Friday, October 09, 2015

What Christensen gets wrong on disruptive innovation.

Once again we have one of those debates raging that is taking a pop at the whole idea of disruptive innovation and once again it questions the whole predictability of it. We have the usual claims of "Is disruptive innovation dead wrong?" and shades of the Jill Lapore debate of 2014.

Alas, this won't stop because there are (at least) two different forms of disruption - one which can be anticipated and one which can't. The problem with the current debates on both sides is they treat disruptive innovation as if there is only one form.

Yes, business builds inertia. Yes, substitution occurs. Yes, the principles of disruptive innovation appear sound and Christensen looks right ... BUT ... and here's the catcha ... when we talk about disruption through product vs product substitution then we can't anticipate this change but when we talk about disruption through product to commodity (+utility) substitution then we can! We can do this because we have a pretty good understanding of how stuff evolves through demand and supply competition.

So, for example with the evolution of smartphones and a product to product substitution (i.e. involving a discontinuity with the past) such as Blackberry or Nokia vs the iPhone then we have no idea which way this would go. Any analysis is post event. It could have been Nokia or the iPhone that succeeded. No-one knew. Christensen didn't know. Just because he called the wrong side doesn't mean the concept of disruptive innovation is wrong. It isn't. It's just almost impossible to anticipate.

However, the smartphone is a value chain (which can be mapped) and it contains a component known as the operating system. The application of competition (supply and demand) means that this component will eventually evolve to a commodity, especially if someone drives it there with an open approach. Be wary of Geeks bearing gifts.

Hence with Android vs iOS then we already know the OS is becoming commodity, that Android is driving it there and we know that Android will dominate. In fact this has already happened but we knew this ages ago. We could anticipate this change and its effects and yes, eventually it means disruption of the past models and systems based upon it. 

This will happen no matter how well Cook plays the supply chain, no matter how much people cheer for Apple. Competitive forces and the Red Queen effect are against Apple on this. They can hold out but eventually they'll end up adapting (i.e. Apple on Android) or they'll corner a niche space.

The principles behind disruptive innovation are sound in my view. However, the reason why we seem to be having these endless debates is this assumption that there is only one form. It's either got to be anticipatable (i.e. predictable to a certain degree) or not. Alas there's not one form, there never has been, there never will be. There are two forms - one you can anticipate and one you can't - and the ways in which you need to deal with both forms are different.

In the meantime, we will continue to hear this fairly pointless debate rage on with both sides giving examples and counters until someone starts to consider that the reason why disruptive innovation seems to show polar opposite characteristics of predictability is there's more than one form. 

We've covered this many times before over the years, I sound like a stuck record and so I'll stop there.

Tuesday, October 06, 2015

Can I just do Settlers and Town Planners as a Bimodal?

tl;dr : yes ... BUT.

Continuing on from the post on Bimodal, I was asked "Can I just do Settlers and Town Planners?"

Let us understand what that means. You're going to focus on product improvement and the industrialisation of a component but forgo the uncharted exploration of the novel and new. Well, there's no reason why you can't do this but it does means that you going to have to rely on the Settlers extending into the outside ecosystem to discover those novel and new components which at a later stage you will want to turn into products and finally industrialise (see figure 1). If you don't do this then you have no future pipeline.

Figure 1 - Focus on Settlers and Town Planners

For reference, I've given a fuller list of characteristics of the different roles in figure 2.

Figure 2 - Characteristics (you'll have to expand)

Ok, the problem with pushing all the novel and new to the outside market (i.e. taking an outside-in approach) is you'll be in a race with others to discover future patterns of success. This is not necessarily a bad thing unless :-

1) Everyone is trying to do this and there isn't some other system to exploit (see "How Much for a Fountain of Youth")

or more likely

2) Someone is playing an ILC ecosystem game against you (or a variant such as Tower & Moat).

I won't go through the ecosystem game, you'll have to read that post but the net effect is they can use their ecosystem as a future sensing engine and the bigger their ecosystem, the more powerful the effect will be. This means they'll not only have the edge on you but this edge will become larger over time compared to simply trying to scan the market.

So, yes you can just use a Settler & Town Planner structure but you'll need really high levels of situational awareness, ecosystem play, weak signal detection or otherwise you'll be an easy target with nothing in the bag (i.e. novel surprises) and a simple pipeline to choke.

Sunday, October 04, 2015

If you really want bimodal then you'll need to give something up.

Back in 1993, Robert Cringely wrote the excellent book Accidental Empires (I have the 1996 reprint) which talked about the three different type of companies using the metaphors of commando, infantry and police.

During 2004-2006, having discovered a process of technology evolution and a mechanism of understanding the competitive landscape (known as Wardley mapping), I implemented the equivalent three party structure (known as pioneers, settlers and town planners) to mimic evolution within a single company. A description of this three party system can be found here and the importance of the middle for sustainable and competitive advantage. Over the last decade, I've written numerous articles and gave lots of presentations around the world on the three party structure and the importance of the middle.

In 2014, I came across bimodal / dual operating system and twin speed IT. I can't tell you how much this caused me to howl with laughter. I'm no fan of these concepts. I view them as old ideas, poorly thought through and dressed up as new. I've seen two party systems in the past that have degenerated into 'them' vs 'us' and with no consideration of how things evolve they are not sustainable. There is no effective process for how the new (i.e. tomorrow's industrialised components) become industrialised. The idea that somehow the two groups will work together in a 'dance' is fanciful. Brawl would be more like it. Pioneers and Town Planners are polar opposites, they don't get on well.

