Monday, December 29, 2003

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 Davidson

Wednesday, November 12, 2003

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 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 or emailed at

For more articles on outsourcing and IT strategy, visit

Wednesday, November 05, 2003

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

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 ( His blog is

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 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?

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.

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.

Tuesday, October 07, 2003

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 ( 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

Thursday, October 02, 2003

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

Alistair Davidson
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

Tuesday, September 30, 2003

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

Friday, September 26, 2003

Motorola Late to Market
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

Wednesday, September 24, 2003

The Sun Also Rises
Sun Microsystems recent announcement of a simplified variable cost per user pricing model for their Office Suite and middleware software is in line with the white paper I developed last year.

The white paper which is available at lays out the problems and approaches to selling technology in a world where there seems to be a surfeit of suppliers and and an absence of appetite for major technology capital investment.

The logic in short is that the world has changed. In the new IT Order,

1. There are many suppliers (Sun is competing with J2EE servers against Microsoft, Oracle, IBM and BEA)

2. There is wide choice of technology (though in the case of OpenOffice, the choice is pretty much MS-Office, increasingly part of the Windows operating environment).

3. Client companies are overwhelmed by the expertise needed to maintain their increasingly complicated systems (ERP, information warehousing and business intelligence, Sarbanes-Oxley requirements, e-commerce, managing the virtual value chain, personal computers, laptops, PDAs, cell phones, CRM, security and authentication, middleware, and the list keeps growing).

4. Business models are changing as a result, towards services, solution selling, out-tasking, integrated applications, and the modular integration of applications.

5. In fact, today, in advanced innnovative services, you are now selling business cases not technology.

6. Increasingly the impact of VoIP will be to permit a new generation of distributed services that combine voice and data applications e.g. distributed CRM.

The challenge for Sun is clearly that historically it has been a "technology push" company selling high end hardware. And while its development of Java has been enormously successful creating one of the largest and most interesting ecosystems around, something the firm often does not receive enough credit for, the challenge for Sun is: "How well can it create a more services oriented, solution oriented infrastructure and ecosystem?"

Sun certainly has formidable competition. IBM with WebSphere, DB2, the VisualAge family of development tools and a vast ecosystem of VARs and ISVs is well entrenched. Microsoft is investing in developing consulting capabilities and broadening its product line to provide core services such as accounting with the acquisition of Navistar and Great Plains.

The future increasingly looks to be a world where solutions are assembled, not built -- so while one can argue that the modular version of the future that Sun has espoused is the right direction -- the question seems to be "How fast can Sun move its culture towards customer service and solution development directly or via its ecosystem?"

My guess is that Sun can't do it by itself, but its strength will lie in certification of solutions that third parties develop. Ironically, for a company that has grown on the basis of proprietary software, the Open Software Movement may contain the solution for Sun. Ironically, IBM's brilliant move to offer Linux on all its hardware platforms represents an opportunity for Sun to become Burger King to McDonald's. Every time someone converts their software to IBM's version of Linux, it is an opportunity for Sun.

So, don't count Sun Microsystems out, IBM's move to Linux and HP's plethora of operating systems may drive software development more into the Linux/UNIX camp even as Itanium based and AMD 64 bit systems take off.

Alistair Davidson

Wednesday, September 17, 2003

Morgan Stanley's Steve Roach on Global Imbalances

I have been reading Steve Roach's economic analysis from Morgan Stanley for some time. His analysis of the balance of trade problems of the US strikes me as prescient. It is also I think consistent with Krugman's comments discussed in yesterday's blog.

Look at, for example, his September 15th column:

Alistair Davidson

Tuesday, September 16, 2003

Why the US Dollar has further to drop

In two of my previous jobs, I was involved in foreign exchange. Forecasting the vagaries of currency movements is always difficult. As a treasurer, the rule is: "If you are right, you are lucky. If you are wrong, you must have been stupid."

But I am going to go out on a limb here. I think the US dollar will depreciate further. Now, let me add the normal caveats - that is assuming no major events come along that make the US dollar a safe haven. But if current US fiscal polices don't change, then it is hard to imagine the US dollar not depreciating further.

