Ecosystem & Porter

A common characteristic of Next generation organisations (as opposed to traditional) is their focus on ecosystems and the provision of platforms to support their growth. The purpose of such ecosystems is not simply some form of marketing exercise but instead a mechanism for managing the innovation paradox (i.e. the need to be efficient to compete today but also to be creative in order to compete tomorrow).

Consider the provision through an online API of a software system whether it’s SalesForce, Amazon’s AWS or PayPal’s x.commerce platform. These services are core utilities that the organisation is providing with the express aim of others consuming i.e. an ecosystem of consumers developing around the service.

The consumption of the service may represent general use or even novel and more creative uses e.g. the early provision of big data Hadoop systems on AWS. Since the genesis of any activity is uncertain (being chaotic) and likely to fail, then the use of utility services helps reduce the cost of failure and thereby encourages the creative pursuits of others. The larger the ecosystem, the more likely that creative models of consumption and the genesis of new activity will be occurring.

Naturally, if those activities are useful (i.e. Hadoop on AWS) they will spread through the normal process of diffusion. By monitoring the ecosystem’s use of your services this spread can be detected.
These factors enable a model known as ILC (innovate-leverage-commoditise) to be used (see figure below). Through provision of utility services and the development of an ecosystem, you enable others to create new activities at a lower cost of failure and hence encourage innovation to occur in the ecosystem and around your services. Through monitoring, you can leverage the ecosystem to identify novel activities that are spreading. An organisation then can either copy or acquire such activities and commoditise these to create further services that enable growth of the ecosystem and hence further innovation through componentisation effects.

For example, the introduction of AWS enabled others to build Hadoop on AWS. With the spread of Hadoop on AWS, Amazon introduced an equivalent utility service - Elastic Map Reduce (EMR) - which in turn has enabled novel activities to appear that consume EMR. And so the cycle repeats ...

Figure 1 - ILC model (click on image for higher resolution)

NB, I italicise the term innovation because I'm referring to the creation of novel activities i.e. genesis of an activity rather than the broad use of the word innovation which is applied to almost everything from feature differentiation to service provision of a pre-existing activity. See "The Abuse of Innovation"

It’s through models such as ILC that an organisation can simultaneously appear to be :-

• highly creative - by pushing such uncertain activities to a wider ecosystem
• customer focused - by leveraging the ecosystem to identify that which is becoming adopted
• highly efficient - by focusing on commoditisation

In Porter’s terms these Next generation organisations have a primary focus on a cost leadership (a best price) for provision of the utility service.

BUT they also have a strong differentiation strategy which is heavily influenced through creative pursuits of others within the ecosystem that develops around their utility service (i.e. genesis of novel activities being driven outside the organisation). This is why Next generation organisations often cite “enabling others to build upon our services” as criticial.

BUT they also have a strong customer focus strategy heavy influenced by adoption within the ecosystem (i.e. they leverage the ecosystem to identify activities that are spreading) and subsequent provision of these activities as further utility services.

In such cases, all three of Porter's strategies are being pursued simultaneously with the major nuance between these players is whether they use copying (a weak ecosystem play) or acquisition (a strong, reinforcing ecosystem play).

I mention this because "focus on customer, innovation or efficiency" is one of those truisms like "culture eats strategy for breakfast". It's a great sound bite but on closer examination, it doesn't seem to stand up to rigorous scrutiny today. The game has changed.

I'm currently collecting a selection of truisms and each one of them seems to leak like a sieve when exposed to rigorous study. The following are ones which in my view are all in need of serious re-evaluation :-

• You can't manage what you can’t measure
• You need to give customers what they want
• The best way to predict the future is to create it
• Avoid the commoditisation trap
• Business has only two functions - marketing and innovation
• Culture eats strategy for breakfast
• Focus on customer, innovation or efficiency

OSCON Tutorial

I gave a three hour tutorial at OSCON on innovation, commoditisation, business evolution, organisation, leadership and various tactical plays in the cloud computing space. The talk was a blast, I really enjoyed it and judging by the feedback it hit some home runs with many of the audience.

However, the presentation is 1,041 slides long and so - I'm not uploading that or creating a video. Instead I've made a summary presentation which covers the main points.

Be warned, it's highly condensed.

Situation Normal Everything Must Change

View more presentations from swardley.

Project management in tweets ...

• All business activities are in transition from innovation (rare and poorly understood) to commodity-like (common and well defined).


• The characteristics of an activity vary during its lifecycle. An innovation is dynamic & requires deviation whilst a commodity does not.


• How to manage an activity varies with the stage of its lifecycle. Which is why no single project methodology is suitable everywhere.


