Alistair Davidson on Business Strategy

US Companies for Sale
================
With the US dollar in decline, a massive structural imbalance in trade and a huge Federal deficit, and the US economy highly dependent upon stimulation from lower interest rates, the US dollar can be expected to remain low. It has dropped since my first comments several months ago about the decline of the US dollar.

The US dollar has declined the most against the ECU with many Asian countries tying their values to the US dollar.

The inevitable conclusion is that the US is about to experience a surge in takeovers by European companies in the next year.

The reasons are simple. Any time a company become less expensive, new suitors emerge. For European companies, American companies now look weak and inexpensive. This acquisition activity occurred in the UK when the pound was weak, and in Canada when the Canadian dollar declined. The US is no different.

However, one difference about competing in the US is that foreign companies have a high rate of failure in the US. So buying a North American company requires North American expertise and a much better understanding of the pitfalls, opportunities and strategies for success in the highly competitive US market. Daimler-Benz's purchase of Chrysler, which has led so far to a major deterioriation in shareholder value shows how, at least in the short term, the US market can be treacherous. And recent research by McKinsey suggests that even if you have had successful acquisitions in the past, past success is no predictor of future success.

For the smaller or medium sized company, successful in their own small domestic market, the big surprise about the US is the brutality of competition in the US market. The reasons are fairly simple.

1. In general, larger markets support more niches. So, as a result, competitive analysis is far more important in the US than when making acquisitions in smaller markets. In smaller markets, there are typically fewer competitors and competitors are more generalist with more dominant market-share positions.

2. The US market is highly legalistic. Lobbying, regulatory approval, legal suits are typical weapons of warfare in the merger and acquisition game.

3. Barriers to entry in many US markets are very low. And in markets like high tech, capital access is very high, often negating first mover advantages. And the US has few barriers particularly at the low end of size ranges that protect small companies from international competitors.

4. The US market is very sophisticated. Information about companies and their performance is as much an attribute of the products and services they provide as the actual product/service itself. Marketing and public relations are key tools in establishing value.

5. With so many competitors in most US markets, being foreign owned is often a disadvantage. While there are companies that have thrived based upon their international reputations, the general trend in the US market is for foreign ownership to be considered a disadvantage.

6. Strategy is far more important in the US market than in the most of the home base markets for acquiring companies. In the US, there is typically a greater variety of business models and experimentation than in smaller markets.

So, if you are thinking about acquiring a US company, talk to us about your goals. Eclicktick Corporation can help steer you in the right directions. We can help to:

1. Identify target companies;
2. Evaluate target company strategies;
3. Assist in strategic growth assessment;
4. Help you work with local financial institutions;
5. Facilitate integrated strategies that take advantage of your own strategy and that of the purchased company.

For more information, please contact Alistair Davidson at +-1-415-225-8610 or e-mail at alistair@eclicktick.com.

Alistair Davidson
www.eclicktick.com

Improving IT Performance
Copyright Alistair Davidson, 2003. All rights reserved.
Draft 1. November 2003

Executive Summary
==============
Most companies do a pretty bad job of managing IT projects. And most software projects don’t actually deliver on expectations. So what do you do? It’s hard to avoid software and you can’t delegate everything to outsourcers.

Let me suggest that there are ten important steps in improving the value you get out of information technology.

1. Hire the best people you can find and overpay them. Get rid of bad IT people quickly.
2. Get rid of old projects faster.
3. Do fewer projects.
4. Pick projects with synergy. Pick people with synergy.
5. Don’t accept conventional wisdom. Seek extraordinary value.
6. Focus on iterating.
7. Measure outcomes and people frequently.
8. Don’t let budget cutbacks prevent experimentation. Encourage and permit small failures.
9. Classify projects and manage the different categories differently.
10. Manage the mix of in-house capabilities and outsourcing.


Hire the best people. Get rid of bad IT people quickly.
======================================
If there is one piece of advice about information technology that is critical, this first rule is it. Good people are passionate, knowledgeable, annoying and they get things done. One good person is worth ten bad people.

These kind of people are few and far between. Overpay them. Train them. Send them to conferences and you will be rewarded many times over. If you can’t afford to pay them right, get rid of other people.

Bad IT people subtract value from the good people, so you are better off with a few good people than a large team of people with mixed skills.

