Hal Varian on how the Web challenges managers - The McKinsey Quarterly - Hal Varian web challenge managers - Strategy - Innovation

Hal Varian on how the Web challenges managers - The McKinsey Quarterly - Hal Varian web challenge managers - Strategy - Innovation

Herein I found yet another quote on the very important topic of data analysis for modern corporations. Hal Varian says "I keep saying the sexy job in the next ten years will be statisticians...The ability to take data—to be able to understand it, to process it, to extract value from it, to visualize it, to communicate it—that’s going to be a hugely important skill in the next decades, ... Because now we really do have essentially free and ubiquitous data. So the complimentary scarce factor is the ability to understand that data and extract value from it. "

Although data is free and ubiquitous, many corporations still do not have the habit of storing data about every aspect of their business. Businesses should start storing their history as accurately and completely as they possibly could: how much we invested in this campaign, where did we insert the add, how much more sales did we make because of it, how long did it take to close deals,...Evidence based and fact based management is becoming more important every day. So having the data to support decisions and the ability to interpret the data are becoming crucial assets to stay competitive. Start building your warehouse today and invest some effort in analyzing patterns that may not be visible at first sight. That is a secure source of competitive advantage for the future.

Attention, Synthesis and Communication

I had a "deja vu" the other day when I was having a chat with an old friend of mine, who manages the strategic consulting group of a big services firm. He was complaining that the cost of sales in his organization was too high and that they did not reuse enough other people's experiences. Wow, this sounds so 90's; but still it is so difficult to optimize.

My reaction was to treat it from the attention management perspective once again. Let me explain. Everyone complains that in the Intranets, Document Management Systems, Portals,..., they have way too much information and it's hard to find the relevant one. I said, why don't you force people to do 2 things when they capture the project experience:
1- Synthesize. It's much harder to make it short, because it forces you to get deep in the analysis of why things happened, why you won a deal, ...
2- Write thinking on people who will need it in the future, not for yourself. Force yourself to understand in which business circumstances the piece of content you are creating will be useful.

Of course, then use technology to leverage and broadcast it. They are doing a basic trial and we will see the results shortly.

What's the conclusion of this: one of the effective ways to navigate the information overload is for people to behave like journalists and think of ways in which their ideas can find their way to the appropriate minds that are interested on them.

Information Relevance

As I posted before I believe that we need to be extremely selfish with our attention. One very productive way to start doing so is by ranking the relevance of the information we get from our systems and from our peers. Think of it: do you have someone you trust whom you ask about the best movie to watch? Yes, you have that. And for restaurants and books to read...Now think again: do you have anything like that in your company? Do you have your trusted sources for the best information about your company products, the competitors, your sales numbers,...?

And now think about this: can you rank the relevance of the information in your corporate systems? And can you rank the relevance of different people as information sources related to specific topics? If I can do what?? mmm, so then how do you think you're optimizing your attention?

I was very glad to discover that the most relevant topic at Gartner's Portals, Content & Collaboration Summit in London last week was exactly Information Relevance. And the good news is that the use of Web 2.0 technologies and the combination of automatic and social relevance mechanisms are gaining ground: ratings, social networking, tagging, folksonomies,..., are now present in the discussion and generating great interest amongst users.

The mystery of transaction costs, Information Management and Organizational Design

....or why your company may not survive an era of Google outside and not inside.

The traditional Theory of the Firm used to explain that jobs performed inside the firm implied lower transaction costs than those performed outside. In essence, the firm avoids the necessity of using the price mechanism for performing its actions, and instead it is replaced by the direction of managers. The moment the cost of performing those actions inside the firm is bigger than performing them outside, then that transaction will be performed in the market. Two of the most relevant transaction costs are the cost of finding the relevant information and the cost of coordinating activities.

Today there are two dimensions that have significantly altered the relationships inside the firm and the associated transaction costs: (1) technology and (2) knowledge-intensive works.

1- We've seen the development of IT that has brought interaction costs down to nearly zero in the modern world. Talking to someone in a remote location, or accessing corporate information is today a very easy task. However, the difficulty of accessing the appropriate information inside an organization these days is growing all the time. We've all experienced situations in which finding information outside our company is much easier than finding it inside.