• Successful project management is knowing when to use static (six sigma, prince 2) and when to use dynamic methodologies (XP, Scrum).

Social Media made yummy ....

No nonsense social media explained with ice cream. I just love this.

It weren't me sir, it was him, honest ...

Mike Arrington has launched another tirade against Blaine Cook. If you don't know who Blaine is, he was the former lead architect for Twitter, a messaging service, which according to the article suffered terrible reliability problems whenever Blaine wasn't there.

Whilst the tone of the article is hell bent on making Blaine responsible for his own absence and everything else to boot, it does stop short of adding the death of dinosaurs, global warming and 'Don't pay the Ferryman' by Chris de Burgh.

I have almost a decade of trouble shooting experience from which I have learnt that it is rare for a situation to be just one guy's fault. The most common causes of failure with any new service tend to be either politics or a lack of resources, vision, commitment, investment, hardware, planning, useability, viability, management skill and luck. However, the most common reason given for failure is the guy who isn't there.

By the way blogger seems to be having some issues today. I'd just like to note that Blaine isn't there either.

Leadership ....

I'm reading one of those throwaway books on the lessons of successful leadership. It's actually quite a hefty tome, so to throw it away with any force could cause some damage to an innocent bystander. Bizarrely enough, that statement would aptly describe my opinions of the lessons it contains - likely to cause harm to others.

I only have only one lesson on leadership that is worth repeating and it's not even mine.

"A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves."

Lao Tzu

Know yourself ....

Every year I speak at numerous conferences to thousands of people and yet I often suffer from self doubt.

The reason why I suffer so, is because I hate failure and whilst I might have succeeded at many things, I have also failed many times. Each failure is a tiny cut in my memory and every now and then it will flash back and make me wince.

However, I know that I suffer with this mental affliction and I know the root causes of it, which for me is half the fight won. Because of this knowledge, I am able me to look back at those events and understand why I failed.

The ability to deal with and understand failure is important because whenever you try to do something new, the first battle is always with yourself. In life most people are their own greatest obstacles.

Retrospection is an incredibly powerful and yet often under used tool, especially in management. A key element of such analysis is honesty and for this reason it is ineffective in a company setting unless there is a culture which embraces failure. Without such a culture people will hide failure, they will spin it and the truth will often be buried.

Unfortunately, failure is often seen as a bad thing even though failure is the normal result of trying to do something which is genuinely new. Whilst common and well defined activities, such as the phones working when your company moves offices, will only fail due to incompetence, building the world's first of something should be expected to fail despite best efforts.

Excluding managerial incompetence, how well a company embraces and adapts to failure is a sign of how innovative a company is. A willingness to accept failure requires extraordinary strength of character whether in an individual or an organisation. This is sadly lacking in many organisations as they often parade misunderstood concepts of success and openly frown upon the concept of failure. Anecdotally it would appear that the result is almost always the same - the stifling, suffocation and eventual death, first of innovation and then, finally, of the organisation itself.

Embracing failure is an essential ingredient for long term success. In other words :-

"If you realize that all things change, there is nothing you will try to hold on to.
If you are not afraid of dying, there is nothing you cannot achieve."

Lao Tzu

You are too old to be creative ....

In the last few weeks, on three separate occasions, I've come face to face with ageism and the concept that "only the young are creative".

The combination of starting a new career and closing in on my 40th birthday has made me more aware of how widespread and blatant ageism is. There is an often repeated meme that the older are more conservative, uncreative and less dynamic than the young. This meme is everywhere from advertising to marketing and even to job adverts. We are even told that the old just want to be seen as "Young at Heart".

Whilst it is true that the "average" 15 year old will have more creative ideas in their lifetime than the "average" 65 year old, this is simply because they have longer to live. Using the same logic you could argue that the young are more environmentally unfriendly than the old as they will travel, pollute and waste more. If you want to cut down environmental pollution from vehicles then raise the minimum driving age to 50.

Unsurprisingly the old have less time to live, on average, than the young. However, what matters here is how the rate of creativity changes with age and not how long you have got left to live.

Now in his book, "Age and Achievement", Lehman argued that the rate of creativity goes into rapid decline after the ages of 45-50 yrs. According to Lehman the peak of creative productivity varies with the tasks but in general your most creative years are in your 30s.

This is bad news for someone like myself. I feel doomed, I'm over the hill and I felt I was only just getting started - gasp!

Fortunately, in 2006, Harry R. Moody's book "Aging" pointed out that Lehman's treatment of longevity was rather creative and suffers a fundamental flaw which creates the distortion.