Get rid of old projects faster
====================
If you don’t get rid of old projects quickly, then you end up with an expanding and expensive IT budget. You get distracted by having to maintain the old code and projects. Be ruthless.
Do fewer projects.
Most software ends badly. Do what you do well. If in doubt, don’t do it. If you have to do it and you don’t have the resources, buy something off the shelf. If you are programming, license something already done.
Pick projects with synergy. Pick people with synergy.
Most organizations have lots of projects. Yet, they don’t look for synergy between projects. If a project can solve several problems at the same time, it is generally a good project.

In the same way, the composition of project teams is key. Good projects managers and good teams are rare. If you find them, keep them. Don’t break them up. Don’t lose them.

Don’t accept conventional wisdom. Seek extraordinary value.
===========================================
Conventional IT practices tend to focus on the technology side of IT. Today, information management is such a pervasive issue that projects should be selected on their business outcomes. They should be optimized for their business outcomes and impact upon the organization’s strategy and performance.

But there is a key assumption here often lost on managers. There is an extraordinary difference between good projects and average projects. In my experience, the difference is at least an order of magnitude (10X or more) in outcomes. But if you don’t seek such outcomes, you will not get them.

Focus on iterating.
=============
Information technology is inherently risky. The larger the project the riskier it is. The more novel the project, the riskier it is. So, phase the project. Don’t overpromise what you are going to deliver. Deliver small. Then expand. Learn what customer or users need. They don’t know what they want, can’t tell you, are probably wrong if they do tell you, so be cautious. Assume iteration is always required.

Measure outcomes and people frequently.
==============================
Long projects are risky. Frequent evidence of performance is critical. The only way of delivering on time is to select staff, technologies and suppliers that will allow you to keep in touch with the progress of the project. Any project that has long lags between work and measurement is likely doomed to failure. In software development, architectural strategies should be selected that force frequent demonstration of success.

If you hear that you have to wait until the pieces can be brought together at the end of the project, you are in trouble already.

Don’t let budget cutbacks prevent experimentation. Encourage and permit small failures.
==============================================================
Software is about learning and improving. There are two elements to learning. The first is learning about a technology and what is necessary to make it work. The second is about learning what customers and users do. Small experiments are often exceptionally valuable.

Technology expertise and user knowledge don’t emerge in a vacuum. You need to manage how you are going to gain and document such knowledge.

Classify projects and manage the different categories differently.
==============================================
Not all IT projects are the same. While we can argue about different types of classification schemes, some that I use include:

1. Experiments.
2. Platform development.
3. Application development.

Platform development is always risky. A platform development project often requires dealing with a new technology (i.e. the platform on which you will building applications), so using outside expertise to educate your internal staff is often critical here.

Another scheme I use is

1. Strategically critical
2. Strategically important
3. Maintenance
4. Compulsory due to regulatory requirements.

The resources put into each vary and each group of projects should be prioritized differently. Mixing them together in your prioritization will often end up causing bad business outcomes.

But it’s also important to look at synergy between the categories. Current Sarbanes-Oxley requirements can also help improve the management of the company if done well. You can turn compliance activities into a source of performance improvement if you are smart.

Manage the mix of in-house capabilities and outsourcing.
========================================
I once interviewed customers who had been implementing information warehouses and asked them the question: “Having implemented your first information warehouse, how much do you think you would save if you were starting from scratch and knew what you now know about the process of information warehouse development?”

In most cases, the answer was that they believed they could save 50%. What this means is that using knowledgeable suppliers with large and risky projects is critical. You can pay them their margin and still benefit with lower costs.

The challenge of course, is knowledge transfer. It’s critical to formally manage the knowledge transfer and not becoming dependent upon the external supplier unless you are proposing a strategic partnering arrangement with the external supplier.

=================================================================================
Alistair Davidson is the author of two books (Davidson, Gellman and Chung, Riding the Tiger and Turn Around! A free ebook available at www.eclicktick.com) on best practices in information management. He has developed numerous projects, developed first of breed technologies, helped turn a financial institution into a best of breed information technology organization, has turnaround failed IT projects and software companies. He has an MBA from Harvard and has been the CEO of five companies and has extensive CTO/CIO experience. He can be reached at www.eclicktick.com or emailed at Alistair@eclicktick.com

For more articles on outsourcing and IT strategy, visit www.eclicktick.com

Improving Government Performance
=========================
How about managing government for results?