I'm quite convinced that those undergoing re-organisation into bimodal will be facing a future re-organisation into a more three party or spectrum based structure in the near future. Certainly that means oodles of cash for consultants advising on these multiple re-organisations and be honest, I don't care if it's private companies that I'm not involved with. My concern is this spills over into Government Departments.

There is however a way of creating a workable bimodal structure but it means you need to give something up. To remind readers, the three parts for which you need brilliant people are :-

Pioneers. Pioneers are brilliant people. They are able to explore never before discovered concepts, the uncharted land. They show you wonder but they fail a lot. Half the time the thing doesn't work properly. You wouldn't trust what they build. They create 'crazy' ideas. Their type of innovation is what we call core research. They make future success possible. Most of the time we look at them and go "what?", "I don't understand?" and "is that magic?". In the past, we often burnt them at the stake. They built the first ever electric source (the Parthian Battery, 400AD) and the first ever digital computer (Z3, 1943).

Settlers. Settlers are brilliant people. They can turn the half baked thing into something useful for a larger audience. They build trust. They build understanding. They learn and refine the concept. They make the possible future actually happen. They turn the prototype into a product, make it manufacturable, listen to customers and turn it profitable. Their innovation is what we tend to think of as applied research and differentiation. They built the first ever computer products (e.g. IBM 650 and onwards), the first generators (Hippolyte Pixii, Siemens Generators).

Town Planners. Town Planners are brilliant people. They are able to take something and industrialise it taking advantage of economies of scale. They build the platforms of the future and this requires immense skill. You trust what they build. They find ways to make things faster, better, smaller, more efficient, more economic and good enough. They build the services that pioneers build upon. Their type of innovation is industrial research. They take something that exists and turn it into a commodity or a utility (e.g. with Electricity, then Edison, Tesla and Westinghouse). They are the industrial giants we depend upon.

The process of evolution (see figure 1) causes a change of characteristics which is why you need multiple attitudes and why one size fits all methods don't work (i.e. why agile, lean and six sigma should die and be replaced by agile plus lean plus six sigma). 

Figure 1 - Evolution

If you want to create a bimodal / dual operating system structure out of this then you really have to give up on one part. For example :-

You could focus on Settlers and Town Planners alone i.e. your company could all be about product development and industrialisation. Simply drop the pioneering research function. The best way to do this is with the press release process i.e. force the writing of press release before any project starts because no-one can write a press release for something unexplored. Don't attempt to do any pioneering stuff and instead use ecosystems models such as ILC or some equivalent to do future sensing

You could focus on Pioneers and Settlers alone i.e. your company could develop novel concepts and then create products out of this. Simply drop the town planning function and outsource all industrialised components (including dropping your own products) where appropriate.

You could decide to focus on just one aspect i.e. be Pioneers (develop novel concepts), be Settlers (create great products) or be Town Planners (create highly industrialised commodity and utility services).

However ... 

1) DON'T try and break into Pioneers and Town Planners. These two groups are far apart. You'll create a them vs us culture. None of the novel concepts will ever be industrialised because the Pioneers won't develop them enough and the Town Planners will refuse to accept them for being underdeveloped. Both groups feel they are the most important and both ridicules the other.

2) DON'T bury your Settlers into one of these groups. They won't feel welcome, they will be in conflict with the group becoming second class citizens. Put them in the Pioneer group and they'll be denigrated to documenting the "glorious" inventions of others and fighting a losing battle over user needs. Stick them with Town Planners and they'll be seen as 'lightweights', the people whose job it is to deal with those annoying Pioneers and document what they've done etc.

Either drop one aspect (i.e. Pioneers or Town Planners), or focus solely on one aspect (i.e. Pioneer, Settler or Town Planner) or focus on ALL three. This means the Settlers (the missing middle) need to be recognised.

Create one mode to focus on "core system maintenance, stability, efficiency, traditional & slow moving development cycles" and another mode to focus on "innovation & differentiation with high degree of business involvement, fast turnaround & frequent update" ... wellPioneers and Town Planners don't mix and creating two camps focused on this won't make for a happy environment.

Oh, but isn't Bimodal / Dual better than Unimodal / Single? No, I'm far from convinced that this is the case. In the past many ignored evolution and squashed all three attitudes, cultures and type of people into one group called IT, Finance, Marketing or whatever (yes, evolution impacts everything we do). Those groups would tend to yo-yo in methods between the extremes hence in IT we had Agile vs Six Sigma (ITIL etc) battles. But every now and then the 'middle' would get its chance. Today you're seeing this with Lean, with focus on user needs etc.

If you organise by the extremes e.g. pioneers and town planners or mode 1 and mode 2 or whatever you wish to call it then you're burying the middle. This is not good. This middle group are not mode 1 or mode 2 but they have a vital role to play. They deal with the transition between the extremes. However in a dual structure then you've given the other attitudes a flag to rally around, you've formalised a structure to support this and left the settlers singing in the wind. You've gone from ignoring them (which you did to all attitudes under one group) to actively discouraging them and sending a message that only pioneers and town planners matter.

Well, you've been warned, tread this path carefully. This will be my last post on this subject (I hope) given it's such old hat but I'll come back in a decade and we shall see what has happened to these dual structures.

P.S. The mapping technique, the characteristics, the use of multiple methods, the pioneer / settler / town planner structure and a host of other stuff you'll find in this blog is all ... creative commons share alike. You can do this yourself. You don't need external consultants, license fees etc.

