Compete by understanding the scale of scope


Seth Godin wrote an interesting entry called ‘Economies of small’ a few days ago. I have a view on the challenge of how people reason about economies of scope against economies of scale. Below is a paraphrased excerpt from my upcoming book “Built to Thrive”:
Scale: Most innovation approaches focus on the concept of staging. More contemporary methods are generally socially oriented as explained in A more socially aware society. The principle is that many ideas are collected and through a staged and methodical process thinned out to the point where the only idea left is the one worth implementing. This might work in the product world, but in services companies this approach is far too restrictive as services are delivered across a larger group of people and are generally more humanistic. Banks for example share customer interactions between digital channels and human based channels.
Scope: Delivering one great services concept (that starts in the form of an idea) presents the opposite approach as the previous. People are directed towards creating ideas based on an existing dominant idea. Allow them to socialize and you will find that many ideas will be developed from one great concept. Let’s take a basic example of banking; what is the dominant idea behind retail banking? You receive money from sources like the public and government and channel this to customers for a profit. That’s it. Developing this idea is the core to all inventions in banking.
Figure: When one great idea gets developed
Scale of scope: Let’s look at the alternative approach. If you already have a dominant idea, use this idea as the context for others to generate ideas. Most service companies already have great ideas and typically fine-tune the implementations of these ideas over time. To rethink operating approaches, business models or even the way in which the offering gets delivered to clients, new ideas can be generated to use the core capabilities of the business to drive new service inventions.

Reshaping open innovation for service industries

Services companies require different approaches to open innovation due to the different inherit models of sharing information during and after the creation of new service models. In a world where transparency is so important and pushing the boundaries of company secrets, how do we protect our inventions if these inventions are prominently in the intellectual space?

So, lets take a look at innovation in financial services. Banking innovations proliferate at a blistering pace as people move from company to company and as banks share information in semi-post recession (not that it didn’t happen before). Over time common ideas are copied and mutations of ideas are used to drive competitive products and services that require automation. This pace is fueled by the use of technologies as they become pervasive in other industries. The social integration and adoption of technology as it becomes integrated into the service platforms, further push adoption across all interaction channels.

Mobile operators try to protect their inventions, but at the end of the day they need mass adoption to drive growth. This results in invention “leaks” that are needed to push adoption across various different technology standards. Furthermore, the relentless innovation in technology devices for example the new tablets including Samsung Galaxy and Apple iPad, all contribute to educating the world that the device is cool but the service is essential. The telecommunication industry is under stress as pricing comes under pressure, creating a path to start competing with banking organizations.

Realistically the difference in behaviours between banking and telecommunications create barriers for open innovation approaches. Inherently banking is “open” and semi-transparent with regards to banking offerings, telco companies on the other hand rely on strong R&D and protection methods to keep competition at bay. I know that this is a grossly oversimplification of how things actually work, but the point is that “open innovation” approaches and the philosophies that drive change in these industries are different.

Technology does present a tough set of options for the bank that wants to move ahead with innovation. There is an interlinked and cross dependency between tech and business in most services industries not just in the financial services world. Keeping the organization running 365×24 is not a futile task hence the strong attempted convergence of bank and telco. I still think that the inherent business models will shape the approaches of innovation in the near term. The role of technology in banking innovation is essential to drive business performance, especially as business models evolve.

Towards a metaphor for innovation

Being in a position where I’m fortunate enough to work with students who are interested in studying the subject of innovation; metaphors are used to shape our understanding of how new ideas come into being and are then allowed to develop into fully developed real-world outcomes. One such metaphor is the role of the architect in shaping our physical environment. The architect, client, designer, builder, designer, financier, etc are all part of a complex constellation of value creation.

Some thoughts on the process of creativity that results in real world outcomes, as seen by an architect:
1. We all live in a setting that is determined by crowds and social structures.
2. We have the ability to either accept this setting or challenge it.
3. Our fit with this environment is determined by how our views are adopted.
4. There is always a sense of permanency once we have decided to pursue a certain course of action.
5. It is cumbersome to change our thoughts once we spent time formulating our reasoning.
6. To change the physical manifestation of our thoughts are time consuming and ego-trapped.
7. Moving into a new world or a new way of going things requires a new setting or paradigm to develop.

