the supply chain.
For example, let us assume the top activity is news. The component activities might be the means of mass communication, collation and editing. If we take newsprint then the means of mass communication was previously printing combined with a distribution channel both of which are capital intensive activities. The commoditisation of the means of mass communication would not only reduce operational costs of news organisations but also potentially reduce a barrier to entry into their space. This is exactly what the internet did leading to increased competition higher up the value chain.
Hence, the commoditisation of an activity and the initiation of war is not only directly disruptive to past providers because of the new entrants, substitution and inertia that the past incumbents have but it can also be indirectly disruptive higher up the value chain due to reduced barriers of entry.
Interestingly, as a buyer you always attempt to push component activities to more of a commodity (buyer pressure) but as the above examples shows this can actually have a negative effect by increasing competition in your main business.
There are a host of effects you need to concern yourself with regards to strategy :- evolution, value chains, buyer vs supplier pressure, barriers to entry, choke-points, inertia, profile, positioning, ecosystems, phase, era ... it's a long, long list of things. Managing this is complex, even though the premise that this all extends from evolution driven by user and supply competition is trivially simple.
Graph No. 8 - Who's running the show anyway?
Previously, I talked about how commoditisation of the means of mass communication has reduced barriers to entry into the "news" organisations value chain. This caused a rapid growth of competitors, one of which is the general public consumer through blogs, twitter and other social networks.
Now, a critically important point to consider when examining a strategy is who governs evolution?
When I talk about evolution being driven by user vs supply competition, the obvious question to ask is which user are we talking about? Do we mean an enterprise or a general public consumer?
Well, unfortunately the answer can be both and in these circumstances what matters is which group governs the process of evolution. Take for example, email.
Email was being used within Enterprise organisations for communication before it became popular with the general public. At one point in time, most members of the public were first exposed to email through their workplace. Email services and products evolved in the workplace driven by the pursuit of ever more functionally complete systems with todo lists, calendars etc.
However, email also spilled out into the general public where it was aggressively commoditised by providers such as AOL then Yahoo and Google. A consequence of this is that in the general public space, highly commoditised services became the norm and most people found their public email service had more capacity at a lower cost than their workplace service. Eventually this created pressure for enterprises to adopt the more consumerised form and hence Google Mail (among others) became more common in work.
What happened here was that email switched from being governed by enterprise competition to being governed by consumer competition. Eventually Enterprises have to adopt these more consumerised services. This is the process of "consumerization", a term quoted by Doug Neal of LEF fame back in 2001.
Graph No. 9 - Structure and Ashby's
Ashby's law states that in order for a system to be stable then the number of states of its control mechanism must be greater than or equal to the number of states in the system being controlled.
Now there are two ways to solve this problem. Either you accept the complexity and variability of the management issues at hand and build a control system (i.e. the executive team) who are capable of dealing with it or you find someway of simplifying the complexity of what is being managed. Hence our tendency towards KPIs and traditional organisational structures.
Now simplifying the complexity doesn't mean effective or efficient management, it means simply making it more manageable. Fortunately we're all in competition, so as long as we all sacrifice efficiency and effectiveness for simplicity of management then no-one gains an advantage.
Alas, as we saw earlier organisations evolve and one of the noticeable patterns of the latest next generation organisation is their increasing ability to cope with change and the flow of activities from chaotic to linear.
I highlighted flow because whilst linear activities can be outsourced to utility providers and the genesis of chaotic activities can be achieved through exploiting ecosystems, what is increasingly critical to business sustainability of an organisation is how it manages the transition from chaotic (genesis) to linear (commodity).
Unfortunately our organisational structures aren't based upon concepts such as flow or even mindful of the constant process of evolution. We instead tend to organise by type (e.g. IT, finance, marketing).
Organising by type creates a host of problems such as alignment issues, one size fits mentality and ineffective outsourcing to name just a few. There are fortunately more effective organisational structures such as the more cell like structures of the two pizza method used by many of the next generation companies.
But two pizza, use of ecosystem isn't the end of the organisation story. A prototype of a pioneers, settlers and town planners structure demonstrated quite remarkable effects. In all cases, there are far better ways of managing flow than use of KPIs and traditional organisational structures and we're far from understanding an ideal structure.