Step one in turning around California. Changing the TAO of government



Author: Alistair Davidson
Draft 4
Dated October 22, 2003

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Bio: Alistair Davidson is a performance improvement consultant who has been CEO of five companies, done turnarounds and also worked briefly in Canadian politics. He heads a California based boutique consulting firm, Eclicktick Corporation (www.eclicktick.com). His blog is alistairdavidson.blotspot.com.
----------------------------------------------------------------------------------------------------------------------

In the world of business, there have over the past 35 years been a conflict between the “financial types” (FTs) and the “capabilities people” (CPs). The same conflict seems to be crippling all levels of American government today. California evidences just such a conflict between the short term budget cutters and a longer term view of the state's needs. New Zealand's reforms in the 1980s may provide a useful roadmap for the way out for California.


The FTs believe that maximizing shareholder value is the “be all and end all” in running companies. In government, this view is typically shared by those who wish to downsize government and cut back government spending. For these “financial types”, most government spending is bad and less government means a fairer society and higher economic growth.


In contrast, CPs believe that financial results such as shareholder value may not reflect the true value of a company. They cite the irrational exuberance of the dotcom boom and the overpayment of executives whose remuneration skyrocketed during the recent boom.


In government, CPs tends to more concerned about the outcomes of changing spending levels. Does healthcare performance improve if we spend more money? Do children do better in smaller classes? What kind of pollution regime produces lower levels of pollution? Has social equity changed from a tax reduction? Does giving illegal immigrants produce more or less carnage on the roads?


The problem with these two contrasting views of the world is that to some extent they are ideological, though not necessarily a straight mapping with left wing and right wing. Nonetheless there is often more agreement on goals (e.g. higher income, better economic growth, better healthcare outcomes, lower carnage on the roads) than there is on methods (e.g. vouchers permitting choice vs. state funded schools).


Reframing Political Debate
==================
The recent recall of Governor Grey Davis in California represents dissatisfaction with the state of California (pun intended). California is about as difficult a place to govern as one could imagine:


- 70% of spending has been pre-specified by voter initiatives
- the tax base is structurally unsound-
budgets have to be passed by a two-thirds majority of the legislature, which requires getting political opponents to agree


All in all, it's no surprise that California, has, as a result, found it difficult to balance its budget. When the cyclical economy downturn, plus a regional economic downturn combined with an energy crisis and the transfer of fiscal pain to the states by the Federal government all hit at the same time, the inflexibility of California spending restrictions revealed the weakness of its governance approach for all to see.


As a result, the current debate about improving California government is unlikely to succeed without a reframing of the political process. Merely cutting spending is likely to be contentious with a Republic governor and a Democratic majority in the California legislature. Instead, something not discussed in the recent recall, political innovation is required.


The Way Out
=========
So what's the way out of the box? In testing an early version of this article on a group of leading business strategists, the Board of Contributing Editors of Strategy and Leadership magazine, the feedback was quite varied. There was little consensus. Some lent to the FT school: Cut spending. Restrict spending growth. Others more CP in view said: The problem is very complicated. There are no clear and easy answers.


But in this lack of consensus lies the answer. No one knows. And there are three reasons why we don't know. And even if we think we know, we don't agree. For short let's call this the TAO of government - Technocracy, Accounting and Outcomes. In other words, let's recognize government is complicated, measure using unbiased third parties and refocus the political debate on accurately reported outcomes.


Technocracy
=========
Technocracy is the T in TAO.


The first problem is that government is complicated. Determining what combination of programs and spending produces results is very complicated. And often it takes time and expertise to figure out. You have to be technocrat or specialist to understand the issues and policy choices.


International comparisons are often useful, but few voters have the interest to master such knowledge and debates.


The net result is that modern government is often about understanding what strategists call feedback loops or systems. What are the consequences of a program both short term and long term?


Both left and right wing talk about these issues. Milton Friedman, for example, has argued that rent control reduces the availability of low cost housing for the poor by reducing the incentive to build new housing. More liberal social activists focus on the impact of rising rents on reducing housing availability. In reality, low cost housing is much more complicated question affected by issues such as transportation access, tax deductions for mortgages, and the political voice of the middle class vs. the absence of political voice of the poor.