Tuesday, September 15, 2015

How commodity is something?

tl;dr There are a number of different ways you can refine your maps but in most cases, it's rare that you should go beyond aggregated views. Most of the benefit can be gained by a group of people sitting around sharing and discussing the map

Everything (whether activities, practices, data or knowledge) evolves through the application of competition (supply and demand side). Each instance of an evolving act diffuses through a market over time and hence evolution can be seen as a series of diffusion curves (often many hundreds) with each diffusion curve having its own chasm

Those diffusion curves however have different markets and different time spans i.e. diffusion of the first phones was not the same as diffusion of later, more evolved, more mature phones. So when examining an act (A) which is evolving through ever more mature examples of the act (A1 to A5) then you see a diffusion patterns that looks like figure 1.

Figure 1 - Diffusion of an activity A

At any moment in time in the market you may have many examples of the act in existence i.e. older phones to modern phones to the latest phone can all exist in the market at the same time. You cannot simply look at a market and see 50% of households having something and make a claim over how evolved it is. Whilst evolution contains many diffusion curves, evolution does not equal diffusion and you don't know which diffusion curve you're on.

However, there is a pattern to evolution which you can measure by examining the ubiquity and the certainty (i.e. maturity and completeness) of a thing. Unfortunately, the measurement can only be done for the past. Something has to become a commodity before its past can be measured accurately. This means that whilst I know the direction of travel of something (e.g. the genesis of an act becomes custom built becomes product becomes a commodity - see figure 2), I can not directly measure where something is but only where it was.

Figure 2 - Evolution

The reason for this is certainty axis itself and the role of individual actors in the market. I can only say where something is with certainty once it becomes certain. The future unfortunately acts as an information barrier and until something has become certain (and I can therefore measure its past) then I have to guess unless I invoke some form of crystal ball.

Now this evolution curve provides the x-axis used in mapping. So, how do I know where to place something (e.g. activity A) on the x-axis if I can't measure it? (see figure 3).

Figure 3 - Where on the map is it?

There are a number of techniques you can use.

Ask yourself what this thing is.
The first step is to ask yourself is this thing :-
a) rare and poorly understood i.e. genesis?
b) uncommon and somewhat understood, normally provided by custom built examples often built by consultants?
c) quite common and reasonably understood, often provided as product or rental service through product vendors?
d) well understood and ubiquitous provided via utility services or as undifferentiated commodities?

If you take a number of people (say 2-4) with experience of the field then you can get a better answer by asking the group. This is also helps when there's arguments because that usually signals the act consists of several components at different stages of evolution.

Look at the properties of the thing
The second step is to examine the characteristics of the thing. As it evolves its characteristics will change from the uncharted space to the industrialised (with a transitional space in between). See figure 4.

Figure 4 - Characteristics.

Hence look at the activity for example and ask yourself :- Is this rapidly changing? Is this a differential? Is this exciting? Is it stable? Does it seems chaotic? Is this well defined? Am I experimenting? etc.

Look at other maps.
Obviously everyone has bias, hence ideally you should use a group to determine how evolved something is. However, if you have several maps then you can use a aggregated view (i.e. a summary of common points on different maps) to determine how this thing should be treated. You do this by looking for clusters in order to remove bias (see figure 5).

Figure 5 - Aggregated View

The above graphic is a great way of removing duplication in an organisation and stopping groups from custom building the sort of thing which should be a commodity e.g. user registration

Look at publication types.
At this point I'd probably say you're going overboard. You don't need to get maps this accurate in order for them to be useful tools for organisational learning, collaboration, communication, scenario planning and strategic gameplay. However, if you want to go the extra mile then start examining the publication types (see figure 6).

Figure 6 - Publication Types

E.g. examine the frequency of different key publication types to determine roughly where you are. Please note, even this measure is rough until the act has become well defined (i.e. certain) and in which case the volume of publication types can be used to determine where it was (past tense) on the certainty axis. However, you can use this as a weak signal but I mostly use this in anticipating future change. 

NB. You have to be careful when examining publication type because certain words / phrases appear in multiple stages. For example people talk about platforms when describing a product (i.e. you can build on my product) and they also talk about platforms when describing utility services. The two are not the same.

At this point you're definitely going overboard and trying to create a perfect map. Don't bother, your map will change and you shouldn't spend more than a few hours to a day creating it. The only time you should be stepping into weak signals is when you're into anticipating a very specific change and working out when to roughly attack a market. 

There are a number of signals that can be used, for example when crossing a boundary you need to overcome inertia and that requires a number of factors to be in place - concept, suitability, technology and attitude.

For example in figure 7, we have an evolving act and every time it evolves from one stage (e.g. custom) to another (e.g. product) and hence crosses a boundary then there's inertia to the change created by the incumbent group. Hence the originator (for genesis to custom), consultants (for custom to product) and product vendors (for product to commodity) all resist a change that impacts their market. The size of the inertia barrier increases as the act becomes more evolved (and more established). 

Figure 7 - evolution and inertia.

In order to overcome an inertia barrier you need the four factors in place. The concept of providing the act in the next stage must exist. It has to be suitable (i.e. widespread and defined enough). The technology to achieve this must exist and finally there must be an attitude of acceptance for such a change by the customers. The latter is normally represented by the customers being dissatisfied with the existing arrangement.

You can go further into weak signals, for example the rate at which higher order systems can be built from lower components accelerates as the underlying systems become more industrialised. You can even use timing based upon common economic cycles such as peace, war and wonder (see figure 8). However, these are overkill for a simple mapping exercise and are more suitable when directing an attack.

Figure 8 - Economic cycles & speed of building higher order systems.

There are a number of different ways you can refine your maps but in most cases, it's rare that you should go beyond aggregated views. Most of the benefit can be gained by a group of people sitting around sharing and discussing the map.