There have been a number of warning signs. The first is the huge balance of trade deficit. But perhaps the most major is the current and predicted high level of deficits for the Federal government. Paul Krugman, writing in the New York Times magazine this past Sunday ( describes the elaborate "Tax Cut Con" that right wing ideologues have been promoting for the past twenty odd years or so.

The article is well worth reading and so will the book version be when it is published (''The Great Unraveling: Losing Our Way in the New Century"). I will certainly be buying it.

Krugman does not argue in his article for depreciation of the dollar, but I am going to for several reasons, even recognizing that the US dollar has already depreciated 25% or so against the Euro.

My reasons are as follows:

1. Any rational investor thinking about investing in the US with a high level of deficits and low interest rates will only do so if other international investments are too risky, or if he speculates that US interest rates will go up, or if he thinks American assets can be bought cheaply.

2. So, barring war, disease and destruction outside the US, if you think the US economy is weak, you are better off waiting for the depreciation in the dollar and buying cheaper later. Given demographcis, the inescapable consequence of current fiscal policy is that the deficit problem will get worse not better.

3. If interest rates go up, several things are likely to happen. First, large scale bankruptcies would likely occur due to a drop in the value of the housing market. Second, the value of stocks will not go up as much. Third, corporate bankruptcies will also likely increase. Politically, it would be very difficult to have a housing prices collapse in the US. It is the biggest tax deduction in the US and would upset a huge percentage of the population. In fact, the shallowness of the current recession is due in many regions to borrowing by homeonwers against the increased value of their homes. The US is a strange society. Tax deductions to the middle class make home ownership compulsory and the home becomes unemployment insurance.

Some will argue that mortgages in the US are often 30 year term, but in recent years, many homeowners have found it less expensive to stay short. And given that the fiscal problem is long term, interest rates are likely to stay high if the federal government is borrowing and putting pressure on interest rates.

4. The insanity of the US medical system is such that it costs about 3-5% more of the economy that in Canada and arguably on average produces worse health care. This cost is very large. If the US were able to grow at 3% per year faster, it would be a profound change of astounding proportions. Such a change would be the way solve a large number of today's problems.

But the current consequences of health care costs in the US are that many large and politically important US corporation, such as the Big 3 automobile companies are stuck with health care and pension costs for more retired employees than they have current employees. And their competitive position is perhaps less strong than ever before. Other writers have suggested that there is extensive lobbying going on for reduction in the liability of such companies. If one of them goes bankrupt, then it is can reduce these liabilities.

However, the political and cost fall out of such a bankruptcy would be enormous. So the easy way out, is to depreciate the dollar. By doing so, American producers become magically healthy. Imports become more expensive. Foreign companies have to invest in the US to stay competitive. So some foreign investment will occur and marginally push up the US dollar, but it won't likely be enough to drive the dollar back up given the fiscal and trade deficit position of the United States.

Krugman argues in his article that the "supply side" argument for massive tax cuts is a giant con. He points out that:

1. Americans are not taxed heavily.
2. Tax cuts have and will primarily benefit a very small and wealthy group in the population.
3. Tax cuts have been sold on the basis of economic growth, but for many ideologues, the real issue is cutting back the size of government.
4. The allocation of the tax cuts has been consistently misrepresented with misleading statistics.
5. "Supply side" economics, the notion that tax cuts will stimulate the economy more than they will cost is not considered accurate by economists. He distinguishes clearly between Keynesian deficits to stimulate a down economy and long term structural deficits which just increase the debt burden.

But what makes the economic situation so dire is that the majority of spending that conservatives would like to cut are politically uncuttable. Homeland security and defence are not on the table for the right wing and have received increased budgets. The cost of Medicare and Social Security is going up, predictably. What is left is the 5% of the budget that is devoted to education, transportation and other useful programs. So where will the cuts come from?

The evidence of the Reagan years is that the result is more spending and higher deficits.