Graph No. 10 - Entropy and Jevons'
... and so to my final graph. For this I'll return to value chain vs evolution path and overlay what I think are vastly more interesting than the meandering progress of activities - the end consequences.
The constant snake like progress of our economy through those k-wave ages of the industrial age, the age of steam, the age of electricity each with its own build, peace and war era is driving us further up the value chain with higher order systems continuously evolving from chaotic to linear.
We are continuously moving away from a disordered, primitive and information poor position to a highly ordered, sophisticated and information rich position. Now ignoring the fact that we waste energy, the shift to a more highly ordered position always requires more energy than the previous position. It also has some other consequences.
Firstly, as lower order systems become more efficient we also tend to consume vastly more of them in the pursuit of the higher order capabilities (Jevons' paradox). For example, computing resources are a million fold more economically efficient than 20 years ago but this doesn't mean we spend less on IT, instead we just do vastly more higher order stuff with it and hence we consume more.
Secondly, as we move to a higher position the lower order systems become less visible and consequentially we become vastly more dependent. The solar storm of 1859 known as the Carrington event had fairly minimal impacts on the society of its day. A similar storm today would impact many of those invisible, taken for granted, lower order subsystems that our society relies upon for its supply chains, production and computing. It would have a far greater impact.
Final comment
The above is just a tiny glimpse into the world of organisational warfare and how companies compete. Whilst no cats were harmed in the making of my presentations or blog post, tens of thousands of data point have been chomped through.
Some of the graphs are complex, which is also why I use a highly visual build up in presentations. The subject matter is built from simple rules but creates a complex environment. I will however look at finding simpler ways of representing the concepts.
The hypothesis above is pretty old and has become widespread enough that it is of limited value. Given this, I will probably now finish the book I've been meaning to do ... but then again.
Wednesday, February 22, 2012
Any given Tuesday
Back in 2005, I gave a presentation called "Any Given Tuesday" which describes two entirely different scenarios for the same day. In the first scenario :-
I wake up at 6:45 am, spend 10 minutes trying to find my watch, leave the house at 7:15 am, drive like a madman to the station, spend 30 minutes waiting for a train due to cancellation, get to London bridge at 9:15 am, get soaked because it is raining, rush to work missing my coffee, arrive at work 9:35, discover my CFO has been trying to call but I've left my phone at home, realise I have football today but no boots as I threw them away last week, my partner calls to remind me it's Mother's day and my Sister's birthday tomorrow - both of which I've done nothing about. Overall : I'm wet, late, had no coffee, I've annoyed my CFO, I'll miss out on football and I've still got to work out what to do about Mother's day and my sister. I'm hardly in the best mindset for work.
In the second scenario, I wake up fifteen minutes earlier at 6.30 am, pick up my watch and phone that are on the kitchen table, leave the house at 6.50 grabbing an umbrella from beside the door, arrive at the train station at 7:10 am and catch the 7:15 am, arrive at Canon Street at 8:20 am, pick up pre-ordered football boots from the sports store, grab a coffee, walk to work putting up my umbrella when it starts to rain, arrive at work 9:15 am, tell my CFO the reports been done and when my partner calls explain that I've sent my Mother flowers and my sister has a new ipod which will be delivered tomorrow as her last one broke. Overall : On time, dry, plus coffee, I'll be able to play football, mother and sister's presents are sorted and reports done. I'm in the right mindset for work.
Ok, so what happened between the two scenarios? Did I become Mr organised or learn the twenty seven secrets of successful people? No, it's all done with technology and asking a few simple questions.
First, everything is tagged, everything is online and everything is a network. My network of things knows it's a Tuesday, how long it takes me to get ready, what I need for work, where those things are and the weather forecast. It can interrogate the train stations network to get times and cancellation information, it knows where I need to be. It knows I play football on Tuesday and that I threw my boots away. It knows I like coffee, that it's Mothers day tomorrow, that I bought flowers last year. It can ask my Mother's network what sort of flowers she has and whether anyone is buying her flowers? It knows it's my Sister's birthday tomorrow, it can ask her network for suggestions. It now knows she broke her ipod, that she hasn't replaced it and what her favourite songs are and where she will be tomorrow. My network knows my CFO was in a meeting where they discussed a new way of analysing value from users.