Wednesday, September 09, 2015

The art of strategy ... it doesn't matter.

Strategy is fundamentally about answering the question of "Why?"

But "Why" is a relative statement as in "Why here over there?"

But "Here over there?" requires you to understand "Where you could attack"

And this requires situational awareness.

The process of strategy is inherently iterative. You start by roughly understanding your purpose including your scope, how you interact with others and your users. You then expand into situational awareness by understanding your users' needs, your value chains and their context (i.e. a map of the environment). You then apply doctrine including tactical approaches such as removing duplication, bias, improving flow and using appropriate methods. You learn about the environment, your competitors, the common repeatable economic patterns and forms of gameplay. You structure yourself around this including your capabilities. 

You then set a direction through a mixture of anticipation and scenario planning and through acting you refine your purpose, your situational awareness, your use of doctrine and your learning. You constantly repeat this process of observing (purpose, situational awareness), orientating around the landscape (doctrine), decision (strategic play) and action. This is summarised in figure 1.

Figure 1 - Strategic Play.

Except you probably don't live in that sort of organisation, there's less than a 0.5% chance that you do. For most of you, I can happily describe your organisation without even meeting you.

Your organisation has :-
  • A weak definition of purpose often not widely understood by people in your organisation
  • Little to no clear understanding of your users and their needs
  • Little to no situational awareness including any detailed understanding of the value chains in your market and how they are evolving
  • Significant amounts of duplication and waste, you frequently discover the same projects being built by different teams.
  • Considerable misapplication of doctrine from the inappropriate use of outsourcing or agile or six sigma and a tendency towards one size fits all methods.
  • No effective mechanism of organisational learning particularly for common economic patterns and repeatable gameplay. You're probably nervous of being disrupted but don't even realise there are multiple forms.
  • Endless talk on data, on being hypothesis driven and how your company uses this but you'll have this nagging feeling of "how do we know if this is the right data?"
  • A non adaptive structure requiring endless bolt-ons for new capabilities e.g. digital
  • A tendency to yo-yo between innovation and efficiency with internal programs.
  • Significant internal inertia to change without a clear understanding of the causes and yet somehow a belief that your systems are as efficient if not better than competitors.
  • A strategy based upon backward causality (i.e. meme copying others especially in the Tech field whether its ecosystems or open source or uberize the economy), gut feel and with little direction or anticipation (beyond gut feel). It's probably represented with volumes of papers to cover up its weakness.
  • A vague notion of your culture but awareness that it's really important. You probably tell yourself that culture eats strategy for breakfast.
Your process of strategy (if you're in the Tech industry) is more likely to be akin to figure 2 (even though this is said in jest). Though you'll probably deny it due to the considerable amount of effort and time expended on this, you'll add in a few more steps, write a business case, create a SWOT, mention something about capabilities and justify to yourself that it works.

Figure 2 - Your strategy process

Without situational awareness then you are simply waiting around for some company to take an interest in your space and then take you out. Fortunately your competitors are usually in the same boat and so ... the art of strategy ... it doesn't matter. Focus on execution, work on gut feel, copy those memes, listen to the analysts, get yourself in their magic quadrants, sell a good story, focus on your vague notions of culture (or at least tell everyone that's really important to you) and run away from those competitors that you suspect play a different game. 

As long as you build a product that is vaguely useful then you can survive for a considerable amount of time on gut feel, copying others and just by executing well. It's ok to suck as long as your competitors do. However, just because the art of strategy doesn't matter that much today, that doesn't mean it won't matter tomorrow. Slowly but surely, there are signs that companies are getting better at this. As more adapt then it'll become harder to survive just by copying the memes of others.

Tuesday, September 08, 2015

The continued search for Spime Script

Back in 2006, I gave a talk on the likely development of a future language - Spime Script - that would encode both digital and physical structure. This would enable a developer to describe the function of something and allow a compiler to determine what should be expressed physically and what should be expressed digitally. In other words, I describe the function of a smart watch and a compiler expresses this through 3D printed physical form, printed electronics and digital code. The compiler decides what bits of the function are expressed in what form and it's the interaction of those forms that create the function we're looking for. I regularly keep an eye out for this and how the industry is progressing slowly in that direction

A key part of this change is the development of hybrid printers capable of creating both physical form and electronic structure. There's a couple of things to note. According to weak signals then the span of time at which hybrid printing becomes industrialised (i.e. the printers become widespread, well understood and commodity like) should be around 2035-2040 - see table 1.

Table 1 - Point of Industrialisation (the war)

This might seem a long way off but we're only talking 20 years and this is bang on course for the current pace of evolution which stands at 20-30 years from genesis to point of industrialisation (post 2012). The first hybrid 3D printers capable of physical and electronic printing were circa 2006.

Now, I know everyone thinks that in this "digital" age that everything goes superfast but that's mainly an illusion created by the overlap of many points of industrialisation (the wars) across many activities and value chains. Yes, the pace of evolution accelerates with industrialisation of the means of communication to more commodity forms (printing press, postage stamp, telephone, the internet etc) and yes, it has recently accelerated from around 30-60 years to around 20-30 years but that's all. Do remember that the first 3D printer in a research setting was in 1967. We've got many rounds of product development for hybrid printers until they become widespread and well defined enough to become suitable for more industrial (i.e. commodity) provision.

The second thing to note is the common characteristics of the point of industrialisation (i.e. the "war"). These common characteristics include :-

1) A punctuated equilibrium as we move from product to more commodity forms. This means a non linear pattern of change, an exponential growth pattern. Hence in the first 5-10 years though the adoption will be exponential, by the end of a decade then these hybrid printers will only represent 3% -5% of the market (somewhere between 2040-2050). It's in the next five years in which they grow to 30%-50% of the market that catches everyone out.