Look at these key reasoning areas from some architectural greats some 80- years ago:
Adolf Loos wrote “Ornament and Crime” in 1908 outlining that we should remove ornaments from everyday life like buildings, as it will hasten the demise of the design that was made permanent.
In “Theory and Design in the First Machine Age”, 1936, Reyner Banham reasons that functionism has rules and patterns that guide us as we moved into the era of modernism.
“Towards a New Architecture” by Le Corbusier in 1922, focuses on the understanding of basics that allow for flexible and agile change of all non-structural elements.
Ludwig Mies van der Rohe spent his life changing the world’s view of how architecture and technology live together in harmony where most forms of excessive ornamentation is removed for functional design.

As we moved from the eras of mystical reasoning to science and pragmatic thinking, our focus of how we live as humans is shifting towards a far more integrated existence. We woke up one day realizing that our actions are far more impactful than we thought, and that our understanding of mystical behaviors have caused us much pain. Believing in individual value and group well being, got us to think about the basics of how a new world would operate. It is almost like we are going through a human reasoning evolution as what happened in the 1920-1950’s. A new form of pragmistism is emerging that allow crowds and individuals to co-exist in diverse opinion.

Humans express themselves through the physical outcomes of their thinking, as we have seen in the changes in architectural styles over the years. Furthermore, our access to technologies shape our minds as to the possibilities of creation in the realm of “what’s possible today”. We live in built up urbanized areas, malls, social gathering areas, crowds watching great acts of arts (like music), etc more than ever before. The integrated world of technology and human behavior is allowing us to socialize more efficiently than ever before as we live close together. And all this in light of our self destruction of the world, global population growth, and religious wars. Even crowd oriented corrections like the financial crises will shape our minds in new ways as to the “possibilities of creation and correction”.

Innovation is entering an era where the strict rules and decorative processes and procedures of past are all under scrutiny. A more integrative and social approach is emerging where we need the individuals in our constellation to perform at their best. Even Open Innovation is developed on the platform of the past; taking an old construct and evolving it. Is this good enough for this era? The new rules of change will force you to integrate the creative genius of all these people in ways frowned upon in eras gone by. Our ability to create new ideas, evaluate and rate those in light of the setting, collaborate on the development and outcomes of those ideas, and finally the ability to find valuable ideas; all will determine our success in achieving success in a new world.

The London Effect and other perceptive influencers

Fear is universal. Fear of the unknown is universal. Fear does not know boundaries. Fear alters the behavior of humans. Humans are fearful. Humans are even more fearful when crowded together. And, even more fearful when crowded in physical-world hot-houses and virtual-world real-time based information over exposure. The current crises is really visible when you bounce between Johannesburg, Cape Town, London, Tel-Aviv, Dubai, Melbourne and Sydney in a few months are compare the emotional fear with the “real” numbers. I’ve been doing to much traveling lately.

This [era] is probably the trigger point for a new period in capitalism. The access to information in real-time is the platform that created the ability to innovate and adopt offerings and capabilities much faster than ever before. Our obsessive over-connectedness fuels a sense of being on top of things, that creates safety in trying to understand the unknown. Money (Check this by New Scientist) as a concept is now deeply imbedded in our social make-up and affects us emotionally more than ever.

Size and geographical security, as attributes of stability, are gone now. Having a “large” organization as an employer in some 1st world country does not guarantee anything (for those that believe that guarantees are worth anything). In actual fact it is more dangerous as the emotional stability that comes with believing that growth will continue indefinitely, is partially responsible for getting crowds to believe that there is safety in “numbers”.

In Capitalist World 1.0, the boss decided who got the bonus and what the amount needs to be based on financial performance. But, if your business received a “bailout” from the government and is now owned by the people, the boss has shifted to a new form of controlling body. Basically you do not decide anything, and if you do and it is not liked, the backlash will surely kill you. Look at AIG’s bonus payouts and the outcry it created globally.