IT and Information Management are today disciplines that play a key role in maintaining the entity of the firm. If Search technologies, Enterprise Content Management, Business Intelligence systems are not effective inside the company, the cost of acquiring the relevant information simply goes to high and the reason to work for a firm looses a lot of sense.

2- Frequently in modern companies, knowledge-intensive complex and value added tasks need to be performed by groups of individuals that have to collaborate. However, the design of the organization does not make it easy to collaborate: silos, departmental walls, make it difficult to collaborate.

If organizational designs do not facilitate collaboration, sharing and interaction, another important cost of transaction goes high and another reason to keep the firm united disappears.

The two aspects mentioned above are probably the biggest threats to most of the modern corporations. I'm reading with interest the book "Mobilizing Minds" that explores some of the above mentioned issues and I hope it Will provide me with some answers.

Edge Perspectives with John Hagel: Unanswered Questions at Supernova 2007

Edge Perspectives with John Hagel: Unanswered Questions at Supernova 2007

In another great post from John Hagel, one can find some very deep questions in the intersection of business strategy and information technology. Willing to see the outcome of the Deloitte institute.

The areas I find most challenging as I have mentioned in my comment there, are the impacts on organizational design of non-equilibrium situations. If companies adopt a "wikipedia innovation model" that requires that products are launched half-baked, and letting others finish them, what are the implications for the firm?

Another area that I find very interesting is the role of companies as talent development machines. I think that companies will progressively become like hubs that attract talent because individuals can experiment with others that they won't be able to find in other places.

Finally, I find that the area dedicated to platform questions would be enriched if the need for Information Management was included. As I've written many times before, we're in our infancy in the way we measure the value of information both from the individual as well as the corporate perspective. SOA based architectures are fine from the technology perspective, but we need more. We also need means to normalize our information inside companies, but much more when interactions abound with external organizations and individuals.

Why customer service is the #1 priority and why it's so difficult to do it right

I found it very interesting that in IDC's CEO priority list, Customer care/service appears as #1. And it's the second year in a row that this is the case.

I've been discussing this with some senior executives lately and here's why I believe this is the case. I find it normal that customer care is seen as a priority, but the most interesting question for me is why it's so difficult to achieve.

Why customer care/service is the key priority? The answer is because bigger competition, means, bigger risk of loosing customers. As simple as that. Consequently, you better not give them reasons to leave. As we have all experienced in most cities around the globe, customer service in restaurants has been deteriorating for some time. Would you change your place for lunch if someone offered a better customer service? I would. Which means that, treating your customers well when there is competition and they do it better, is critical. Take the example to your interactions with your bank, telecoms operator,...And just see how the industries where there is no competition, are the ones where customer service is just poor.

But let's move into the second question. Why is it so difficult to excel on it, or why most companies fail at it? I have come to the conclusion that there are some crucial elements that help explain it:
1- Today, most industries are applying multi-channel strategies, i.e., you are interacting with your bank via web, phone or branch. What does this mean? That the bank has a big nightmare simply keeping track of all your interactions and reacting accordingly. Have you had a conversation explaining to the person in the call center that you already explained her colleague one week ago what you did over the web and the problem has not yet been solved? You get the point.
2- Customers today can know more about your products and those of the competition than your own employees. Again, do you invest time comparing competitive product offerings in the web before deciding for a mortgage or an investment fund? What exactly is the value you get from the bank employee?

What does this mean. That companies are much slower at adopting best practices to manage customer information wisely than their customers are at adopting the most convenient channel. And also, that employees' knowledge evolves slower than customer knowledge because obviously the second has a vested interest.

The future of IT Professional Services

Big Blue Wields the Knife Again

In a very good post talking about IBM Services business, Steve Hamm provides some interesting observations about the evolution of IT Services.

IBM remains the #1 services firm with a $48 billion/year business, but it's quickly loosing ground to the Indian competitors. Indian companies are delivering 30-40% quarterly growth while they maintain operating profits in the region of 25%.

The Indian model looks very robust and, according to analysts their exports in this industry will grow from $31b last year to around $60b in 2010.

How are other companies approaching the growth of Indian Services firms? An interesting one is the deal between EMC and Wipro by which "EMC also intends to help certify more than 1,000 Wipro practice resources on EMC technologies to support pre-sales, delivery, and solution development".

Is there a strategic alternative for Western IT services firms? Or is the cost factor so powerful that it will continue to press down margins of Western competitors until they are eliminated from the market?

