Outsourcers are a bit like private equity. They make money by taking something over, ruthlessly and rigorously standardising everything about, and making money on the difference between the price they agreed in advance and the costs they actually incur post-cleanup.

Nothing wrong with that. It’s a business, like any other, providing something the customer wants, at a price the customer is prepared to pay, and usually one that is profitable for the provider as well.

It’s the same sort of thinking that pervaded firms when they had to decide what to own and what to buy in. Why firms used to focus on deep vertical integration.

It keeps the costs down.

Which is a good thing, isn’t it, keeping costs down?

Firms couldn’t be wrong. Private equity operators couldn’t be wrong. Outsourcers couldn’t be wrong.

Vertical integration coupled with rigorous standardisation was the way to go.

So the thinking was applied to systems as well. Integrate everything in sight, as deeply as possible. Standardise everything within the resultant monolith. Reduce transaction costs as a result.

Yup, makes sense.

Provided.

And it’s a big “provided”.

Provided we’re talking about steady-state. No changes.

In all these models, transaction costs are kept low because nothing is allowed to change. The firms of the early 20th century could mandate it. PE companies could enforce it. Outsourcers could demand it. Usually by deploying a simple mechanism: high tariffs for any changes.

And so it is with monolithic vertically integrated systems. Good for steady state.

But very expensive to change.

The world we live in is a world of change. Demanded change. Mandated change. Customer-driven change.

Steady-state transaction costs can be controlled, of course. But only in a steady-state world.

What is now needed is a means of managing transaction costs in an ever-changing world.

And that’s where the cloud comes in. Real cloud, not the zero-sum-game “private” porcine make-up.

There was probably a king on the throne of the United Kingdom the first time the phrase “keep fixed costs as low as possible, and let variable costs be driven by the market” was used. Keeping fixed costs low makes sense. Because the cost of change is usually the cost of changing something in the fixed cost bucket. Variable costs, by their very nature, vary according to volume.

Imagine you bought a fixed-price ticket to Paris. And, sometime after you bought it, the demand drivers and environment had changed, and you had to go to New York instead. Would you say to yourself “Well, I bought this ticket to go to Paris, and that’s what I will do, regardless of where I’m meant to be”? Or would you berate yourself for buying a fixed-fare no-changes low-cost ticket while knowing that things might change?

Sometimes I’ve heard IT people talk like that. “I have to try and get value from what I bought, even if it is of no use to me”. I guess this is part of what gets called Sunk Cost Fallacy.

I’m going to continue to think about this, just wanted to air some of the thoughts, especially since some of them are thirty years old.

But before I end this post, I wanted to bring up two more things: meeting scheduling; innovation. Because I think this fixed cost/variable cost dichotomy plays out well in those areas as well.

Take scheduling meetings. How many times have you been in a situation where it’s really important to get a particular bunch of people together, and the “system” spurts out the 12th of Never as the next available date? A strategy that relies on agent negotiations between Outlook calendars….

I’ve always considered this a strange phenomenon. If it’s important to keep fixed costs low, and if human time/salary is one of the biggest costs, then why pre-commit a high proportion of the time? Isn’t that creating a new fixed cost? What I tend to do is to hold on jealously to white space in my schedule for as long as possible, so that I can respond to changes in demand quickly and effectively. Of course there are some regular meetings, these have to be scheduled in advance. When someone plans a visit, meetings have to be scheduled in advance, to “lock” the event in…..otherwise the cost of travel should not be undertaken. But for most of the time, it’s best to keep the swing room. Knowledge work is lumpy. Peaks and troughs.

Similarly, let’s think of innovation, particularly innovation with a technological component. One possible barrier to innovation is the corporate belief in Sunk Cost Fallacy. The space to innovate is taken up by the long-term commitments within the fixed cost bucket. An inspection of the ratio between fixed and variable costs for each part of the estate may provide a proxy for the innovation capability of that part of the estate. Obviously it would depend on the cycle of investment the firm is in, the market conditions (steady-state or fast-changing), the market itself (a manufacturer of oil tankers is going to have somewhat different characteristics from a retail bank), a whole slew of exogenous and endogenous variables.

But despite all that, I am intrigued by the possibility that something within the fixed/variable ratio may be a simple proxy for the cost of change, and therefore for some part of the capacity to innovate.