2) An explosion of higher order system i.e. new more complex systems built with these industrialised hybrid printers.

3) A co-evolution of practice in the manufacturing industry i.e. new methods and new techniques based upon more industrialised provision.

4) Disruption of past vendors stuck behind inertia barriers i.e. existing incumbents in the manufacturing industry that are hampered by their existing business models, practices, political and financial capital and can't see the change until it's too late to react. The new entrants in this space almost always become the future giants.

There are many others characteristics but we'll leave it at those four.

The third thing to note is from the above list, the co-evolution of practice leading to new methods and new techniques. This is where Spime Script will come into play. An entire new development language that will compile to both physical and digital form. We'll probably even create a whole new meme for this change - I hope it isn't ManuOps or something daft. 

Now, as with all such changes the seeds of change are set will in advance. Hence whilst SpimeScript (or whatever it's called) will emerge and then dominate this change impacting value chains everywhere circa 2035-2055, the origin of Spime Script will start much earlier. 

When this change hits, have no doubt that its impact will be astronomical in terms of our quality of life and economics. This change impacts almost every value chain and it'll make cloud computing, the internet and most other things look like small potatoes. Everything we build and all the related industries and supply chains will alter. Basically, everything is impacted from agriculture to industry to services - from the cars you drive (or will be driven for you) to the house you live in to the gadgets you use.

Bizarrely, it looks like this change is going to hit at the same time when bio manufacturing and aspects of meta material science (other reasonably large changes) start to industrialise and so that period 2035-2040 is set to become rather spectacular, a time of notable 'wonder'. You'll have all forgotten about this "digital" stuff by then anyway and what's left of that will have become legacy.

So, in rough order

2015 - 2035 : we should see continued product development of hybrid printers including potential minor waves of disruption from product vs product substitution.
2035 - 2040 : we should see new entrants providing more industrialised forms of hybrid printers, an explosion of new activities built on this, co-evolution of practice including the rise of a new language (e.g. SpimeScript) and exponential change.
2040 - 2050 : the new entrants should achieve 3-5% of the market, a meme will exist for the new form of manufacturing, past incumbents will show visible signs of inertia and be generally dismissive.
2045 - 2055 : the new form of manufacturing will dominate all value chains, past incumbents will be disrupted.

Alas, by the end of this time, I'll be in my seventies at the youngest. So, there's every chance that I won't be around to see what should be one of the most spectacular changes in the history of mankind. Robots, drone, AI, big data ... bah humbug, small fry ... components of a much larger change that includes the entire process of how we make stuff. 

Hence my interest in finding Spime Script earlier, it should be fascinating to watch it grow.

P.S on the off chance that you don't know what a Spime is then please go read Bruce Sterling's book.

Sunday, September 06, 2015

Somethings are different, some remain the same.

Back in 2011, I published a population study of companies showing that a next generation of company seemed to be emerging with a different phenotype. Details of this can be found here. I've summarised the main changes in table 1.

Table 1 - Differences between Traditional vs Next Generation. 

NB, these characteristics describe what was significantly different between the populations at that time and of course, we will only be able to tell whether these characteristics become universal with the application of more time. However, despite the differences there were many things that remained the same i.e. did not distinguish between populations. A selection of these "neutral" characteristics that remained the same are included in table 2.

Table 2 - Similarities between Traditional vs Next Generation. 

I mention this because I've noticed a tendency of people to bundle all sorts of characteristics under the title "digital" and claim fairly definitively that this is the future of the firm. Before embarking on such exercises, I would suggest that you understand both the concepts of evolution & co-evolution, along with common repeating economic patterns that tend to form new organisational structures and then do some population studies to confirm / reject your hypothesis across numerous characteristics. Once you've done this, you now have to wait many years to see if a characteristic turns out to be a pointless fad or the consequence of an echo chamber (i.e. it won't become supported in the wider environment).

Whether it's social media to blogging CEOs to culture to structure to adoption of specific methods then there's quite a few trendy ideas which seem to be on questionable grounds. I'm not saying these things aren't without any merit and certainly we should experiment but that's a far cry from picking a characteristic from a couple of "leading companies" and declaring it as the future of all firms. You need to be wary of backward causality and just because Uber uses "surge pricing" then that doesn't mean it's the future of all.

What my study showed was whilst there were differences, there were many more similarities between the traditional and the next generation. As time passes, the traditional will adapt even on the small number of characteristics that showed any significant difference. Of course for me that's important because in a decade or so time, I'll be able to go back and confirm whether a next generation did truly emerge or was it some other aberration. 

Friday, September 04, 2015

VMware, EMC ... the rumour mill is in fine flow.

In a discussion over China and the USA, the conversation turned to all the tech rumours floating around VMware & EMC. I shrugged my shoulders and said I retired from cloud almost five years ago and I have very little interest. 

Alas, people kept needling the point. 

Eventually, I added that I thought EMC had left it late to jettison VMware. I'd have looked to maximise the capital last year.  I had an old "Escape button" bet from 2009 that...

By the end of 2014, VMWare will have divided into two companies, one focused on existing virtualisation technology (IaaS Group) and the other focused on PaaS technology. The IaaS group will have been sold off to another company.

Now whilst I don't expect to win the bets, I do intend to get the direction of travel roughly right. Alas, whilst I expected an open source platform play and this to be broken out as a separate group which has happened with Pivotal, there has been no clear movement on spinning out the virtualisation business. Hence my bet was lost. I'm no fortune teller and so don't ask me what is going on with EMC and VMware.