Both left and right wing presumably believe that low cost housing available to house the poor is a good idea, but they have not come to agreement on the system effects of policies. Political debate around the issue is often sterile, confusing and so simplistic that is become the political equivalent of “branding” -- a new and improved soap powder - new, but the value of the improvement (and debate) perhaps marginal.


The net result is that superficial debate about improving outcomes often does not contribute to informed political debate. Improvement in performance requires improvement in the interaction between programs and policies - a complex issue to talk and debate, let alone vote on.


And if the creativity and motivation of those in government is to be harnessed, then three issues have to be addressed. First, the lazy and the incompetent need to be fired, typically a difficult if not impossible problem in government. Second, more flexibility needs to be allowed in government. And, third, success of individuals needs to be measured over a time frame that allows for success to occur.


Accounting and Measurement
=====================
A second key element, the A in TAO, is the unfashionable, and, dare I say, dull topic of accounting and performance measurement. Without good accounting, government performance is not really debatable in any meaningful way.


The problem here is straightforward: politicians almost always lie about the numbers. There is really no debate about misrepresentation here. Yes, there are fluctuations in forecasts, but fundamentally politicians, “spin”, lie and misrepresent their numbers, their spending, their revenues and the expected results.


Now the assumption in a democracy is that you can “throw the bastards out” if they lie, but in a complicated world, people forget or get confused unless the lie is large. And if the lie is large, modern media can often be used for distraction in the short term.


Any decent reforming politician needs to be evaluated heavily on one important decision: that is, committing to transfer the accounting, forecasting and reporting of government expenditures, revenues and outcomes from the political process to neutral and politically independent third party.


What this would mean is that just like a public corporation, there should be standards controlled by neutral third party institutions for evaluating government spending and outcomes of policies. Governments should not be permitted to reclassify their expenditures for exactly the same reasons that most American are upset about the corporate malfeasance of Enron, MCI, Tyco,… the list keeps going on.


The quality of government accounting is so low in the US that if governments were private sector companies, government chief executives would go to jail. Balance sheets for government are rarely produced except in rare countries such as New Zealand. A simple distinction between the operating expenditures of government (what it takes to deliver services today) vs. the cost of investing in infrastructure like roads, bridges, etc. is almost never presented accurately. Contingent and future liabilities such as guarantees or leases are also misrepresented on a regular basis.


In the same way we have a court system for keeping government and legislators honest, we need the equivalent accounting role institutionalized. If the numbers are not presented correctly and, as a very minimum consistently, how can we have an informed democracy?


Outcomes
=======
The final part of the TAO is O for Outcomes - the results produced. In business, the state of the art in measurement and performance improvement requires reporting and measuring a basket of outcomes or a “balanced scorecard”.


In business and government, there are typically four types of outcomes:


Financial outcomes e.g. increase in shareholder value; (in government, the equivalent analysis is typically about deficits and share of the economy).
Customer and market outcomes, e.g. market share, repeat purchase rate, customer satisfaction; (in government, measures might include economic growth, bankruptcies, job creation, crime rates, education quality)
Process outcomes, e.g. mistakes made, quality levels, throughput, capacity utilization; ( in government, cost of delivering services, quality of services, range of government services)
People outcomes, e.g. skill levels, productivity, number of skills trained for (in government, outcomes might include employment levels, income per family, infant mortality, life expectancy, literacy, educational scores, percentage educated to different levels, infection rates).


Few would disagree that performance outcomes should be the focus of government and political debate. Some economists in the past few decades have invented short-form performance measures such as the “misery index” or the sum of the inflation rate plus the unemployment rate. But in reality, government is too complex for one simple measure like the misery index or for only one basket of performance measures.


Many recent governments have started to use scorecards for comparing school performance. Scorecards need to exist for programs, government departments and governments in general.


But let's be frank, scorecards are complicated. They vary by area of government. They are different in different states. The people who are going to seek to improve scorecards should be those being held accountable for performance improvement. Voting should be refocused on outcomes not spending. This places the TAO of government directly against the voter approved proposition approach in California. Voters should seek to approve baskets of outcomes not spending patterns.