My network of things can now, find a shop with the boots I need and pre-order, find a coffee shop and calculate a route to work to pick up both. Calculate time for journeys and dynamically deal with cancellations. Sort out ipod and flowers. Analyse CFO meeting and determine most probable analysis to be done and who to contact.
All it now needs to do is ask me some basic questions :-
- Do I want to buy some new boots for £35 so I can play football tomorrow?
- Do I want to send my Mother flowers for Mother's day?
- My Sister's ipod is broken, do I want to buy her a new one for her birthday?
- The CFO is after an examination of user spend vs latency on the site, do you want me to prepare an initial analysis?
Then it needs to calculate my journey and wake me up when I need to be woken up. This is what I call augmented intelligence - ask the questions, take care of the details. All of this was technically feasible in one way or another back in 2005, just it was incredibly difficult and uneconomic to do so. However today, things are changing rapidly and it's all becoming much more feasible.
To start to really achieve the above, we need smart agents and this is more than just smart devices but instead devices which can record, analyse and start to interpret all the data exhaust we create. Our network needs mechanisms for sharing between agents i.e. the information that I'm prepared for my network to give to your network depends upon who you are.
All the components for this are coming into place. On the iphone we have SIRI on the android we have EVI. Amazon has recently released a distributed task and decision manager in Amazon SWF. We have increasing use of printed active RFIDs and near field communication. We do need some security mechanisms but there are smart people like the Bromium crowd who are working on things which may well solve those relationships.
The world above is within spitting distance. This future of augmented intelligence goes way beyond popular misconceptions of heads up display information. There are also serious social implications but for now, I'll just say, that I think some people are seriously underestimating both SIRI and SWF.
The LEF is running a study tour on this issue later in the year because we think the subject is huge.
Tuesday, February 21, 2012
Of false debates and Baronesses
One of the most popular and dubious techniques in debate is to create a false polarisation of subject in order to insert your view as the rational mid-ground. Baroness Warsi has done exactly this with the debate of religious freedoms vs militant secularism.
The two extremes of this imagined debate are a theocracy (where state is ruled by religion) and militant secularism. But what is militant secularism?
In order to be the opposite of a theocracy, we can only presume that militant secularism is supposed to represent a system whereby the state defines religion such as the banning of all religious thought i.e. none. No freedom of religion, no discussion of religion, no right of worship … nothing.
However such an approach would be opposed ferociously by secularists because secularism has never been about state interference or denial of religious beliefs but instead separation of the church from state.
But let us take up this inferred axis of theocracy (where religion governs state) vs a militant position (where state governs religion such as denies all religious belief). In such circumstances secularism is the mid-ground. Tolerance and acceptance of a wide range of religious beliefs whilst ensuring separation between the state and any church.
From the National Secular Society - "we campaign from a non-religious perspective for the separation of religion and state and promote secularism as the best means to create a society in which people of all religions or none can live together fairly and cohesively."
Baroness Warsi's entire debate rests on creating new extremes and attempts to portray secularism as connected to one of those extremes. It isn't. There is no secular group who wishes to outlaw all religious thought or wishes the state to define religion. There are no militant secularists.
Certainly you can probably drag up some loon who is willing to call themselves a secularist and say that they want to ban religious thought but then that person is not a secularist and never will be. That person would deny religious belief and that's not what secularism is all about.
Intellectually, the debate is dishonest - shame on Warsi, you're supposed to be a cabinet minister and above such things.
Saturday, February 11, 2012
The most dangerous patent in the world?
I first started following the field of 3D printing around 1999. Subsequently as printed electronics formed, I took an interest in both areas.
Each year I used to write reports on the subject, though I haven't updated any of this since 2007
For reference, I've linked to an old report (2006) on the subject. It's completely out of date but the concepts are still probably valid. Don't expect any insights though, this stuff is widely known today.
For those completely new to the subject, it might provide some very generalist background info. However, be warned, being so old the industry is likely to have changed significantly.
Back around 2004, I came across something which I thought was truly dangerous for this future world. Unsurprisingly it's a patent but this patent is for the equivalent of soldering in the future manufacturing processes.
Thursday, February 02, 2012
In search of Spime Script ...
Back in 2006, I gave a talk at Euro OSCON on the future of technology covering commoditisation with a specific focus on 3D printing. This was based upon research and talks I'd given many years earlier on the subject.