Alas, people kept needling the point.

In annoyance, I explained that I took the view that EMC must suspect that everything from the virtualisation business to storage would be heading towards the cliff. I had anticipated that VCE would be a potential vehicle to extract EMC from this but alas that didn't gain traction. The timing a year ago seemed right with all the marketing about private and hybrid cloud being the future. This looked like a perfect pig in a poke play i.e. take a business that you anticipate will be disrupted, dress it up as the future and sell it for as much as possible. Nothing happened. As I said, I'm no fortune teller. When it comes to the rumours floating around VMware and EMC ... don't ask me, I haven't got a clue. 

Alas, people kept needling the point.

In frustration, I started drawing maps with endless muttering under my breath. I explained that if I was in Joe Tucci's position then I'd probably try something even more ambitious at this stage. Despite what you might think, a lot of the market is based upon sentiment about the future and if you make the story big enough then people can get carried away with it. The problem with just spinning out VMware is the market might well be suspicious. You'd need a reason, a conflict, a message - something like your own IaaS play creating conflict with the existing business. You'd need to somehow portray an image that you really want to hold onto it but alas, reluctantly you have to let it go. 

When I look around, there are a number of companies that I don't personally consider to be well positioned for the future - VMware, the storage components of EMC, Cisco, RedHat and HP. Most of these I view rather uncharitably as drowning men who don't just know it yet. However, just because I don't think they're well positioned doesn't mean I can't find a way of maximising return with a good enough story.

So, after about ten minutes I finished my scribbles and muttering. I looked up and said "Dry land is not just our destination, it is our destiny!"

In the film Waterworld, the Dean muttered these immortal worlds because with a good enough story, you can get everyone rowing in the right direction without anyone asking the awkward questions. For me, that story would be around converged infrastructure. 

Behind the scenes I'd be working on a play for a merger between VMware, Cisco and the soon to be split off Enterprise component of HP combined with an acquisition of EMC storage and EMC stock in VMware and possibly even acquisition of RedHat all funded through debt. Well, if you're going to go all out then make it as large a play as possible.

For me, this gets EMC off the hook at top dollar and the new vehicle portrays a big enough story that the market will get excited about the beast without considering that many of the components are going to have a tough time in cloud. I could spin the story of synergy between the groups, converged infrastructure, one stop shop, large enterprise customer base, efficiency, hybrid environments combining HP, Cisco and VMware capabilities and a host of other reasons under a tagline of the future. I could do this until the cows come home which by my reckoning means in the next 18 months, before the cloud battle gets too horrific. I could craft a story here that the Dean would be proud of, the troops would get excited about and just hide the map from prying eyes.

Do I think it would be a good idea? Of course not and for two reasons. Firstly, I spent about ten minutes on it. Secondly, even that ten minutes told me it is about as daft as you can get in my book. Drowning men grabbing hold of each other doesn't solve the problem of drowning. But could I sell the story to the market and get away with it? Probably.

But then I'm not involved in any of those companies nor do I have any idea of what plans they might have or not. As far I can tell, the stories about VMware and EMC are all rumours and I've little interest in investigating. At best, you can consider the rumours to be nothing more than a weak signal that someone, somewhere is exploring something. Who, what? ... no idea, don't care. Ask a fortune teller.

Monday, August 31, 2015

A lament to the Enterprise of yesteryear

We're being hit by disruptive innovation! 

Our industry is being commoditised! 

Our business is complex! 

We're behind the curve!

We're going to innovate!

We've created a strategy!

Hired the best!

They said they were experts!

Marketing is key!

And the future is Private!

Or Enterprise!

Or Hybrid!

But we need to re-organise!

We have the solution!

Our strategy tells us so!

If we just fix our culture!

Then this time, it'll be different!

Or I will rend thee in the gobberwarts with blurglecruncheon, see if I don't!

An ode to a small lump of enterprise I found in my portfolio one midsummer morning, a lament to the Enterprise of yesteryear. Best repeated with the true poetic wit of a Vogon constructor fleet.

We're being hit by disruptive innovation! 
Our industry is being commoditised! 
Our business is complex!
We're behind the curve!
We're going to innovate!

We've created a strategy!
Hired the best!
They said they were experts!
Marketing is key!
And the future is private! 
Or Enterprise!
Or Hybrid!

But we need to re-organise!
We have the solution!
Our strategy says so!
If we just fix our culture!
Then this time, it'll be different!
Or I will rend thee in the gobberwarts with my blurglecruncheon, see if I don't!

Anyone looking for a short cut out of this, I'm afraid I can't help you. However, I would suggest mapping your landscape ideally by going on a get fit regime and cleaning up the enterprise then afterwards applying some thought. Adapting to the changing technological-economic environment is not a choice.

Thursday, August 27, 2015

Amazon and the last man standing

I often talk about the 61 repeatable forms of gameplay in the market and I know I'm a bit behind on doing those posts. I don't normally stray off the path but I thought I'd cover a well known game called last man standing. The reason why I want to talk about this, is there seems to be continued misunderstanding about Amazon and what's likely to happen. Now there are two possible reasons - either I'm wrong or lots of other people are.

Hence, I'll put my stall forward.

Amazon is likely to be supply constrained when it comes to AWS and EC2. What I mean by this is that it takes time, money and resources to build data centres. You can't magic them out of the air. With AWS already doubling in physical size (or close to) each year, this creates considerable pressure and if AWS were to drop the price too quickly then demand will go up to outstrip supply (i.e. it just won't be able to build data centres fast enough). Hence Amazon would have to control pricing in order to control demand.