Some Predictions Based Upon Canadian Politics
Canada in the 1970s had a very similar situation. The Liberals had used deficits to maintain the Canadian standard of living in the aftermath of the oil crises, which essentially transferred wealth to the Middle East and devalued assets designed for a low energy cost environment.

When the Liberals were thrown out of office in the middle 1980s and moderate right wing government took power under Brian Multroney (whom I temporarily worked under in the Office of the Leader of the Opposition), two key policy changes took place. They were widely contested and may only have been implementable because Canada has a Parliamentary system of government, which gives more power to governing party than the tripartate structure of Congress, Senate and the President in the US.

These two policies involved: (1) massive change to a major piece of the tax code, and (2) the creation of the North American Free Trade Area (NAFTA). These had three major consequences:

1. The change in tax regime rationalized a previously invisible wholesale tax that had the unfortunate effect of making it more attractive to manufacture off shore and import into Canada, than to produce and export from Canada.

2. The goods and services tax or GST expanded the tax base to include services and was a positive compliance system so that if you paid GST and exported, you got back the GST on what you exported. As a result, you had an incentive to collect GST. The more you collected the more you would get back if you exported.

3. NAFTA transformed the Canadian economy and made it more efficient. But just as importantly, it put in place a series of safeguards that allowed firms targeted by political protectionism in the US to have a court of appeal. Non tariff barriers had by this period become more important than tariffs.

So what does this say about the US?

Well the decentralization of power in the US, combined with options such as "Buy a legislator" means that change happens slowly. The US probably will need a major crisis before change occurs. A drop in the US dollar may not be enough, but a crisis will occur if legislators fail to address the problem.

My predictions are that:

1. The US will be forced to pull back from many of its bases overseas. The consequences of the Iraq war will be the demonstration of "Imperial Overreach".
2. The next administration will be more multlateralist in approach.
3. Healthcare reform will come to the US, painfully, irrationally, but it will come. The dollars are just too big and the excesses just too large for this problem to go away. SIgns of this are the recent approval in California of compulsory health insurance for all businesses with more than 20 employees. Once this type of program is in place, single payor systems or simplification of billing starts to become easier to implement.
4. Taxes are going to go up. States will put taxes up first, but I predict a long term trend towards more taxes in the US, perhaps not in the short term, but certainly the in medium term.
5. The dollar will go down. It's the coward's way of stimulating the economy. Better would be to have the US economy investing in creating high value R&D and exporting high value goods and services.

A final reason for worrying about the value of the American dollar is the impact of government cut backs on education. In the long run, a society creates jobs by being able to (1) attract investment, (2) creating centers of excellence, and (3) developing talented and entrepreneurial people (or so I argued in our book, Seizing the Future in 1983).

A major side effect of diverting government spending into non-productive areas such as Homeland Defense and the military is that while some innovations do occur, the majority of the spending is not productive and the cutbacks in education reduce the availability and quality of the workforce. And in a knowledge-based economy the quality of people counts. In other words, foreign policy affects defense spending. Defence spending affects the budget. The budget affects education. Education affects productivity growth and innovation. Lack of productivity and growth and innovation reduces the pie. A smaller pie causes a drop in the standard of living.

It is no coincidence that the Tigers of south-east Asia -- South Korea, Japan, Singapore and Hong Kong all place great emphasis upon education. And many have argued that the GI Bill after the Second World War was one of the most significant social programs ever.

So we are left with a picture of the US, painted ably by Paul Krugman, of a society where political voice has enabled the wealthy to become weathier, where taxes have remained constant for the middle class but where they have dropped for those needing it the least, where education and infrastructure are deterioriating. The US is maintaining its standard of living by borrowing excessively to give tax cuts to the wealthy. And long term investment will be diverted to funding government.

It's not a pretty picture, so I hope my analysis is 100% wrong. But I don't see how.

Alistair Davidson

Tuesday, September 09, 2003

Relaunching Failed Products - Seven Thoughts

One of the most popular topics on the Eclicktick Corporation ( is the subject of re-launching failed products. It's an interesting challenge.

Having done turnarounds and worked with many startups there seem to be some fairly standard rules that are useful.