Next Moves in a Global Economy: Podcasts from the 2007 Wharton Economic Summit - Knowledge@Wharton

Next Moves in a Global Economy: Podcasts from the 2007 Wharton Economic Summit - Knowledge@Wharton

Today, driving back home I was listening to one of the podcast available in this page from the Wharton Economic Summit. It was an interview with Shellye L. Archambeau, CEO of MetricStream and she was talking about the balance of life and work. I found her comments very valid and practical; here are some of the ideas:
- When it comes to life-work balance, there are integrators and there are segmentors. Integrators use technology to do things that were not possible before and by doing so, they integrate work in daily life. Segmentors, draw a hard line between life and work.
- Plan for help and put it in the budget. If you want to work hard, have a family and enjoy your life, you'll need some help. If needed, pay for that help and enjoy a smaller house.
- Be open and explicit regarding your commitments with family and work so they both know where is the line.

I personally adhere to the side of integrators. I believe in the augmenting power of technology. I do believe and practice the habit of morphing your working habits and adapting them to your family habits.

As I was listening to this podcast, I was thinking to myself that this is yet another example of attention economy in practice. The way you use your time and how you reach a combination of work and life that fits you, is essentially a choice of where are you extracting the maximum return to your attention. In some moment of the day you prioritize the quality time and attention devoted to your family. In some others the work gets the attention.

Bottomline: Decide what is the value that can be obtained from your attention and use technology to enable it!

Forrester Information and Knowledge Management: The New Software Industry – Forces At Play, Business In Motion

Forrester Information and Knowledge Management: The New Software Industry – Forces At Play, Business In Motion

This blog entry from Forrester brings back the discussion about the business model of the software industry. What is the impact of SaaS in the industry? Are mature software companies forced to increase the contribution of services to their revenue streams more than new licenses do?

The most important question to ask here, I believe is: what are customers buying? Do they buy tools or do they buy the outcome of using those tools?

If you think they continue to buy tools, the traditional packaged licensing model applies. If you think they buy the result of applying that software to their business, then it's not that clear.

The presentation from Michael Cusumano describes in detail the evolution of software firms and the combination of software and services. He appears to detect a rule that applies to software companies: when they reach the age of 23 years old, services (including maintenance) surpass license as the larges contributor to company revenue.

The interesting factor is that, although services can have positive contribution to the net profit, investors typically place too much value on products over services. Is this sustainable?

However, there is a terminology confusion with the "service" concept: do we talk about the services economy, or are we talking about IT-enabled services? One of the most attractive ways of looking at it is: when to "servitize" products and when to productize services.

Whenever you can codify or formalize specific actions, those can become IT executable services, with clearly defined rules of execution. That means you can "productize" a service. Whenever you need to add differentiation and pay for utilization not for capacity, you have an opportunity to "servitize".

The transformation in the software industry is notorious and fascinating. Can this be transplanted to other industries?

How IT works for your brand?

I have posted before about the renewed strength of the Internet as a business channel. The other day I was listening to a conversation from a very important client and I realised about the following: the IT budget for the Internet Site was doing more for the brand of that company that the marketing department budget on itself.

As the FT report I previously mentioned (download here) very well covers, the corporate website is, in some business, mediating more transactions with clients, potential customers, partners and investors than any other channel is. This means that the customer experience that is built by a majority of users is happening through the web. Nothing new, I know. But, the question then is: Is this recognised by IT departments? And, is IT being recognised for this? And how is this changing the way things are done inside companies?

In this particular case, the IT team was participating in strategic committees to design and decide how the brand is protected and the customer experience augmented through the web. They are supposed to contribute with ideas that retain customers and deliver the value they are looking for. In that context, the discussion about creating social networks and using web 2.0 tools was a vivid one.

However, this is not always the case. How frequently is the IT department only implementing what someone has previously decided is what needs to be done? How useless can a discussion be, for example, about creating a customer community online if both (marketing and IT) teams are not discussing as peers?

It would be good to see IT people more frequently participating in strategic corporate discussions. And as a lateral effect, this will be good for IT aswell, as it will force them to think beyond the latest tech buzz and concentrate on serving the customers better.