Views?

If you’re particularly into bad news, there are many places that will indulge your particular interest today. This is not one of them.

Here, I want to spend a little time on things that give me hope for humanity, things that have an uplifting effect on me; things that remind me that I have much to be thankful for, things that make my heart sing with joy.

Like Todmorden.

 

Todmorden is a old Domesday-Book-mentioned market town that is in both Lancashire as well as Yorkshire (depending on which side of the Calder you’re standing), with about 15,000 people and almost as many ways to pronounce its name (though the locals apparently just call it Tod).

I’ve never been there. But I will. Soon. This post will tell you why.

Sometime in 2009, I’d seen coverage of something happening in Todmorden that intrigued me. Locals there had apparently agreed to work together to try and become self-sufficient from the perspective of food. Their initial focus was on fruit and vegetables, and the intention was to move on to grain, to white meat and finally to all the food types they felt they would need.

The article intrigued me; I filed it away as something to keep an eye on. And then promptly forgot all about it.

More recently, probably sometime in June this year, I’d read about a NESTA publication, a Compendium for The Civic Economy, and given the contents a scan. Noticed that Incredible Edible Todmorden was mentioned, decided I would look at it in detail later. And then promptly forgot all about it.

Until today, when I came across continued coverage in one of the Sunday papers. Third time lucky. This time I soldiered on. Of course, I had to get past the bad-news-packaging first, but that is now something I am a past master at. [Besides forgetting about things that don’t make it on to my daily to-do list.] I would connect you up with the Sunday coverage but there’s no point, it’s pay-walled away.

It’s an amazing story. A local food system, an “edible landscape”. Created as a community asset. Fruit and vegetables planted in public spaces: car parks, footpaths and pavements, graveyards, roadside grass verges, railway platforms, school fields, wherever and whenever possible.

Doc Searls, when talking to me about opensource a decade ago, used the term NEA to describe what he considered to be a key set of principles for such things: Nobody owns it; Everybody can use it: Anyone can improve it. The Todmorden story appears to conform to all three principles.

Food planted everywhere on volunteer time and expense. Food available to all. Over 40 “growing sites”. One in three residents actively involved. 600 fruit trees. “Egg maps” showing you where your nearest egg producer is (there are 50 of them). People imitating and adapting the campaign in other parts of the country, and abroad.

An open architecture, no real barriers to entry. Food available to all. For free. Imitable. For free. An emergent phenomenon, shared via stories, making use of otherwise decaying assets. With the distinct possibility of making people healthier, wealthier and happier. Built on communal principles, steeped in sharing.

How did they decide what to plant and where? Which spaces to use? How did the narratives form and grow? Has the health profile of the town begun to change? How is the “tragedy of the commons” avoided within the community? Does the community “police” itself? What about the entry of “foreigners”? There are reports that crime has fallen since the experiment began. Is there evidence of causality or correlation?

A community that has made the coin of the realm disappear from some of their transactions. Not just dematerialised. Disappearded. [Yes, I meant disappearded. With the extra d.]

What does that mean for incomes? For taxes and duties? What do the Grand Poohbahs and panjandrums make of all this?

After food, what next? How will the “system” be kept open? How will “trade” be carried out? [I am told that there’s a supermarket at the edge of town, and saw at least one reference to a new one opening within the town. How can this work?

There’s only one way for me to find out. Well actually there are a few:

I can go to the Incredible Edible Todmorden website, a treat in itself.

I can continue to read the rest of the NESTA report, and speak to the people there.

I can talk to friends like Steve Moore at Big Society, who’s bound to know how I could find out more.

And I can go there and talk to people there.

And even donate to the cause. Which I must get around to doing, I’ve been completely engrossed in the story.

More later.

Todmorden. A reason to be cheerful.

 

 

 

 

 

I never really knew my father’s father. Not surprising, really, since he died on 12 March 1959, when I was all of sixteen months old.

I have nothing that belonged to him. A few photographs of him, yes. Some memories, possibly false, heavily influenced by what I’ve been told about him since, primarily by his wife, my grandmother, who outlived him by nearly 50 years. She died in April 2006, a real survivor. I remember being sad when told she was going to die of a tumour….. in 1966.