Just as importantly, some programs should not be evaluated on a short term basis. A key issue in performance improvement is determining the period of evaluation. You don't evaluate a bridge with a forty year life on a four year political term. However, the consequences of delayed maintenance seem to be important to report, as lowered maintenance often trigger much more expensive later costs.


What this means is that an improved voter proposition process should (1) be voted on as a collection of outcomes not based upon one spending restriction, and (2) different parts of government should have terms that are consistent with the planning life of their spending.
Decisions about infrastructure and current expenditures need to be accounted for separately, but it's not clear that voting on the two should be separated. Single issue propositions should be discouraged as they tend to prevent consideration of their consequences and outcomes. And in the case of an area like road maintenance, postponement of routine maintenance can have disastrous long term consequences where future reconstruction costs rise much faster than the short term savings.


Taking a Page from New Zealand's Playbook
===============================
In the 1980s, New Zealand ran out of money as a government. It was effectively bankrupt. The US is currently fiscally unbalanced and some would say headed in a similar direction. Certainly, California's budget $38B deficit verged on bringing the state to bankruptcy.


But whether you believe the US will incur huge difficulties in the future as a result of tax cuts, Social Security spending obligations increasing due to demographics, the breakdown of the US medical system or not, presumably we all, as voters, agree that more effectiveness in government spending, more transparency in accounting for spending and outcomes is a good thing.


New Zealand did what many over-burdened governments have been forced to do. It sold off state enterprises, which became more efficient as a result. Most right wingers would have no objection to such sales.


But New Zealander went one stage further. They changed the way that government ministries were run. The eliminated the constraints upon government ministries and demanded that ministries table in Parliament the outcomes that they proposed to achieve and their total level of spending over a multi-year period. Specifying outcomes is likely something that both left and right wing might be able to agree on.


New Zealand is, therefore, pretty much the opposite of California. In California, voters constrain the spending patterns of government. The political process is superficial and overwhelming. There is little connection to outcomes in the way that government spending is managed.


The net result is that the while the propositions approved by Californians express the frustration of Californians, they are difficult to untangle if they don't work out. Getting rid of legislation or restrictions like Proposition 13 that limited the tax base is always harder than passing new legislation. The net effect of many individually good propositions has now so constrained California government that it is inefficient. And we can all agree that outcomes are what we seek, not spending patterns.


International Benchmarking: Lessons from the Ford Taurus
==========================================
When the first Ford Taurus was introduced in the 1980s, it was instrumental in the turnaround of Ford. A key element in the development of the Ford was competitive benchmarking. Ford bought, analyzed and tore apart over 20 leading competitive products. And research on innovation suggests that basing new products on global and success patterns often leads to superior performance.


In the same way, American government programs and spending need to be severely benchmarked against international alternatives and such comparisons allowed to frame political debate and delivery strategies for government programs. Surprisingly, I find this an unpopular idea for many Americans. Many, particularly the well-off, have concluded that America is the best country in the world and, therefore, has nothing to learn from other countries. Every time, I hear this reaction, I think one word “hubris”.


In contrast, a more humble Japan transformed itself from a poor agrarian nation into one of the most powerful industrial countries in the world over the past century by consciously studying and selectively imitating the best aspects its more modern competitors. And while Japan has stumbled in recent years, it is stumbling for reasons of entrenched interest and power, something the US shares today.


Let me argue that America, while an immensely successful country in many ways, could also benefit from comparing its approaches to other countries governmental programs. Normally, political debate tends to end up with code phrases such “Canadian socialized medicine” rather than more informed analysis of expenditures, programs and outcomes. How are Canada and Germany able to spend less and produce better healthcare outcomes? How do other countries encourage higher savings rates?


Having outcomes in the US compared to outcomes in other countries - something that certainly happens informally but mainly among the technocracy - should influence mass political debate more constructively.


Conclusions
=========
Changing the TAO of American politics does no more than formalizing trends that already exist informally in American society and government. The US has been a bold political experiment since its founding in 1776. It has frequently demonstrated the value of managerial innovation in its economic history.


The US has benefited from immigration since its founding, in creating the unique culture of the American melting pot. Imitating the best ideas in the world is something that entrepreneurs do all the time. We can do the same with government programs. Experimentation in improving government management follows in a long tradition of American innovation.