Our world is heading in a fairly clear direction in terms of continual evolution of business activities such as commoditisation of discrete IT components, creation of higher order systems, disruption of past industries, development and exploitation of ecosystems, co-evolution of practice and ... well, I've covered this lots.
The strategic use of open source as a weapon is also becoming more common along with the new forms of organisation that are necessary to cope with this more evolved world. We should see the development of higher order agents and hence augmented intelligence with Siri being a starting point on this journey. Increasingly organisation will learn to exploit flow, the natural evolutionary path of any activity from chaotic (genesis) to the more linearly ordered environments (commodity and utility services). Flow was a topic I touched up again in Strata last year.
The reactions of past industries (e.g. legal protection as barrier to entry), the inertia of many, the next wave of change (being commoditisation of the manufacturing process), explosions of un-modeled data, the confusion, the arguments ... oh, it's the same cycle.
Don't worry if you're missing out in the buzz around today's hot topic (commoditisation of IT nee cloud) or tomorrow's (commoditisation of manufacturing nee 3D printing) as there's much more to come and invariably the giants of today will fail to cope with flow and new giants will appear to replace them.
The trends are already in motion and it's just a question of how the game plays out. To mangle one of Tim O'Reilly's favourite phrases - the future has been here for some time, it's just not uniformly distributed.
So, I want to return to one part of that 2006 presentation which I still find relevant - the formation of Spime Script. We're entering a phase where hardware will become increasingly as malleable as software which leads to a problem of choice - if I want to change the function of something, do I do this in software or hardware? The tendency today is obviously towards software because its more malleable but the future is never the past. However this creates a problem of skill - will I need to become proficient in both software and CAD / electronic design?
In reality both CAD and whatever software language you use, compile down to instruction sets and the function of the device is the interaction of these instruction sets - one which is substantiated physically and the other which is substantiated digitally.
Turning this on its head then why not write the function of what you want, the function of the device? Compilers can therefore undertake the complex decision trees (which is what they're good at) required to determine what element of that function is encoded as physical and what element is digital.
A future language is needed, something whereby the output is both physical and digital and I describe merely the function of what I'm after.
A sort of ...
and let the complier work out the best way of making this. Maybe the watch will be digital, maybe it'll decide that a mechanical self winding element is required etc.
This may sound like crazy talk of the form "that'll never happen", "it's too complex", "technology could never do this" etc but I'm used to a world where today's impossible things become tomorrow's Walmart special offers.
Anyway, I'm interested in whether people are working in this space. It's about the right time for Spime Script to start emerging, so leave me a comment, pointers welcome.
Talk from Euro OSCON 2006
Our world is heading in a fairly clear direction in terms of continual evolution of business activities such as commoditisation of discrete IT components, creation of higher order systems, disruption of past industries, development and exploitation of ecosystems, co-evolution of practice and ... well, I've covered this lots.
The strategic use of open source as a weapon is also becoming more common along with the new forms of organisation that are necessary to cope with this more evolved world. We should see the development of higher order agents and hence augmented intelligence with Siri being a starting point on this journey. Increasingly organisation will learn to exploit flow, the natural evolutionary path of any activity from chaotic (genesis) to the more linearly ordered environments (commodity and utility services). Flow was a topic I touched up again in Strata last year.
The reactions of past industries (e.g. legal protection as barrier to entry), the inertia of many, the next wave of change (being commoditisation of the manufacturing process), explosions of un-modeled data, the confusion, the arguments ... oh, it's the same cycle.
Don't worry if you're missing out in the buzz around today's hot topic (commoditisation of IT nee cloud) or tomorrow's (commoditisation of manufacturing nee 3D printing) as there's much more to come and invariably the giants of today will fail to cope with flow and new giants will appear to replace them.
The trends are already in motion and it's just a question of how the game plays out. To mangle one of Tim O'Reilly's favourite phrases - the future has been here for some time, it's just not uniformly distributed.
So, I want to return to one part of that 2006 presentation which I still find relevant - the formation of Spime Script. We're entering a phase where hardware will become increasingly as malleable as software which leads to a problem of choice - if I want to change the function of something, do I do this in software or hardware? The tendency today is obviously towards software because its more malleable but the future is never the past. However this creates a problem of skill - will I need to become proficient in both software and CAD / electronic design?