I never really knew my father’s father.

And so, for the last few years, I’ve been running an experiment. “Forensically” reconstructing him. Using the web. And only the web. Primarily book and magazine extracts that make their weary way on to the web. Trying to see what I learn as a result, not just about him, but about the web as well.

It all started nearly four years ago with My Grandfather’s Teeth, a passage I found in a book I came across online. Here’s the extract.

I now have a copy of the book. The incident of coming across the passage gave me the idea that I would, on a regular basis, trawl the web for evidence of my grandfather’s life, and, based on what I found, reconstruct a profile of the man. [In turn, I hope the exercise would inform me about my father, whom I knew well and yet in some ways didn’t know at all: he died when I was 22, sadly and suddenly. And as I learnt about my father, I hope to learn more about myself.]

So here are some of the things I’ve learned so far:

So now I know that he died of coronary thrombosis, in Calcutta, on March 12, aged 65. I can assume 1959, given the date of the publication. So I also know that he must have been born in 1894 or so. I now know that he was Managing Editor of Indian Finance [yes of course I knew that already, it was the family business, he founded it, and I was its last Editor and Publisher. But the point is to reconstruct the profile using the web and the web alone]. I also know that some people thought he would be missed, and that he was a picturesque and patriarchal figure in the world of Indian….

What else? My father starts making an appearance soon after that, not in chronological terms, but in the sequence in which I came across the web spoor. Here’s an extract from the introduction to the Silver Jubilee issue of something, in 1953. Although the cover is illegible, I can surmise that it is a commemorative volume to do with Indian Finance, the family-owned journal started by my grandfather in 1928.

So now someone else thought that people did not sufficiently recognise the greatness of the founder of Indian Finance, this someone’s old friend and colleague, my grandfather.  The writer goes on to say: I do not know of any greater exponent of current economic and financial problems than Mr CS Rangaswami, whose place is now gradually being taken by his brilliant son Raju. [That’s my father, he would have been 24 at the time].

By finding the excerpt below, I can get an idea that my grandfather was considered a quotable expert on aspects of finance. Here he appears in a review of the silver market by the United States Bureau of Foreign and Domestic Commerce, in 1932:

I then learnt that when he arrived in Calcutta, he had just a couple of rupees in his pocket. That he stepped into a dazzling world of maharajas and magnates. And that he was picked by the late Maharaja of Darbhanga as his Secretary, as shown below:

This view, of his having very little money when he arrived, is endorsed by the snippet below, calling him a self-made financial expert. And I get further endorsement that he started the magazine himself.

I begin to form a picture of the man. And then I find out he is listed amongst those in the press who struggled for India’s freedom, as shown below:

I learnt that he spent time teaching people, and explaining things to them:

I learnt that his opinion was sought by government committees and appeared in research journals:

I learnt he was befriended by many people also held in high regard, and that they wrote for the journal:

I learnt that he was a man of some humour, some scathing wit, someone who liked playing with language. An unprovoked compliment. I do like that turn of phrase!

The idea that he had something to do with the freedom movement is reinforced in the snippet below, evinced in his friendship with the Asaf Alis, with Maulana Azad and with Pothan Joseph. Something else I was told, that he’d harboured and protected Muslims in his palatial home during the Partition riots, that statement assumes more significance when I see the Azad and Asaf Ali names here. But I shall wait to “discover” that properly. [I was named after one of his friends, Jayaprakash Narayan, JP to his friends. Apparently he was my godfather; there’s a photograph somewhere of me in his arms. But I have no memory of him, and what I know is what I learnt living in India between 1957 and 1980.]

So what do we have? Let’s see. Born around 1894. Arrived in Calcutta penniless. Worked for the Maharaja of Darbhanga as Secretary. A self-made man, founder of a respected magazine, living in a palatial home, his opinion and advice sought on many matters by governments and politicians, hobnobbing with maharajas and magnates. Was part of the freedom struggle. Assisted by a brilliant son. Died of coronary thrombosis in 1959.

Everything hunky-dory? Not quite. What about this, found in the National Archives here in the UK?