There are many ways of going wrong with any new approach to government, but without reframing government to focus upon outcomes and permit flexibility to those operating government, little in the way of improvement can be expected.

Bad User Interactions or Why Geographic Information is Important
------------------------------------------------------------------------------------
The web is fascinating, chaotic, confusing and filled with examples of bad user interaction design.

In the days of mainframes, hierarchical menus were the bane of users. And if you have forgotten how bad they are, all you have to do is look over the counter of reservation agents at the airport or bank tellers. How many times have you heard the new employee asking an older employee: "Is it pF7 followed by PF3 to look up the account balance?" or some equally obscure key combination?

A classic problem that has reappeared on the web is the need to descend hierarchies to find what you are looking for? The problem exists everywhere. It takes numerous clicks to descend Yahoo's hierarchy to find a suppplier. And frequently you have to back up to go to a different leaf of the tree.

And from a use-case perspective, it's even uglier if you want to find two suppliers. Then you have to descend to two different leafs at the end of different trees.

In a more competitive Internet, where quality of user interaction is important, more companies are going to have go the route that firms like iiMap (www.iimap.com) have gone. (In the interests of disclosure, I sit on the company's board of advisors.) They start off with the question, "What does the user want?"

In many cases, the answer is that the user wants to know about location. Where is my closest supplier? What is near me?

In other words, I am here. What's nearby? This is revolutionary for the Internet, but actually it's returning user interaction design back to the early days of windowing. The breakthrough represented by windows and graphical interfaces, made popular by PARC, Apple, and eventually Microsoft, was that the grammar of interaction got simplified.

Object -- Verb - Action

I could point to a location, get a list of verbs or functions and immediately see the result.

Contrast the grammar to

Verb - Verb - Verb- Verb - Verb - Action - See result

in a hierarchical menu scheme on a mainframe or in Yahoo

Category - Category - Category - Category - See result

About the only simplification represented by Yahoo is the almost universal understanding that clicking or double clicking causes something to happen.

In a world where interactions need to minimized for commercial, customer satisfaction or user interface constraints (e.g. with cell phones or PDAs), simpler interactions are needed.

I am here.
I want a restaurant.
Show me what's close.

might be a prototype of such an interaction.

Interactions can be voice, keyboard or pen driven, but behind the interaction is the need to use geographical information to link information stored in other ways.

Alistair Davidson
www.alistairdavidson.com

The Future of Data
------------------------

Data used to sit in islands of information.

Today networking has caused organizations to want to connect information. Much of information management is concerned with managing the portfolio of information sources, processes, projects and outcomes of old and new systems and changes.

Middleware, object oriented programming, software and design reuse, integrated ERP packages, portals -- all target the objective of tying together information in many places. Sometimes the tying together is done in a central database or information repository. Sometimes it is done dynamically and on the fly using newer middleware technologies such as application servers.

But there is another parallel trend occuring - the increase in the amount of digital sensor data. Current hot areas include:

- digital sensors
- RFID (radio frequency identification)
- barcoding (with a new standard in bar codes about to emerge)
- locational capabilities in cell phones and automobiles
- track and trace capabilities in parcel and letter shipment

It's an interesting question to think about what the world is going to look like with an explosion of such data.

The first key insight is that the amount of data in the world is likely to explode by several orders of magnitude. What this means is that all our assumptions about the appropriateness of current technologies is likely to change.

Second, in a world filled with digital sensor data, managing the difference between useful and archival data is not just a question of good economics, it's required for performance.

Third, it's likely that scientific and business breakthrough performance will require drawing conclusions about highly granular data. Figuring out such conclusions will likely require a lot of smart people, sophisticated analysis tools and a different class of information warehouses. These new information warehouses will be ones that can manage archival data well, ones to which software agents can be attached, because the sheer volume of data will be too large for human beings to deal with.

An example of this new class of tools is Alacrity Results Management described under Performance Management at www.eclicktick.com/id90.htm.

Alistair Davidson
www.eclicktick.com

Consumers Leading the Way
------------------------------------

Last year I predicted that the consumer area of digital technology would be a growth area. My logic was that as in the early days of CD-ROMs, home users had more reason to upgrade to new technology than businesses. And for a period of time, home users had better machines with CD-ROMs than you typically found at the office.