I know that people talk about AWS being a low margin business but I'll stick with older figures and say that Amazon is probably making a gross (not net) margin of 80%+.  Let us look at revenue and for this, I'll turn to an old model from my Canonical days (see figure 1) after which we will cover a couple of key points in time that are coming up in that model.

Figure 1 - Estimated of Forward Revenue Run rate.

By my past reckoning then by 2014, AWS would have a forward run rate of around $8Bn. Which means in 2015, it would make around $8Bn or more in revenue. Currently people are estimating at around $5-6Bn, so I count that as pretty damn good to get into the right order of magnitude. However, this is not about how accurate or inaccurate I might have been. This is about the steps and what roughly will happen.

1) In 2015, I expected AWS to clock a revenue of $8Bn+, a gross margin of 80%+, for Amazon still to be supply constrained and for a few examples of some large companies reliant on cloud (i.e. what we now call data centre zero companies)

2) In 2016, I expected AWS to clock a revenue of $16Bn+, a gross margin near to 80%, for Amazon still to be supply constrained, a very visible movement of companies towards using AWS and the market around AWS skills to heat up. I expected by the end of the year for the wheels to start coming off the whole private cloud market (which is why I've warned about this being the crunch time).

3) In 2017, I expected AWS to clock a revenue of $30 Bn+, a gross margin near to 80% and Amazon still to have to control pricing. However, by the end of the year I expected this supply tension to reduce as the growth rate would show signs of levelling. This will provide more opportunity to reduce pricing to keep physical growth to doubling. I expect AWS skills to be reaching fever pitch and the wheels to be flying off the private cloud market.

4) In 2018, I expected AWS to clock a revenue of $50Bn+. I expected gross margin (and prices) to start coming down fairly rapidly as Amazon has significantly more price freedom (i.e. is far less price constrained than is currently the case). Data centre zero companies will become prevalent and there will still be a fever pitch around AWS skills.

5) In 2019, I expected AWS prices to be rapidly dropping, the growth rates to continue levelling, the fall-out to start biting into hardware competitors, the private cloud industry to have practically vanished and the remaining laggards to be making a desperate dash into cloud.

6) By 2020, the game is not only all over (last chance saloon was back in 2012) but we start chalking up the casualties. 

This doesn't mean there won't be niches - there will be and it's in these spaces that some open source efforts will hopefully hide out for future battles. This doesn't mean that some geographic regions won't try and hold out for spurious reasons - they will and at the same time harm their own competitive industries. This doesn't even mean I think my own figures or timing will be right, remember this model is ages old. I'm no fortune teller and at best I view it as being in the right direction. However, until someone gives me a better direction then this is the one that I've stuck with and so far, it seems to be fairly close.

Oh, and the last man standing? Well, in the last few years of the model when the price is dropping then it is all about last man standing. Many competitors won't be in a position to cope with how low the prices will go. The economies of scale will start to really tell here. Many will fall and it won't be gentle and graceful like. It'll be more brick like as in brick fired from a howitzer pointing downwards on the top of a building.

P.S. Before someone tells me the big hardware vendors are going to make a difference in infrastructure ... please don't. It's over. It has been over for sometime. Even if I had $50 Bn, I need to build the system, build the team, build the data centres before I launched and at any reasonable scale (even with using acquisition as a short cut) I'd be talking two years+ at lightning fast speed. I'd be walking into this market as a well funded startup against a massive behemoth who owned the ecosystem. Even those ex-hardware vendors with existing cloud efforts have too little, too late. No amount of money is going to save them here. These companies are just going through the motions of hanging on for as long as they can. There's a platform play but that's a different post.

P.P.S There will be some cloud players left - AWS will dominate followed by MSFT and then Google and a player like Alibaba. There'll be some jostling for position and geographic advantages.

Wednesday, August 26, 2015

The Open Source Cloud, start playing the long game.

Back in 2007, I gave a keynote at OSCON on the future importance of open source and open standards to create competitive utility computing markets (i.e. the cloud). We had a chance for an early land grab to make that happen in what is called Infrastructure as a Service but we lost that battle to AWS (and to a lesser extent MSFT and Google). There are numerous reasons why, far too many to go through in this post.

Just because the battle was lost, doesn't mean the war was. Yes, because of the punctuated equilibrium, we're likely to see a crunch in the 'private' cloud space and near dominance of the entire space by AWS with MSFT following. Yes, Amazon plays a very good ecosystem game and they are a tough competitor. However, in about 10-15 years in what will feel like the wilderness, we will get another opportunity. In much the same way that Linux clawed its way against the near total domination of Microsoft. There are numerous reasons for this, again too many to go through in this post and of course, there could be many twists and turns (e.g. the somewhat unlikely open sourcing of AWS technology).

For the time being, the open source cloud world (and yes by that I mean systems like OpenStack) need to hunker down, to firmly entrench itself in niches (e.g. network equipment), to build up and mature and prepare for the long fight and I do mean a LONG fight. A couple of encouraging signs were @jbryce comment at OpenStack SV 2015 on "having a reason" to build a cloud and not just because it's cool technology along with the discussion on maturity vs adoption of technology. This was good. But afterwards some of the conversations seemed to slip into "the path to Cloud Native", "democratising IaaS", "a platform for containers" (an attempt to re-invent again but around Kubernetes), "the problem is you" (as in IT depts not adopting it), "open source is a competitive advantage" (depends upon the context) and on and on.