A player. As I look further into the archives, I find out about letters sent from Grosvenor House here in London, and from the Taj Mahal Hotel in Bombay. Letters asking various cabinet and board members to support Osborne Smith, to push back against Griggs. Here’s where it gets meatier:

So now my grandfather’s up to some intrigue or the other, appearing in classified documents, and there are copies of documents sent by him, but in the handwriting of the person he’s attacking. All this in letters from the head of the Police Office to the Director of the Intelligence Bureau. Hmmm.

And then Special Branch gets involved. [A bit cheeky of me, I haven’t yet proven to you in this post that PR Srinivas is my grandfather’s partner, but there is web proof of this].

And suddenly the Viceroy’s involved, with letters intercepted and returned….

That’s it for now. A lazy Saturday post, showing you how one can construct a profile of someone just using the web. Genealogy with a twist. Let me know what you think.

Addendum: Found evidence that he spent two months in the UK, ostensibly in November and December 1938. He wrote this in Singapore on his “way back from the UK”.

 

 

Tsukioka Yoshitoshi: Toyotomi Hideyoshi returning to the scene of his army’s victory

It’s that time of year when I get asked to make predictions for the year ahead, particularly in the context of enterprise software. It’s that time of year when I tend not to do anything as a result.

But this year’s different. This year I think we’re on the verge of something sufficiently different to warrant my writing about it. Something that’s been spoken about for over a decade. Something that’s been bubbling under for much of that time. Something that’s happening now; something that will dominate the year to come, perhaps the decade to come.

Max de Pree, one of my favourite writers on leadership, once said:

In some South Pacific cultures, a speaker holds a conch shell as a symbol of temporary position of authority. Leaders must understand who holds the conch—that is, who should be listened to and when.

In 2012, the customer holds the conch. And for years to come, the customer’s going to keep that conch. It’s not just about broken guitars. Or retracted debit card fees. Or shelved plans to break up services. Or even, for that matter, Occupy movements or Arab Springs. 

It’s about all of them. So, with that as context, here are my predictions for the world of enterprise software in 2012.

 

Prediction 1: The customer will insist on being listened to

Hank Ketcham, the creator of Dennis The Menace, once said, I think via Dennis: Just because I didn’t do what you told me, doesn’t mean I wasn’t listening to you. That’s what companies have been doing, not listening. They’ve spent a long time often pretending to listen to the customer, then doing what they intended to anyway. Listening is going to become more important than ever before. And if you want to listen to the customer, then you’re going to have to go to where the customer is. In the social networks. The hierarchical broadcast model of advertising will get replaced by a networked distributed listening model, something that has already begun to happen. More and more, the use of focus groups and sample surveys will recede, as companies learn that listening at scale is more accurate than the randomness of sampling. The skills required to structure the surveys will still be needed, but the surveys will operate across the customer base rather than concentrate on a select few. Customers are sharing where they are, what they did, what they’re doing and what they’d like to do. They’re sharing who they were with, who they are with and who they’d like to be with. They’re sharing what they liked, what they like and what they would like. Customers are sharing their personal and individual preferences, plans and intentions, and they expect to be listened to. Personalisation and customisation will stop being buzzwords and become business as usual.

 

Prediction 2: Customers will insist on being listened to

Listening to the customer is not going to be enough. Companies are going to have to learn to listen to customers in groups as well as as individuals, severally as well as jointly. Obfuscation of price and discount and service availability and service quality is going to become more and more difficult, as connected customers learn how to use their power to obtain and sustain transparency; the perfect market that companies have dreamed about will start becoming reality….. for customers. Trust between customers and companies will increasingly come to depend on this transparency. Think Groupon meets Priceline, but on steroids. As a result, companies will have to be able to design services at speed, to listen at speed and to adapt their offerings at speed, responding to customer sentiment, learning by doing. Feedback loops will become more and more important. Customers will also increase the way they listen to each other, as they recognise the value of their social networks not just as recommenders but as filterers.

Prediction 3: Customers will insist on true freedom of choice

Historically, there have been many markets where customer choice has been restricted by companies focused on vertical integration; the ability to mix and match components or ingredients was denied on the basis that vertically integrated end-to-end solutions were cheaper to acquire and easier to use. Over time, this became part of the customer psyche, perhaps akin to Stockholm Syndrome. As customers learn about their power as individuals and as a collective, they will insist on true choice, and continuing choice. Products will be seen as belonging to families and ecosystems, with increasing choice between components of the ecosystem and between ecosystems. Interoperability will become more important.