If you're going to look at the changing rate of creation for people over time, then simply following a group of scientists and looking at the number of papers they publish will always give you a decline over time i.e. your sample group of 500 scientists might publish 500 papers in total at age 25 but less than 250 papers at age 65. You might argue that the reason for this is due to a decline in creativity but that ignores the simple fact that most people tend to die as they get older whilst others retire. So it's a good idea to actually adjust results for the number of your sample group which are still living and active in the field.

Further reading reveals much more intelligently balanced investigations including :-

• W.Dennis' 1966 study on "creative productivity between the ages of 20 and 80 years" shows that creators in their 60's and 70's will often generate new ideas at a rate exceeding those of the same creators in their 20's.

• Simonton's 1988 study of "Age and outstanding achievement" shows that the average rate of output of a creator in their 70's is roughly 50% of the maximum peak found in their 30's and 40's.

So whilst I might be halfway through my creative peak, it looks as though it will take another 30 years for me to collapse back into the uncreative pit of my 20's. Whoot!

These are, of course, just average statistics and say nothing about the individual. Creativity never stops and as Moody points out, the chemist Chevreul took up the study of Gerontology in his 90s and published his first paper at 102.

Looks like old dogs can learn new tricks after all.

N.B. Before someone says that the software industry is a hotbed of creative young talent, the link between youth and software creativity is highly contentious. Our industry would appear to not only have what Tim Berners Lee called a 'stupid' male geek culture but one that also idolises youth.

N.B. As a final note, I would NOT be surprised if the mere existence of ageism does affect performance. The following study reports to show that "being put in a low-power role may impair a person’s basic cognitive functioning and thus, their ability to get ahead". Hence a lack of social mobility in society may well be self-reinforcing. I am curious as to whether a consequence of the act of ageism in society is in self-reinforcement through impairment of an affected person's performance.

-- Added 20th August 2013

Just noticed Dan Gillmor referenced an excellent article on "Is Silicon Valley's youth movement really just age discrimination?"

The Red Queen Hypothesis ... Part II

Organisations contain a mass of different activities and a network of people performing those activities.

If you take away both the activities and the people, you are left with what an organisation really is, which is nothing (bar reserves of capital). Organisations only exist in the interaction between people and activities. However, people come and go and, as previously mentioned, activities are in a constant state of flux. Hence all organisations are continuously exposed to change.

No organisation can ignore such changes for long as they are not islands but instead live in a competitive environment. If an activity becomes more of a commodity and the organisation fails to respond, the result is a competitive disadvantage. Organisations must therefore continuously respond and adapt to these changes, in people and activities, in order to retain their competitive position against others.

This is the business equivalent of the Red Queen Hypothesis from Genetics. It should be remembered that there are two very different and powerful forces of change in any competitive environment:-

1. Adaption: the need to constantly respond to changes in people and existing activities.


2. Creative destruction: the constant destruction of the old ways of doing things by the creation of the new.

The general rule of thumb is:-

"You need to adapt in order to survive today but you also need to innovate in order to survive tomorrow."

The Red Queen Hypothesis ... Part I ... Activities

The Red Queen Hypothesis is used in Genetics to describe why systems need to constantly adapt in order to remain competitive. Formally, it is stated thus:-

"For an evolutionary system, continuing development is needed just in order to maintain its fitness relative to the systems it is co-evolving with."

(Leigh Van Valen, 1973, from wikipedia)

I want to describe this effect in terms of business, however to do so we need to first look at how business activities change. Let us start by examining the use of CRM.

The concept of CRM (customer relationship management) systems was an innovation back in the 1980s. However as everyone sought to exploit this new concept, CRM became far more ubiquitous and well defined. The activity has undergone a metamorphosis from innovation to leading edge to product to even utility services. This is not an unusual event, as there is always a constant pressure towards commoditisation of any activity as everyone tries to take advantage of any innovation (see figure 1).

Figure 1 - The metamorphosis of CRM.
(click on image for larger size)

In figure 2, I've mapped this transition on a graph of ubiquity (how common something is) vs certainty (how well known or defined something is).

Figure 2 - A graphical representation of the transition of CRM.
(click on image for larger size)

The transition of an activity from an innovation to something ubiquitous and well defined (or more commodity-like) is fairly standard. Most activities (whether processes, sub process or the results thereof) are in a continuous state of transition.

Organisations consist of a mass of activities, and those activities exist somewhere on that graph. The activities are all connected and you can even map this out. However, for the time being I've provided a representation of an organisation in figure 3 in graph form.

Figure 3 - Activities in a organisation
(click on image for larger size)

Whilst these activities are at different stages of their lifecycle, they are all undergoing a metamorphosis from innovation to commodity. This transition is independent of the organisation itself, as an activity becomes common when others adopt it.