In reality both CAD and whatever software language you use, compile down to instruction sets and the function of the device is the interaction of these instruction sets - one which is substantiated physically and the other which is substantiated digitally.
Turning this on its head then why not write the function of what you want, the function of the device? Compilers can therefore undertake the complex decision trees (which is what they're good at) required to determine what element of that function is encoded as physical and what element is digital.
A future language is needed, something whereby the output is both physical and digital and I describe merely the function of what I'm after.
A sort of ...
class smartphone : public phone, public camera, public calculator, public GPC
mydevice smartphone
mydevice.colour = blue, .os = android, .connection = wifi, .storage = cloud
mydevice inherit public walkie_talkie
mydevice inherit public watch
mydevice.format = wearable, .location = wrist, .materials = recyclable
Make(mydevice)
and let the complier work out the best way of making this. Maybe the watch will be digital, maybe it'll decide that a mechanical self winding element is required etc.
This may sound like crazy talk of the form "that'll never happen", "it's too complex", "technology could never do this" etc but I'm used to a world where today's impossible things become tomorrow's Walmart special offers.
Anyway, I'm interested in whether people are working in this space. It's about the right time for Spime Script to start emerging, so leave me a comment, pointers welcome.
Talk from Euro OSCON 2006
Monday, January 30, 2012
Moving onto new research ...
I'm just in the process of publishing my latest research for the LEF, so it's time to move on to a new area of research. Before I do, I thought I'd post something about the past research and a quick summary of a few of the points worth noting.
Explosions of industrial creativity rarely follow the invention, discovery or subsequent innovation of a technology but instead its commoditisation i.e. it wasn't the discovery of electricity but Edison's introduction of utility services for electricity that produced the creative boom that led to recorded music, modern movies, consumer electronics and even Silicon Valley. However, utility provision of electricity did more than just create a new world, it disrupted existing industries (both directly and through reduced barriers of entry), it also allowed for new practices and methods of working to emerge and even resulted in new economic forms - such as Henry Ford's Fordism.
This isn't a one off pattern. The cycle of innovation / commoditisation repeats throughout our industrial history, following a surprisingly consistent pathway. Understanding this pattern is critical to anticipating the changes emerging in our industry today - whether that's the web, cloud computing or the future changes that 3D printing will bring.
This isn't a one off pattern. The cycle of innovation / commoditisation repeats throughout our industrial history, following a surprisingly consistent pathway. Understanding this pattern is critical to anticipating the changes emerging in our industry today - whether that's the web, cloud computing or the future changes that 3D printing will bring.
The actual cycle itself is rather simple but as with all things it creates complex interactions. I've tried to summarise some of the effect in figure 1 (below) and I'll go through it in the general notes.
General Notes
1. All business activities evolve through a common pathway. This pathway is defined by how ubiquitous and certain (i.e. well understood & defined) an activity is. The relationship between these two I have previously discussed on many occasions. What's important to remember is that activities evolve through domains including genesis, custom built examples, products (including rental services) and commodity (including utility services). What drives the process of evolution is user and vendor competition - i.e. the need for something and the desire to supply that need and outcompete others.
2. It's not just activities (what we do) that evolves but also practice (how we do something). Practices evolve through equivalent domains - novel, emerging, good and best (known as the cynefin framework). It's important to remember that practices can, and often do, co-evolve with activities. For example, best practice for resilience and scaling with computing infrastructure products (the activity) was N+1 and scale-up. As the activity evolved to more of a commodity this enabled emerging practices such as design for failure. These emerging practices will evolve over time to become best practice for a utility infrastructure world.
3. Practices and activities can themselves be grouped into three stages - chaotic, transitional and linear. Chaotic activities (i.e. genesis to custom built) are scarce by nature, poorly understood, uncertain, rapidly changing, deviation is desirable, serendipity matter and they are a source of future worth. Over time the same activity becomes abundant, well defined, predictable, measurable, deviation is undesirable and nothing more than a cost of doing business.
4. The process of evolution creates a cycle i.e. as activities become more of a commodity they enable new (higher order) activities to develop - i.e. utility provision of electricity lead to consumer electronics. This is standard componentisation and it often has a dramatic effect causing a rapid growth in genesis of new activities.