Paradigms have shifted; and those who believe that they haven’t, wake up.

Feedback on the Product Line Practice Conference 2008 in Limerick, Ireland

Limerick is a great city that is filled with history and Irish pride and is the host to the 2008 SPLC Conference. I came here once before (to present a paper on product lines) for the ICSE 2000 conference at Limerick University and remember the place fondly. From Wikipedia: The city itself dates from at least the Viking settlement in 812. The Normans redesigned the city in the 12th century and added much of the most notable architecture, such as King John’s Castle and St Mary’s Cathedral. During the civil wars of the 17th century, the city played a pivotal role, besieged by Oliver Cromwell in 1651 and twice by the Williamites in the 1690s. Limerick grew rich through trade in the late 18th century, but the Act of Union in 1800, and the famine caused a crippling economic decline broken only by the so-called Celtic Tiger in the 1990s.

The SPLC 2008 (SystemicLogic is a Gold Sponsor!) had brought together 233 people from some 15 counties. I’m the only one from Africa and there are a few people from Australia. The content is great as usual and the focus is still primarily on electronics, automotive, military and complex manufacturing related activity. We (Martin and I) were the only people with a focus on financial services. Our presentation and paper attracted a lot of attention as the move towards Service Line Practice is not being considered by this community.

The abstract of our paper is (Martin Krsek, Dr. Jay van Zyl, Robert Redpath, Ben Clohesy): Product Line concepts are widely used and adopted across a number of industries. Whilst the software product line concepts are readily accessible to commercial software product companies, the application within corporate environments whose core business is not software has been less evident. What are the types of challenges that large corporate organisations need to overcome? This paper presents a number of hurdles which have been observed during the adoption of the concepts at two large financial services organisations. One particular hurdle relates to the difficulty that business divisions within those organisations have in perceiving a return on investment when a product line is established that crosses business unit boundaries. Furthermore a number of enabling mechanisms, related to funding, IT project and general management aspects are proposed which are showing positive results in facilitating the adoption of Product Line Practices in corporate financial service organisations.

Some of the conclusions from the paper are: From our observations it is a key issue that the Software Product Line approach is demonstrated to align with the organisation’s strategic business objectives, and is shown to provide business benefits with acceptable risk. Modeling techniques and tools are available for product line modeling and they should be used to aid this strategic alignment. The business silo project driven organisation design must be amended and complemented specifically with the creation of a product management function and governance mechanisms to ensure that products scoped into a product line are not withdrawn without due consideration of the implications, and specifically the implications for the product line business case.

– An economic model comprising the initial investment, charging model and return on investment by the product line over time must be designed and integrated into the internal costing mechanisms of the organisation. Financial service organisations that pursue the adoption of Software Product Lines by addressing these hurdles are positioning themselves to derive similar benefits, albeit on a smaller scale to those obtained by commercial software companies operating in the open market.

– Future work will undertake further empirical studies, at large financial institutions, of Software Product Line adoption to more closely identify the hurdles to adoption as well as refining the solutions and enablers to overcome them. Approaches to be employed will focus on identifying and formalising points of commonality and variability during requirements modeling and engineering.

– In addition, economic models and methods to motivate a view of software as an asset based on traditional valuation models, as used for physical assets that exhibit features of an upfront investment, compulsory charges for those making use of the asset, ongoing maintenance costs and depreciation over the life of the asset will be investigated. The presence of service oriented architectures must also be factored into approaches and a conception of Service Line Practices introduced with their attendant implications and shift in thinking.

SPLC 2008 KeynoteJust to re-iterate some of the business goals of using Product Line related principles and practices (as presented by Philips Healthcare by Luc Koch):
– Increase development efficiency (shared architecture, composable flexible systems)
– Increace similarity of products (user interface, shared software architecture)
– Improve quality and reliability
– Reduce time-to-market

In conclusion: After discussions with prominent researchers in the field we are convinced that further research in service line practice field (check out my previous post on Seperating service lines from product lines”) will benefit the product line community greatly. The use of product lines to deliver service lines:
– use service line to deliver service platform for many instances to execute on software platform (typically centrally executed systems for example Google)
– use product line to deliver product platform for one instance to execute on software platform (typically on embedded systems for example mp3 player, but also used for other software intensive systems)

An emergent view on Design Oriented Innovation

The “design oriented innovation” approach impacts innovative organizations in many ways. Design by definition refers to the process of creating new artefacts, processes, organizations and even the act of creative activity is included in the typical definition. It does however play an important role in the process of innovation. In actual fact the role changes as we move from creativity to invention, and from invention to innovation and onto implementation and improvement.