All organisational activities are therefore in a constant state of flux.

Now, I'll use this concept in the next section to explain the Red Queen Hypothesis and its application to business.

Management speak ...

I'm often faced with some fairly strange ideas about business, management and economics. I collectively call these Brentisms, after the David Brent School of Management Theory.

I've listed a few of my favourite, with some glib Brent-like counter statements.

Brentisms	Brent-like Counter
We only focus on core activities.1	If you only focus on core activities then the one thing that isn't core is a future.
If it can't be measured, then it can't be managed.2	Just because we can't measure the future doesn't mean we should give up.
We manage by ROI.3	Whilst a hammer might be good for banging in nails, it's not suitable for every job.
Prince 2 is the right methodology.4	You might be the best hammer expert in the world but we need a hole drilled.
We should outsource IT.5	Certain things are suitable for outsourcing; the company's future isn't one of them.
Our people are an important asset.6	Try building a future without people.
The customer is always right.7	If you do what your customers want, all of the time, then you will end up with no customers.
We are an innovative company and we reward success.8	You shouldn't reward people on how well they can predict the future but instead how well they try to make it happen.

Notes:

1. As per Schumpterian economics, creative destruction is the continual process of how the old ways of doing things are destroyed and replaced by innovative activities. These innovations may not be sustaining but instead maybe disruptive (as per the work of Christensen). Historically, firms that are unable to transition to the new value (non-core) networks created by such disruptive innovations have a high failure rate.

2. Unlike the incremental improvements of an existing product, the implementation of an entirely new concept is a highly uncertain activity. With these uncertain innovations, there are no market studies, no established value networks and no way to accurately predict what is going to happen. There is nothing to measure against. Any organisation embarking on such a venture must be ready to adapt to any emergent opportunities.

3. Utility services need to be managed on price and quality of service whereas highly uncertain activities, such as innovations, often need to be managed on worth. For those activities in-between such extremes you need to use ROI. The key is to use the right methods for the right stages of an activity's life-cycle.

4. The actual methodology here is not important, it could be Prince, Six Sigma, XP or any number of others. What needs to be considered are the organisational activities those methodologies are applied to. All activities start as highly uncertain innovations becoming more ubiquitous and defined with time. For example the act of installing a telephone system is a far more well known and defined activity today (having been repeated millions of times) than when the telephone first appeared. A defined and certain activity is more effectively managed with static methodology designed to reduce variation. An undefined and uncertain activity is more effectively managed with a dynamic methodology designed to adapt to change. Since any organisation contains a mix of innovative and common or commodity-like activities, it is important to apply the right methodology to the right sort of activity.

5. An organisational function such as IT is simply a grouping of similar organisational activities. IT deals with IT, marketing deals with marketing and so on. Within such a function there is a range of commodity and innovative like activities. The key advantage of outsourcing is the benefits that can be obtained through economies of scale. This can only occur for commodity-like activities which are well defined and ubiquitous in use. The outsourcing of innovation will in effect hand over control of future potential sources of profit to a third party provider and it is unlikely to be cost effective unless :-

1. The organisation, for whatever reasons, has a fluctuating demand for innovation.
2. The innovation provider or market can undercut the cost of research. For example it could be parasitical on some other establishment, such as Universities.
3. The innovation relates to operational improvements to something supplied as a service.

Whilst external collaboration and innovation markets are useful tools, there are many practical, economic and strategic reasons for keeping control of innovation within the organisation. When it comes to outsourcing, you should therefore be looking to outsource those common and commodity-like activities only. For these reasons you shouldn't outsource the function of IT but instead you should outsource those activities of IT that are common and commodity-like.

6. Many organisations in the communications industry (for example, newspaper, music and broadcasting) have undergone significant changes with the onset of the internet and the digitisation of content. Most of these changes relate to the commoditisation of the means for mass communication. For example, at one point in time, these industries depended upon huge physical installations such as printing presses. These installations where expensive and the industries were described as being physical capital intensive. If you wanted to be a journalist, musician or any of the other roles in these industries, you needed to go and work for one of these big players. The internet and digitisation of content have effectively removed the need for the physical capital items like printing presses. Anyone today can setup as an online musician, journalist or broadcaster. The big players have lost a powerful mechanism for controlling their staff and talent as they no longer control access to the means for mass communication. Without such a method of control, these organisations must look at other means to attract and manage staff and talent whether it's through financial, human (working with experts) or social capital (a beneficial network, reputation). In such circumstances, people aren't an important asset, they are your only asset. This effect is likely to become more pronounced with the the looming commoditisation of the manufacturing process through 3D printing.