Prediction 4: The enterprise software landscape will be transformed as a result

Companies will need tools to help them listen to their customers, individually and collectively; to understand what they’re saying; to build, alter and refine their offerings based on customer feedback; to work with other companies in an open and federated manner; to make their products and services work with competitive products and services; to give their customers choice, and to expect their customers to exercise that choice.

Driven by this freedom of choice, the end-to-end control historically enjoyed by many companies will disappear. Process automation will look different, as companies spend more and more time dealing with exceptions rather than norms; a plethora of small, lightweight processes will emerge, to replace the traditional high volume highly repeatable form.

Service transparency will become a mandatory requirement across systems, 24×7, accessible across the web. Customers will choose to shift time and shift place at will. They will expect services to be delivered independent of device or location or operating system; they will expect services to be migrated between device and location and operating system.

The cost of change will finally begin to matter, as companies realise that monolithic vertically-integrated systems appear to provide lower operating costs, but only in a steady-state world. The outsourcing industry will come under immense pressure as a result, as their customers realise the importance of open flexible frameworks with low cost of change by design rather than accident.

 Prediction 5: People will realise that all these predictions could have come true years ago, and start asking what took them so long

None of this is particularly new. I could have written these predictions five years ago, ten years ago. There’s nothing I’ve said that wasn’t already in the Cluetrain Manifesto in 1999. Yet a dozen years have passed. What’s changed? Perhaps nothing. Perhaps I’m all wrong, and the tipping point hasn’t arrived yet. Perhaps Arab Spring will be reversed; perhaps Occupy will come to nothing; perhaps the customer, having tasted true power, will meekly hand it back to the incumbents who’ve shaped the last five decades between them.

Perhaps.

Or perhaps the time has come, and the changes we’re seeing are irreversible. After all, as Hugh Macleod pointed out in the “Hughtrain”:

So that’s it. I’m done with predictions for next year, even if it is that time of year.

Incidentally. It is that time of year. If you read this far, perhaps you’re a fan of this blog. In which case please consider voting for the blog here. And if you’re in voting mood, try this.

 Salvador Dali, The Persistence of Memory

In my late teens, living in Calcutta, I used to play a lot of duplicate bridge. Or at the very least, contract bridge, if eight players could not be found. This was in the mid 1970s, when sophisticated artificial bidding systems were all the rage. [For those who are interested, I used to play a modified Precision Club system with a strong club, four card majors, weak no-trump, Stayman asking for majors, a “splinter 2 diamonds“, weak pre-emptive 3s and Blackwood asking for aces.]

The particular system I was using is not relevant. What is relevant is that it was a complex way of collecting and signalling data: the bidding process in bridge, the conventions used, these are but tools to tell your playing partner something about the cards you hold.

There was this one time when my playing partner and I were playing against my brother and his playing partner. At the time they weren’t particularly serious about the game. Novices. So we did our Precision mumbo-jumbo rocket-science bidding. And they used an Acol-based “natural” bidding system, no frills. And they beat us. And kept beating us.

This was not good.

After all, we had the superior bidding system, the maturity, the experience, the everything. They shouldn’t be beating us.

And they weren’t just beating us. They seemed to know everything about the deal.

Because they did.

Having thrashed us comprehensively, amidst hoots of laughter, they told us what they’d been doing. Which was simple.

While we were knotted-browed in concentration using the most esoteric signalling systems to describe the cards we held, they were using a somewhat more effective one: they were showing each other their cards. Not within the rules, but done to teach us a lesson.

And the lesson was this: remember why you’re doing something, don’t get lost in the what and how.

In bridge, the purpose of bidding is to let your partner know what cards you have. The systems and conventions are meant to help you do that. But the purpose is to signal the cards you hold.

When I talk about engaging with customers, I try and draw on this analogy. Focus groups and surveys are not an end in themselves. They are way, inefficient ways, to find out what the customer wants to do, ways to discover customer preferences and intent. Today, the customer tells you what she wants, what she intends.

And so it is within the enterprise.

Which is the nub of this post: how the capacity for organisational memory has increased dramatically over the past decade or so (through tools like Chatter) and why it matters. [Disclosure: I work for Salesforce.com, the company behind Chatter].