Synthesizing: the most important talent

With the proliferation of information that we're all experiencing, we all struggle to find ways to extract the essence, simplify and define understandable patterns in the complexity of the world. I'm realising that the ability to synthesize and present the complexity in simple understandable terms is an extremely valuable asset.

When you become conscious of the limited attention capacity that you have, you tend to recognise and reward those who have the ability to synthesize for you. That's why I believe the ideas about the attention Economy and the concepts of Return on Attention are so relevant.

Do the exercise: Can you still sit in a meeting room and keep your attention as someone goes through 50 slides in a presentation? Don't you appreciate when someone comes with the basic points and conclusions and give them a structure that makes sense and allows for decision making?

It would be great if we could start recognizing synthesizing talent in the corporate and media world. Instead of celebrating the exhibitions of deep knowledge, I definitely celebrate more the exhibition of synthesizing. I hope more people do the same.

The McKinsey Quarterly: The new metrics of corporate performance: Profit per employee

The McKinsey Quarterly: The new metrics of corporate performance: Profit per employee

This is a very interesting attempt to connect two worlds: the financial measurement with the work of information/knowledge workers.

If we agree that in advanced economies the majority of the work is performed by workers who contribute with their intellectual capital, it makes sense to then measure their contribution to the P&L of the company.

There are some very clear illustrations in this article that show how different companies compete today. And some interesting questions that emerge. For example, two companies making $1b revenue/year, one with $100k profit/employee and another one $220k profit/employee for sure are having very different strategies. Can two companies in the same sector have so different strategies and both survive? Yes, because in one case they lead by productivity and in the other case they lead by the size of workforce.

I tend to think there is a direct correlation between profit per employee and the degree and intensity of knowledge work performed by the employees. In other words, companies with lower profit/employee will probably rely less on their employees knowledge and more on the company process and automation.

Again, the topic of productivity arises. How is Information Management affecting productivity of high and low profit per employee companies? I'll need to ask the folks from McKinsey one of these days...

Information Architects wanted

An ongoing theme for debate that I'm finding these days is the need of Information Architects within large corporations. If you follow some of the analysts of the IT industry, you will see this mentioned more and more.

What is an Information Architect? If you ask 3 different people, you can find 4 answers. But here's a simple way of looking at it: It is a person that knows how to organize information inside a company so it makes sense and is usable by all users.

This may sound trivial, but as anyone with some experience dealing with IT in large organizations can tell you, it's not. Anyone who has tried to implement a corporate intranet or portal has struggled with the basic difficulties of the problem: the same information has different meanings to different people in the organization. Some people like to see all information organized by customer name; some others by product line; then there is the discussion about the level of detail you use. There is always a trade off between ease of use and completeness.

Seriously looking at the information architecture of your company can be scary: if people are not talking the same language, chances are your systems are not either. The job of the information architect is to make sure that they do. Not an easy task.

I do believe that we need to think more closely about the way companies organize their information. I think this is a crucial part of the sustainable responsiveness and adaptability of corporations. I think however that the debate about information architects is far from easy and poses some fundamental questions to every organization:
- centralized or decentralized rights to structure and organize information?
- manual or automated processes for adding meta data?
- structured and unstructured data reconciliation or separate worlds?

As I've mentioned before I believe the best way to approach this issue is driven by a business purpose. And customer service is a very good candidate: start thinking about ways to improve customer service and you very quickly come to the conclusion that managing information about your customers in a more efficient way can have huge impacts on customer satisfaction. For example it can avoid that experience we all know, of being asked the same question by different people while they pass you to one another on the phone trying to solve your problem.

I can't see how an information architect can design a way to better use information without realy thinking on a business use. However I do see organizations doing e-Government and e-Banking that have made great progress in making all their information talk in an integrated way. And one sees in these cases a progressive merge of Business Intelligence and CRM with Enterprise Content Management and search. Something that makes a lot of sense.

The social life of information

Have you ever thought what was going to be the social life of an email you wrote? Or a project memo? Or a power point presentation?

I continue to be absorbed by this idea of companies as information creators and consumers and the way they manage the value chain of their information. As one continues to observe how large organizations manage it, one comes to the conclusion that there are several types of information assets in every organization (obvious) and that a good way to analyse them is to think about what I would call their social life (not so obvious). No, I don't mean the way this is treated in the famous book by John Seely Brown and Paul Duguid.