5. The cycle itself has different states - war (disruption), growth (build) and peace (margin). Each state is suitable for different strategies and approaches. For example in the peace state, competition between competitors is relative with sustaining change tending to exceed disruptive. In the war state, competition is a fight for survival and disruptive change exceeds sustaining. How much this impacts you depends upon the activity in question and whether you're directly effected (i.e. it's something you produce) or it's a barrier to entry into your business.
6. The cycle is controlled by inertia barriers for both customer and vendor. On the customer side these are normally referred to as "risks" such as disruption (loss of skillset, political capital etc), transition (trust in new suppliers, transparency, change in governance etc) and agency (loss of strategic control, lock-in, lack of pricing competition etc). On the vendor side these inertia barriers are built upon from past success and include such things as culture, incentives, structure and external forces (such as financial markets). This is why the inertia barriers are often broken by a company that is not encumbered by the previous model (e.g. Amazon vs Hosting companies).
7. The cycle itself can be local to a specific industry (i.e. range of activities) or can have major macro-economic effects. Whether it does depends upon if the activity can be a component of future activities, the number of activities built up behind the inertia barriers and if the activity can enable others to cross the inertia barriers. The macro economic waves that we see are known as Kondratiev waves and we often refer to them as 'ages' - industrial age, mechanical age etc.
8. During the war state, new forms of organisation appear. These organisations have different strategies, practices and activities than previous organisations. Over time the practices of this next generation diffuse i.e. utility provision of electricity enabled the development of Fordism which spread to become a major influencing factor on most companies.
9. During each of the cycles, we see rapid increases in un-modelled data. It's not unstructured, simply we don't know how to model it as it's in the chaotic (i.e. uncertain, constantly changing) state. Over time we attempt to model this data generally leading to arguments over schemas and classification and technology etc. We've seen this in both Georgian (first industrial age) and Victorian ages (mechanical and railways age) and every subsequent age.
10. As additional points (i.e. this post is too long already) :-
* knowledge also diffuses through the same stages (chaotic to linear)
* there are multiple accelerators and de-accelerators to the process of evolution.
* there are forcing strategies which companies can deploy i.e. use of open source, network effects etc.
* there are many counter strategies which companies can deploy i.e. use of patents, branding, legal system and ownership of lower orders of the value chain.
* there are forcing strategies which companies can deploy i.e. use of open source, network effects etc.
* there are many counter strategies which companies can deploy i.e. use of patents, branding, legal system and ownership of lower orders of the value chain.
* the characteristics of the stages are why no "one size fits all" methodology works i.e. in project management agile is most suited to the chaotic where deviation is desirable and structured methods (e.g. six sigma) are most suited to the linear where deviation is not desirable.
* there are multiple ways of exploiting the cycle to your advantage
* organisations consists of a mass of activities and therefore can be in different states of the cycle at the same time and even have multiple fronts at the same time (i.e. multiple parts in a state of war).
* this entire cycle occurs throughout an organisations value chain and hence from simple premises creates a complex world of management.
* linear activities tend to low margin but are stable whereas chaotic activities tend to high margin but are unstable. Creating a profitable and sustainable company requires a constant balance of both.
* linear activities tend to low margin but are stable whereas chaotic activities tend to high margin but are unstable. Creating a profitable and sustainable company requires a constant balance of both.
* many of the memes of modern management e.g. "business alignment" are consequences of how we structure ourselves and ignore the impact of evolution.
* the cycle is accelerating
* the cycle is accelerating
We can see the effects of this model clearly today. For example, cloud computing which is simply the shift of various IT activities from a product to a utility service domain (a more evolved form) which has been initiated by companies not encumbered by the previous model (Amazon etc) and hence have broken the inertia barriers has instigated a state of war. The normal round of customer "risks" (trust, transparency, governance changes etc) have been raised along with resistance from past vendors (e.g. dismissing of cloud). As a result of the state of war, new forms of organisation have emerged which have fundamentally different structures, strategies, practices and activities from the past. At the same time new architectural practices (resilience, scaling) relating to this activity (e.g. infrastructure) have co-evolved and are now diffusing.
We have also seen the explosion of new activities built upon these commoditised component services along with increases of un-modelled data which the technology enables us to exploit (hence big data). We should increasingly see the disruption of past vendors who are stuck behind the inertia barriers due to their past success and hence have cultural, institutional and structural barriers to change. Equally the war will spread to other industries through the reduction of barriers to entry i.e. retail banking, insurance etc.