There is a part of the design process that requires a deliberate act of experimentation. Experimentation allows the team involved in solving an innovation problem to focus on key hypotheses and determine the accuracy of assumptions. The act of design on the other hand, allows the designers that are managed by the process of design to execute on their creative genius.

My work on Design Influence has revealed some interesting results. Innovative behavior is often directed by the ability to influence dominant designs implemented in the business. If a team has no influence over outcomes; why should they contribute or participate in any innovation campaign? Look at P&G’s latest drive using design thinking. The concept is being used to break down barriers of the silo’d and often fragmented businesses that need to make sense of their innovation energy.

The influence of socio-spill on social networks

I just arrived in Liverpool, UK from Madrid, Spain – it is the ultimate in language and cultural difference. I’ m still surprised by the lack of English speaking people in business (mainstream retail) in Spain. It made a bit more sense after reading an article written by a teacher where he explains that schools teach English as if it is a dead language where Spanish is the only real world language. Where does this leave the younger generation in a region like that? Will it isolate them more as communities form that only interact in one language…

This is the interesting thing about globalization and spillover of design practices; the airport design, vehicle design, clothes, beverages, electronics, hotels, credit cards, to only mention a few areas. The world has largely standardized the models, processes and systems to deliver on key globalized designs. Is language the last frontier of defining uniqueness in this over standardized world (Europe even has the Euro currency as a standard)? Maybe some of the next items to standardize include; language as English, power plugs and adapters, world level identity system (the passport plays this role currently). This discussion is taking us into platforms; check my post on Platform Operating Models.

soc123

Component level activity refers to the individual that uses various socially enabled methods and technologies to either enhance or restrict social integration. (cognitive event that motivates a person to want to connect; social pressures felt if person does not participate)

System level activity is the first level of interactions of human, machine and other integrated humans. This is where social networks start to make an impact as connections increase. (Disparate use of E-mail, SMS, IM, Phone, …individual use of Facebook, etc)

Eco-system level activity is the activity that describes interactions as they occur between social movements (Facebook, Myspace, Bebo, Friendster, Blogger, WordPress). Check this service to subscribe to this blog.

Eco-structure level activity occurs when an entire generation is affected by the adoption of the human-tech-social integration and where this socio-adopted attitude now also spills over onto other generations.

So, there is a generation that is active in creating content on social networks, where an entirely different generation reads and absorbs the content with (currently) completely unknown results. Politics are affected as much as business by younger people as is expressed by Wired in this article. Where is this taking us if highly opinionated youngsters rule a large portion of the socio-integrated opinion space?

Do the informal rules that apply to these networks restrict the freedom of expression amongst socio-integrated groups? Look at this comment from an author discussing Nietsche, Hagel, etc on the reasoning of freedom – “Rather, the connection is understood to be an accidental relation obtaining between mutually independent existences. Plainly put, a thing is unfree, or subject to necessity, when it is bound to something that is external to itself and thus irrelevant to making it what it is. Such an external bond prevents the thing from being self-determining, and so from being free.”

Look at this line of reasoning – One of Hegel’s examples is the planets: “all are connected in a system of orbits, but at the same time this connection does not make them what they are; each planet is the planet that it is, all by itself, and its participation in a system with other planets is an additional feature, external to that which makes it what it is.9 Mars would still be Mars, in other words, even if Venus did not exist, and thus the bond between their orbits involves the two in a relationship of necessity and external determination that restricts the independence of both.” The earth relies on the stability of the traits of moon and sun, etc for its sustained existence. What are the stabilization factors in social networks?