Think about the different types of information that exist in your organization: think of bills, invoices, HR resumes, financial reports, customer correspondence, internal project information, investors information,... You can think of all your type of information simply analysing which are going to be the interactions that it's going to have in its lifetime. For example, the accounts payable department is going to be dealing with invoices for a while, and afterwards forget them and archive in some place where they can find them later if needed. You can think that an invoice has a very limited social life: some interactions in a short period of time, and always with the same people. The piece of information will not change: everyone would be able to say that it's the same before and after the experience.

On the contrary, think about the life of the design document of a complex engineering piece. You can probably see it interacting with numerous people, some recurrent, some new, always adding something, always evolving. People would think that this piece of information has changed, it is not the same from the beginning. And herein, exactly lies the complexity.

Because, it is a different piece for different people, everyone would call it differently. That's one of the reasons why in your corporate search system it is so difficult to find things. Because you describe it with words that are very different from the words that others used when they stored it.

When talking about Information Management or the Life Cycle of Information, one should consider this question: what is going to be the social life of this piece of information? And accordingly design the mechanism that will increase it's findability when needed.

This is something I'm working on because I firmly believe that the creation of wealth is going to be increasingly dependent on our ability to create information that is valuable and on our ability to access the information that is valuable for us.

Information and it's value chain

One of the topics I'm researching is the principles of the value chain and their impact to information inside enterprises. Somehow, every company today is like a big media conglomerate: they live for the content they create and use; they base their decisions on it; they invest massive amounts of money to improving it. Better said, in the technology to unbury it, to present it and to store it.

However, very little thinking is applied to the way information is created and used inside enterprises. I'm playing with this idea of the value chain of information compared to the industrial era concept of the physical value chain. Lean management techniques applied to the physical world have produced enormous improvements in corporate performance. Is there anything similar to be achieved in the world of information supply chain?

Calculating, reasoning and perceiving, and their impact in Enterprise 2.0

During one of my workout sessions this weekend I discovered myself remembering a great book I read years ago when I started researching about the impact of Artificial Intelligence and Text Mining. The book is Robot, Mere machine to transcendent mind by Hans Moravec. Not because I was thinking about his visionary theories and predictions about intelligent robots, but because something that I've been thinking about since I read the book: "For machines, calculating is much easier than reasoning, and reasoning much easier than perceiving and acting". I know it sounds philosophical. But the reason this quote resonates again in my mind is because more and more I'm asking myself one question: what is the difference that technology plays in business functions that require pure calculation and those that require reasoning and perceiving? In other words, why technology has been successful in automating transactional interactions, but is only in it's infancy in relation to tacit interactions? This is the most important area of innovation in the era of Web 2.0 applies to the enterprise (the Enterprise 2.0)

Sounds to me that one of the biggest challenges that the business and technology worlds are facing today is the optimization of interactions where humans need to interact with other humans or use large volumes of information for decision making. Knowing how those processes operate and how to optimize them is, in my view, the most important business challenge of our time. I think this is the most important element to be considered in the Enterprise 2.0 world. Of course this has a lot to do with technology (SaaS, SOA, ) but I agree with Andrew McAfee that Enterprise 2.0 should be consider a term broader than only it's software underlying properties.

The reason why this is relevant and related to Moravec's quote and it's connotations for me is the following: what we're seeing in Enterprise 2.0 is a new way of approaching the complex issue of optimizing collective behavior; and the novelty it brings is a combination of IT and social aspects that so far, provides the best results. This way, web 2.0 applied to the enterprise, is helping achieve better results when an organized group of people in an enterprise, need to obtain an understanding of any given topic that spans beyond their own individual knowledge. This can only be achieved when wikis, blogs, tagging and other web 2.0 capabilities, combine the individual pieces of knowledge that they all have to produce a bigger, more comprehensive and better organized piece of knowledge that everyone can benefit from. Think for example on how a large corporation keeps track of all interactions with a business partner or a customer. There is no single individual that has the whole picture; but everyone benefits from a broader picture if it could be obtained. This is one of the reasons, in my view, why customer service is so difficult to optimize, but in the Enterprise 2.0 world it has the most promising of all attempts. (I'll post a blog entry about this topic soon)

This is reasoning and perceiving. And in this areas, for the time being, humans are proving to be more effective than machines. We will see if Moravec's predictions were true.