I could go on with formation of competitive markets, role of standards etc but it's almost a text book classic of the cycle. The only thing that is surprising is how many people are surprised by the changes.
Of course, cloud computing is based upon an underlying component which itself underwent this cycle. That component, which commoditised the means of mass communication, is the internet and it caused disruption (both direct and through reduced barriers to entry) of many industries from media to retail to travel. It also caused explosions of growth, un-modelled data, new practices and new forms of organisation - the web 2.0. Naturally, their practices (e.g social media, social networks ...) diffused amongst those companies that survived and adapted to the new economic state.
That was also a text book classic of the cycle.
Of course, the internet is a component of the next cycle which refers to the commoditisation of the means of manufacturing - e.g. 3D printing, printed electronics etc. It will have exactly the same effects but then I covered this in talk between 2005-2007 (based upon earlier research) and it's just the same old thing.
The above is brief notes and this work was developed from my original models and research pre-2005 which I've used extensively in competition. It's only recently however that I've been able to extend the model to organisational evolution and obtain the volume of data necessary to be confident with the entire model. Its validation required a cycle of change. It'll still require another cycle before its predictive capabilities are fully tested though.
None of the above is new to anyone that has been following me over the last five years, in fact it's probably very dull having heard much of it so many times before. I still find the nuances interesting, i.e. why companies in a peace mode that find themselves in a war state often attempt to reduce cost to restore profitability and hence quicken their demise or why you have no choice over evolution (Red Queen) of the impacts of Jevons' paradox or ... well there's lot.
However, I'm moving on into how to really exploit evolution of the value chain and play the game. So I thought I'd just put this up here as a brief reminder to the work I've done.
Tuesday, January 24, 2012
Stop Online Piracy, NOW!!!!
If Congress wants to stop online piracy, there's another way. Ban all content which is not creative commons or equivalently licensed material (e.g. GPL) from the internet. Any infraction should be treated as other security violations and made the responsibility of the copyright holder for not taking enough security measures to ensure that their content never reached the internet.
Won't that destroy online films?
Of course not, people will still want easy access to content from a convenient and trusted source (such as NetFlix) and where there's demand, supply will follow. The trusted brand is all important and people will still pay a reasonable subscription for it. The content producers will just have to adapt to a world where they can still make money from abundantly used creative commons licensed content rather than scarcity.
Won't that destroy online journalism?
Of course not, people will still want easy access to content from a trusted and respected source which provides an analysis of what is happening. The trusted brand is again all important and advertisers will still want to promote their messages. Certainly, people will copy it, so you'll need to build a loyal following and look at those copying sites as free marketing.
Won't that destroy the online music industry?
Of course not, people will still want to hear their favourite bands live, attend gigs, buy merchandise from the band site and they'd still pay (either through subscription or advertising) for a trusted and useful service. Certainly others will copy it, so you'll need to do the usual - build a loyal following, focus on creating a strong trust relationship and think of those copying sites as free marketing.
Won't that destroy the past models of media?
Well the media industry always cries wolf over piracy and change but certainly forcing them to keep copyrighted material secure will make it difficult for them to distribute. However, since many don't seem willing to adapt to a new world (hence SOPA/PIPA) and the cost of introducing legislation to protect them will harm more future focused industries (i.e. the internet is a component of these) then maybe legislation may be needed to force change.
Even if the content is freely available, I'd still pay to have easy access to it through a useful and trusted service, I'll still want to attend gigs, attend lectures, buy merchandise (even books) and watch movies that include product endorsements etc.
Yes, it will be a different world but either the traditional Media companies adapt to a world where you make money from abundance or the US will need to sacrifice its future competitive position (by harming its internet industry).
It's not like those traditional companies haven't had almost two decades to prepare for this change. What have those media executives been doing - playing golf with Kodak? What did you honestly think that digitisation and the internet was going to do - increase your profits by reducing your distribution costs?
Banning copyrighted material is an extreme option and I do believe in a more balanced approach. However, if the traditional Media industries are going to try and use legislation to avoid change, then someone needs to start thinking about how to use legislation to force them to adapt. Otherwise the US tech companies will be constantly in a defensive, rear guard action against acts like SOPA / PIPA etc.
The best form of defense is a good offense.
Reprinted from G+.
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