Cycles of convergence and divergence

There are cycles of convergence and divergence in the computer, consumer electronics, media and other industries that are confusing the general understanding of “convergence”. Convergence is seen as the act of adding more and more features to a particular class of product to the point where another class of product is created and the existing class is rendered obsolete. Service industries also go through cycles of innovation that get convergent cycles of consolidated business offering to the point where “breakups” are caused due to disruptive innovation models. Prosper is a divergent banking (from traditional banking) model, but convergent in the social media world (converging banking into social media phenomena).

Al Ries wrote the book “The Origin of Brands” a few years ago. It is a great book that uses the metaphor of evolution to describe how brands are developed.

Looking at Apple/Microsoft or the other technology companies that are now global businesses, they all started with their particular focus and over the years “feature load” and “competence extrapolations” allowed these innovative teams to create a range of exciting products with a cult like followings – even if their products do not fit the initial business idea. Their products have little to do with the computer business and more-and-more with media and lifestyle; look at Apple’s iPod etc, Microsoft’s Zune, xBox etc.

We can look at Aristotle’s Concept of the Prime Mover; The concept of movement or change is eternal – there cannot be a first or last change. “If nothing acted on A, then it would stay the same and not move. So if A is moving it must be being moved by B, which in turn is being moved by C, and so on.” But for us it means that as we go through cycles of convergence, competitive forces increase to the point where the converged concept implodes.

For business strategy it means this:
1. Understand the landscape
2. Reason about the cycles of divergence and convergence that created disruptions
3. Map your existing and future strategies onto this cycle
4. …execute…

Sounds simple? This is one of the most complex things to grasp in a modern business.

Case of Standard Bank: social media news on the go

Standard Bank has created a social news platform for their Pro20 series. It has the works; video, photos and the ability to make comments. Check this comment:
“By including an innovative social media strategy in this year’s Standard Bank Pro20 marketing campaign we believe we’ll reach a wider audience. More importantly, social media channels like blogs, Facebook, Twitter and YouTube mean that the supporters can actively get involved and create their own content.” – Bellinda Edge, Senior Manager, Direct and Online Marketing, Standard Bank

Looking good! It is a great step for banks to enter this field as people often become critical (or over-critical) about the implementation of social media concepts. Leaving it up to an open audience to rank and rate videos, pics and other media related artifacts can definitely win you some points with the “socialists”. The concern in South Africa is that the uptake of social networks by the mature individual (well, over 30/40’s ;- ) is still slow. They do however become great spectators while others (the younger ones) participate.

Banks like Macquarie has a different take on media where they use a controlled environment called Macquarie Digital. Well, it is different in that Standard Bank has launched their social media initiative in the context of sport. The concept of social media press releases is a recent phenomena and still needs some time to settle down and find its place in the overcrowded media landscape.

FutureMedia2007.jpgThe Future of Media Report 2007 is a must-read as it provides great insights into the media landscape. Look on page 12 for some more information on the Macquarie Media business. The report also unveils that personalization is one of the major drivers of advertising value.

Business Model Emergence and the Open Source World

We are running the SystemicLogic Open Source Open Day event today. I’m reminder once again that the focus of Open Source Software is fragmented and misunderstood by many of our clients. The business models used by the various companies that create open source related software are under development and the scope of operation and commercial activity under scrutiny. Based on my recent (high-level) research, the following trend map was created; two major forces are influencing the open source world namely, category of competition and business ecosystem style. The following map presents some examples of open source examples (I will be discussion more products and business models over the coming months).

Competitive Category: Style of delivery and model used in the identification of ideas and development of overall software product. Traditional communities rely on a large following that support its cause.

Business Ecosystem: Open source companies rely on either donor based commercial assistance of designing business models that earn income via support and subscription models. Donor based business models rely on the market to contribute to the community, where commercial business models use a “community edition” version of software.

Where does all of this fit while Google works on Google docs and Google calendar? Can we remove all “running” software from the desktop and become virtual?

The Free Software Movement and Open Source Communities rely on some Free Love from time to time. I’ve found that the open source community is loaded with emotion and social movements.