You need to remember that for companies who might use these services their focus should (and increasingly will) be on meeting some need with speed (i.e. quickness of delivery), agility (applying more or less resources to the problem as needed) and efficiency (being cost competitive to others). Yes, things like mobility matter from the point of buyer / supplier relationships and in some niches there are location constraints. However, no business under competition is going to last if they sacrifice speed, agility and efficiency in order to gain mobility. To survive, any open approach needs to solve these problems and deal with any issue created by Amazon's huge ecosystem advantage. There is lots of good stuff out there such as Docker and in particular Kubernetes but the strongest plays today in the open source world are around the platform with Cloud Foundry and in the operating system where Ubuntu dominates with some competition from the challenger CoreOS. 

The battle for IaaS maybe lost but the war is far from over and yes, I hear that this or that paradigm shift will change the game again - oh, please don't bother.  The open source world will get another chance at the infrastructure game as long they focus on the long term. Probably the best route of attack in the long term starts with Kubernetes but that's another post.

P.S. People ask why I think CloudStack has a shot. Quite simply, the Apache Software Foundation (ASF) can play the long term game. I'm not convinced that after the crunch that OpenStack will be in such a position. We shall see.

P.P.S. People ask why am I so against OpenStack? This might surprise you but I'm not. However, OpenStack needs to hunker down against the storm and play the long term game. I'm not convinced by its earlier examples of gameplay that it either understands this or is willing to do anything about it.

On Diffusion and Evolution

I recently saw this tweet and unfortunately, despite good intentions, there's a lot wrong with it. I've taken the main image (unknown copyright) for figure 1 and I'll go through what is wrong.

Figure 1 - Evolution mixed with diffusion

The fundamental problem with this image is it conflates diffusion with evolution. Whenever we examine an activity, practice or form of data then yes, it tends to diffuse. But, it also evolves through the diffusion of ever more mature, more complete and more certain forms of the act. Hence in the evolution of an act there maybe hundreds if not thousands of diffusion curves involved. The problem you have with trying to tie diffusion curves to evolution is in trying to determine which diffusion curve you're on. 

For example, let us take an activity A[x]. Let us suppose it evolves through multiple diffusing instances of the act (e.g. if A[x] was telephony then A[1], A[2], A[3] and so forth would represent ever better phones). I've added these diffusion curves into figure 2 below.

Figure 2 - Diffusion of an activity A[x]

Now each of these diffusion curves can cover different time periods and different applicable markets. Each will have a chasm i.e. in the evolution of A[x] there will be many chasms to cross and not just one. So, when examining the question of early adopters to laggards then we have to ask, which diffusion curve are we on? The laggards of A[1] are not the same as the laggards of A[5].

The normal response is to say - "well, we will measure the overall one i.e. when it becomes ubiquitous". Here you have an immediate problem because if I ask the question whether gold is a commodity (i.e. well defined, understood, standardised) then most would respond yes. But if I ask the question "Does everyone own some gold?" then most would respond no. The problem is that ubiquity is to a market and so you can't just say "measure its ubiquity" because you need to understand the market first. Hence in some cases, a ubiquitous market is 30% of the population owning an example of this thing (i.e. that's all it will ever get to) but in other cases a ubiquitous market is everyone in the market owning fifty examples of this thing. 

So how do you determine the appropriate market? Actually, this was the trick I discovered back in 2006 to 2007. As things evolve, they become more defined and certain and the type of publications associated with the act change. There are four basic types of publications show in figure 3.

Figure 3 - Publication Types.

So when something appears e.g. Radio then we first write about the wonder of radio, then how to build and construct a radio crystal set, then we move onto to differences between radios until finally being dominated by guides for use.  I used just over 9,000 articles to determine these four types and used this to develop a certainty axis (show in the figure above and developed from type II and type III publications) and a bit more detail on this is provided here and here.

Now, the transition from Type III to Type IV in the graph above is critical because this defines the point of ubiquity in a market. If I take this as the point of ubiquity and plot back through history over both ubiquity and certainty then you get the following (figure 4)

Figure 4 - Ubiquity vs Certainty

The figure above represents a large range of different activities from telephones to TV to fridges etc. If you now overlay the the different publication types (i.e. type I, II, III and IV) then you create the evolution curve (see figure 5). What drives this evolution is competition (supply and demand) and that's marked on as well.

Figure 5 - Evolution

When can now go back to our diffusion curves in figure 2 and plot them on the evolution curve. I've illustrated this onto figure 6 (nb. this particular graph is just an illustration, not based upon data)

Figure 6 - Diffusion on Evolution

So when we look at A[1] from a diffusion point of view we might have crossed the chasm and the laggards maybe joining but it's very much in the early stages of evolution. We know from the publication types that despite the act reaching close to 100% adoption of its market that the market is nowhere near evolved. But at A[5] the act is very evolved and we already know that we've reached the point of ubiquity in the market from the publication types. It might not be the case that everyone has this item but this is what the ubiquitous market for this item looks like and it is now a commodity.

Now with evolution I can add all sort of changing characteristics i.e. genesis is very different from commodity (see figure 7). So for example, I know those activities or components in the genesis phase are uncertain, rare, risky, a point of differentiation, poorly understood, chaotic, deviates from the past, a source of worth, rapidly changing etc etc.

Figure 7 - Properties

So, I understand what the original image and tweet was trying to convey but alas - as simple and as seductive as it sounds, it's just plain wrong.  You can't just mix diffusion and evolution together in that manner. For those wanting to use the diagrams above, they all date from 2007 onwards and are creative commons licensed. The original work (i.e. data collection and testing) was done in 2006 & 2007 and the concepts actually date back much earlier in case you're interested (e.g. I was using the "pattern" of evolution back in '04/'05 though at that time it was just a noticed pattern rather than something with substance).