We are going through the same process again of course. Drivers of this process are the digital camera and its unending appetite for storage, the digitization of music from the popularity of downloaded illegal music and the emergence of good legal services such as iTunes, Rhapsody and MusicMatch. But if anything, the trend is likely to speed up. My evidence for this includes:

1. Apple's repositioning of itself away from the education market towards the digital imagery and home entertainment market.

2. Sony, Gateway, Dell, and HP all emphasizing the home entertainment market. Each is trying to build on their traditional areas of strength or areas of current investment: Sony with its music and home entertainment equipment, game machines and movies, notebooks and PCs; Gateway with its retail outlets; Dell with its low cost sales channel; HP with a broad array of products and dominance in printers.

3. Microsoft's continued investment in expanding Windows usage with a home entertainment versions of Windows.

4. The explosion of digital camera usage particularly low res cameras in cell phones.

5. Continued growth in digital TV recorders such as TIVO and Replay.

6. Growth of 802.11b and g wireless networks as easy ways of linking up your home network.

In fact, as I sit here typing, my notebook is downloading and playing music off the Rhapsody network and I have hooked up my notebook to my twenty year old stereo.

So while HDTV, huge plasma screens and satellite radio are all interesting technologies, we are likely to go through another period where the consumer leads the technology way in spending.

And in terms of processing power, there are only three things driving me to replace or add additional machines.

1. Digital imagery editing and processing for video and still pictures.
2. Voice processing for dictating longer memos and articles.
3. Running so many applications on my machine that the 512 meg. limitation with my notebook may be a problem in the future.

So for the first time in my life, I am actually contemplating a traditional desktop machine in addition to my notebook for my personal use.

Alistair Davidson
www.alistairdavidson.com

15.2% of Americans Have No Health Care Insurance
-----------------------------------------------------------------
The Census reported today that 43.6M American have no health care insurance.

What are the consequences of this delivery approach to healthcare in the US?

Well, first, it is pretty clear that healthcare is being damaged for all Americans. The evidence is pretty clear:

1. Emergency rooms are clogged. I recently advised a business whose primary product typically involved helping ambulances divert emergency patients to hospital emergency rooms that had room to admit people. Perhaps this is not a good way of running emergency service rooms.

2. Healthcare outcomes in US are not particularly good. Generally they are worse than countries that spend less on healthcare when you measure infant mortality or life expectancy.

3. US economic growth is certainly lower due to the high percentage of the economy spent on non-productive healthcare activities, which are estimated by healthcare economists at as much as one third of the total health care bill or around 5% of the GDP.

4. From a transparency perspective (an important issue in governance for private and public sector organizations), the flow of fund is essentially unmanaged with the corporate and middle class healthcare programs indirectly paying for the health care of the poor and uninsured through free poor quality healthcare to the poor.

5. The strong political voice of older Americans is likely biasing direct medical expenditures without examining the systemic biases that create bad health throughout life.

6. Unlike more interventionist governments in other countries, the US with its fragmented and disorganized healthcare delivery, has done a relatively weak job in marketing healthy life styles. Countries that have examined the return from investment in fostering healthy life styles vs. increasing expenditures on remedial healthcare have typically found the return to be much higher on encouraging healthy life styles (e.g. the 1971 Canadian Lalonde Report). After all, it stands to reason that avoiding treating a disease is typically less expensive than having to cure it. Obesity, smoking, excessive drinking all pretty much no-brainers as policy issues. The US does little in this area and even worse, does not reward those who pursue healthy life styles.

The most common objection I hear is based upon fear. "If we have a single-payor health care system, then we won't be able to get healthcare when we need it. So I prefer to control my own insurance destiny." The problem with this view is that it may appear to make sense personally, but systemically it does not recognize the increasing cost of healthcare due to indirect charges from providing healthcare to the uninsured, which makes healthcare uninsurable for many.

But wanting to be able to purchase a higher level of health care does seem reasonable in a free society, so let me argue that there exist two levels of healthcare need.

The first is the basic healthcare where universal coverage is just more effective and lower cost. Without addressing issues of fairness or political questions of government involvement in healthcare, does anyone really disagree with the advantages of treating children and pregnant mothers so that they avoid problems that will be expensive in later life for society? Vaccinations make a whole lot of sense in terms of the public good. And catastrophic insurance coverage is a traditional role for insurance.