7. Many large companies fail not because they are badly managed and don't listen to their customers, but precisely because they do. Rather than repeat the work of Christensen, I would recommend you read it.

8. At best this statement is pointless as everyone wants to succeed, at worst it is counterproductive. Excluding the plethora of trivial product improvements or features, innovation is about implementing an idea for the first time. It is a highly uncertain activity and more often than not it fails. Innovation is independent of success or failure and it can result in either. By only rewarding success, you will discourage failure and this will discourage experimentation and innovation.

A useful lesson

Most of my work and research deals with complex (as in non-linear) approaches to management and how this can be effectively used. However, it is dangerous to assume that someone would willingly exchange a simple but ineffective tool for a more effective yet complex one.

More often than not, people prefer a simple and easy life. This was quite neatly (and candidly) explained to me a week ago.

"I understand we could manage things better but it is not important as everyone else is in the same boat. We only need to get better at this when everyone else does. Organisations might be nothing more than people and activities but they are managed by people. As a manager, I ask myself, how does this help me and how does this make my life easier. My staff are no different and that's the issue you need to be looking at. The company is not the important factor here and you need to forget about alignment, effectiveness and all that. If you want to sell these ideas then you need to look at how this can benefit the individual and help them achieve their personal goals and targets."

If you want to sell a concept or an idea to company, it is important to remember that companies don't buy stuff, people do.

Make sure you focus on their needs first.

More from less ...

In 1970, at its Palo Alto Research Centre, Xerox had arguably assembled one of the most creative groups of computer scientists the world has ever seen. This team created a computer system that most would consider to be more than a decade ahead of the rest of the industry. Email, laser printing, graphical user interface and a mouse. No-one else came close. Over 1500 of these computers were in active use within Xerox

So why doesn't Xerox own the computing industry today? As Steve Jobs famously described, they effectively “grabbed defeat from the greatest victory in the computer industry".

Whilst PARC played its role and brought the future to Xerox, the senior management of Xerox failed spectacularly to take advantage. The more I research into this subject, the more I discover that this is not an isolated incident. This phenomenon appears to be widespread. Whilst failure is an intrinsic part of the process of innovation, and that includes failing to act or implement an idea or take advantage of it, there are also many often unnecessary obstacles in its way.

Despite senior executives calling for more innovation, in most organisations it doesn’t seem to get an easy ride. Reasons for this include a lack of experience with radical innovation projects at senior levels, a growing mismatch between R&D productivity and cost, and a disparity between how long innovation takes and the immediate demands for ROIs. Added to this are common excuses used to stonewall innovation, from the ever faithful tyranny of current strategy (“it's not core”), to arbitrary financial hurdles (“it’s not worth our time”). Even if your innovation manages to navigate this minefield, it often receives the coup de grace from internal politics or simple fear.

As Machiavelli once said;

"the reformer has enemies in all those who profit by the old order".

Almost everyone who has ever tried to do anything innovative in a large organisation has at some point collided with the organisation as "super tanker" metaphor; we might have no idea what lies ahead but we certainly can’t (or more likely won’t) change course quickly.

I've become increasingly convinced that what CEOs should be crying out for is not more innovation but fewer self-imposed obstacles.

Now that is something they can fix.

One Social, one not ...

This morning I caught up with Stefan whose project Soocial is really starting to take off. This is fantastic news, they're a wonderful bunch of people and hopefully they'll become the internet superstars they deserve to be.

That was the social or good news.

The anti-social or bad news came in the form of an article by the Washington Post on the use of waterboarding in team building exercises. Apparently the assembled sales team were told:-
"You saw how hard Chad fought for air right there. I want you to go back inside and fight that hard to make sales".

What planet do these people come from? I wonder if Chad's medical insurance covers acts of management insanity?

What next?
"You saw how hard Chad fought to avoid being shot. I want you to go back inside and fight that hard to make sales."

What happens if Chad doesn't quite make it?

Figure 1 - The future of team building.
(click on image for larger size)

Apparently the general counsel for the firm said that they weren't the mean water boarding company that people think they are. It takes a lot to make me swear, but well who the fuck are they then? I'd hate to meet a really mean company if waterboarding is okay for the nice ones.

He also asked whether this would even be an issue "if it weren't for Guantanamo Bay". Let me think about that one - try, yes it is an issue if you go waterboarding your staff in order to make them work harder.

The best line however is when he talks about how this incident is "going to hurt our image". What about your staff?

Save Chad now before it's too late.
Thanks to molumen and Gerald_G for the public domain clipart that I've used and Marilyn Pratt for spotting this.