There was a time when it was normal for a person to spend her whole life at one firm. The contract between employee and employer was trust-based. meaningful and long-term, there was security of tenure, and staff turnover was low. Teamwork was high.

There was a reason why teamwork was high. The institution had memory.

Teamwork involves sacrifice. Sacrifice requires humility. Teams work because people allow themselves to be vulnerable in front of each other.

This sacrifice, this willingness to be humble, this acceptance of vulnerability, all this is underpinned by trust, and in turn creates trust.

Huge dollops of trust. Trust enabled by the characteristics mentioned earlier: meaningful contracts between employer and employee,  the security that comes from tenure, the familiarity that comes from low turnover. The feeling of being amongst family.

In such an environment, teamwork excels at least in part because of organisational memory. When you “took a bullet” for the team, your colleagues and your boss remembered that. When you agreed to hold on to your misgivings and go with what some of the other team members wanted to do, you did so in the knowledge that your “sacrifice” would be noted. Now this was not in some manipulative calculated fashion, it was more of the everyday give-and-take that characterises interactions between people in relationship.

The organisation remembered. Because the organisation was stable, attrition was low.

As job mobility increased, and with it attrition, the memory of the organisation began to suffer. And at least one of the incentives to collaborate, to share, weakened as a result.

As the incentives weakened, so did the reality. People worked less as teams, people worked less in teams. The willingness to sacrifice receded, as did the willingness to make oneself vulnerable. If you took a bullet for the team, but the team wasn’t going to be there to remember that taking-of-bullet, what was the point?

An I-Told-You-So culture was born, a precursor to the full-fledged Blame Culture.

Some people noticed that institutional memory was failing, and sought to prevent it by instilling the practice of recording what was discussed at meetings, what was agreed, who was meant to do what. The process of taking minutes grew as a result, but no longer to provide a record of what happened. More often than not, it became a negotiated set of statements, truths, half-truths and sometimes outright lies, as the participants in the meeting sought to reflect their disparate positions “on the record”.

Minute-taking became an art form; in many enterprises, she who takes the minutes rules the crown. Because the minutes defined reality. An alternate reality, sometimes a false reality, but nevertheless what was perceived as reality.

And the Blame Culture was in full swing.

Dark days.

Days we can leave behind. Because of the power of streams of information at work. Now, it is possible for the “record” to show everything that was discussed, not just one person’s summary of a set of negotiations as to what to put down on the record.

Activity streams capture the flow, the conversations, the commentaries and the comments around the digital social objects in the enterprise: proposals, orders, bills, complaints, whatever: presentations and documents and tables of one form or other.

Collaboration is not what happens in the presentation, document or spreadsheet; it is what happens around these objects.

Collaboration does not happen because of a presentation, document or spreadsheet; it is what happens despite these objects.

Collaboration is not in what is captured in static documents, but in the flow of conversation around those documents. A flow that is dynamic, live and continuing.

This flow, represented by the conversations and comments, in conjunction with the “enterprise social objects”, is what is persisted in activity streams by services like Chatter.

And it is in this flow that the organisation recovers its ability to remember.

And it is in this ability to remember that the organisation recovers its ability to trust; it is in this trust that teamwork proliferates. The work of teams characterised by a vulnerability, an openness, a humility, a willingness to sacrifice for the good of the collective.

There are many other aspects of knowledge management that are made possible by enterprise activity streams, as we learn to move from past-tense analysis to present- and future-tense approaches. Aspects to do with discovery, with Rumsfeldian (or more correctly Polanyi-like) unknown unknowns, with the capacity of the organisation to record, replay and learn from the replays. Aspects to do with serendipity and with providing avenues to soak up the Shirkyist cognitive surplus inherent in knowledge work. Aspects to do with understanding the actors and their roles within the organisation, in Gladwellian salesmen/connector/maven ways. Aspects to do with nonlinear work and asynchronous work. Aspects to do with induction and training and coaching and mentoring.

I’ve written about all these before, and I will write about all of them again.

Because we live in exciting times.

The organisation can find its memory again.

So.

When you build and implement systems of collaboration, ask yourself whether you’re investing enough in persisting and understanding the flow. The documents and spreadsheets and presentations are necessary but not sufficient.