The second type of coverage involves purchasing a higher level of testing, service and comfort. It is discretionary and is no different than buying an expensive car. But even here there are ethical issues. I doubt that most people would find it acceptable for a wealthy person to purchase a kidney from a poor person. But the issue starts to get more complicated in a world of biotechnology where a kidney might be growable. Should we prevent a person from saving up to buy a new kidney if biological materials become products?

I feel fairly sure that biotech and medical innovation is likely to experience lower growth in an environment of medical system collapse. So the systemic effects of the current healthcare system may cause the breakdown of the current research environment at teaching hospitals as they drown in losses from deliving a mandated healthcare to the uninsured, but receive no funding to do so. Voters may become so upset that short sighted politically appealing programs may jeopardize US leadership in healthcare products -- something seen in the parochial stem cell decisions of the recent president.

The problem is that universal coverage only appears expensive to those who have only listened to the superficial analysis of political campaigns, when in fact the US already has the most expensive system in the world. And then those who are covered worry about their ability to purchase discretionary medical coverage under such a system. If the two can be separated, then there may be hope for a higher quality more effective system.

Finally, there is the question of equity. I am in awe of people I meet who feel that society has no responsibility to help people who are born through no fault of their own with poor medical health. They fail to understand that the idea behind insurance is spreading risk and that insurance systems needs wide participation so that you don't end up with only the sick and the unhealthy willing to participate. A market system tends to encourage insurance firms to only insure the healthy. Which is of course why government regulation is unversal in the developed countries in the field of medicine.

Sometimes, these people claim to be religious. I suspect they have forgotten the biblical imperative of "Do unto others as you would they would unto you." not a bad way of talking about medical insurance coverage.

Alistair Davidson
www.eclicktick.com

Motorola Late to Market
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Motorola's announcement today that it is late to market with camera phones and will miss having a presence in this hot new market prior to Christmas may well have been one of the reasons, it is now looking for a new CEO.

The strategic implications of being late to market are actually much more important than many people realize.

Most focus on the cost of lost sales. Perhaps they mention something about the brand value deterioriating.

But I would argue that the real damage from being late to market is that you have fewer opportunities to learn from customer experience. While you are not learning, your competitors are.

And the more you learn from customers, the more input you have for your next generation of product. THe more you can correct errors, fix usability issues, discover opportunities for increasing value, etc.

Those with experience in the new product area and those that have studied success have learned that competiting in the market with the most demanding customers and having international experience in product design improves both the likelihood of product success and the subsequent marketshare achieved.

It seems no coincidence as a result, that firms like Samsung and LG from Korea, Nokia from Europe, and Sony from Japan have out innovated Motorola. Their presence in markets with higher cell phone usage has clearly benefitted them.

Over the years, I have been very taken with the idea of "cycles of learning" or time-based management. In software, there is very little argument any more about the importance of iterative prototyping, or the notion that you should build software quickly, get feedback from users and then expand the project. But firms like the Thomas Group out of Dallas have argued in favor of cycles of learning in manufacturing - small lots and make sure you measure performance so that you can improve it. It's controversial, but the idea is less about small lots and more about what it takes to learn about optimizing.

I have a friend, Sue Rudd, who used to work at Motorola. She made the point to me many years ago that the problem with Six Sigma quality programs is that if you are measuring quality and manufacturing performance, "stopping the production line" will often count against you. An interruption worsens your metrics. She commented that well managed companies try to measure the rate of increase in quality. That takes different incentive programs and often requires investment in new equipment, training and leadership.

Several years ago, I worked with a Japanese firm that had been very successful in Japan providing tools for speeding up the design of embedded systems (i.e. in products like cell phones, PDA, consumer electronics). Their research suggested that over the past 3-5 years, the complexity of embedded systems and the time available for developing them caused the design process to have to be 12X more efficient. It's hard achieving that kind of performance improvement without leadership committed to achieving that kind of success.

Having led projects that improved product development cycles by an order of magnitude, it takes secure manager permitted to make mistakes, and it takes time to improve processes. It rarely happens over night.

Alistair Davidson
www.eclicktick.com