First, it's really rather tough relaunching a product that you were responsible for developing. You've lost your objectivity. I personally did not realize this until I did my first turnaround after having run my own company for many years where I had designed, architected, marketed, launched and sold the three generations of products and services. When I had to do a turnaround on someone else' company it was very different. Someone else's product or service is far easier to fix than your own. Even Michael Dell brought in some outside assistance to help when his company got into trouble in the 90s.

Second, some products can't be relaunched. The initial concept was wrong. The business model was crazy. The product did not work or did not deliver the benefits. Customers did not want the benefits offered.

Third, sometimes what it takes to turn around a company is throwing out everything you have done. And that is hard to do. One of the most common pieces of advice I give inexperienced entrepreneurs is "Don't do R&D." Distribute someone else's product to learn about the market you want to launch into. Develop your own product or service only once you have experience obtaining revenues from your target customer. Very few take this pieces of advice, but empirical data and experience suggests that about half of R&D is wasted. And I would guess way more (perhaps as much as 90%) is wasted in software and technology based businesses.

Fourth, probably the biggest problem in relaunching a product is credibility with investors or head office (particularly if they are in another country).

Fifth, most of the companies I work with really don't have a very good idea of how value is perceived by a customer. As a result, they delude themselves in to thinking that the customer is "stupid". Customers are actually very smart about what they buy. If you give them a good reason to do business with you, they will. It's no coincidence that the leading cause of product launch failure is inadequate or no market research. Now, don't get me wrong. Some products are launched so you can get market research on usage, but the more expensive the R&D requirements, the more market research you need to do.

Sixth, quality and ethics do make a difference. I am often amazed at companies who think that they are in the business of making money. Actually, you are in the business of creating value for customers. If you create value for the customer, then the customer will allow you to make money. Once you adopt this perspective, relaunching becomes a whole lot easier.

Seventh, value is not just about features. It is about services, perceptions of risk, support for standards, availability - soft things as well as hard.

My free e-book "Turn Around!" has more on this topic at

Alistair Davidson

Friday, September 05, 2003

Scoping, Testing, Prototyping, Expanding and Change

In an uncertain world, it's hard to be right all the time. And we all know that hindsight is often good after you have made a mistake (though hindsight is not always perfect -- people do draw bad conclusions about what went wrong).

When you are tackling a new problem, there is, I believe, a sequence that reduces risk. My examples come from both technology projects and new product launches.

The Four Stages

Scoping is something that good managers do automatically. But even good managers often fail to scope. What I mean by scoping is doing what some have called the "back of the envelope calculation". In technology, most scalability problems occur because the team fails to ask up front the key question: "How big and complicated is the problem?"

An analog in the selling process is "Is this customer capable of purchasing my product or service?" If you fail to ask this question, you can waste a lot of time and effort.

In the new product development area, the key question is, "What is the compelling reason and value that my product or services offers that will trigger a sale?"

Even if you have scoped a problem, you still need to test your idea. In a world filled with technology, one of the best ways of testing an idea, a project or a product, is to ask other experts who have experience in the area.

Actually, asking the experts is easy. Listening to what they say is much harder.

In the new product area, there is no substitute for market research. In fact, market research done badly or not at all is the major cause of new product failure according to major surveys (in about 45% of the cases).

There's a pretty simple rule in life. It seems to appy to just about everything. Large is typically riskier than small. A large information warehouse is a very risky project. Developing a subset of the problem first generates a lot of learning. And it can help you to refine your scoping estimate and validate the opinions of experts.

Just as importantly, most managers can't actually tell you what they want. They need to see something. But whatever you build will be wrong, so keep it small.

And with new technology products, usability studies and user interaction studies are often key to producing a superior product.

Expanding and iterating a project is exceptionally important because this is where the big money gets spent. Best practices in software development involve what is called iterative development. Strategist like Benko and McFarland (Connecting the Dots) talk about chunking a project to minimize risk and allowing the project to be killed if it stops being relevant.

Some writers like Jeffrey Moore (Crossing the Chasm) also point out that as you expand your market, the type of buyer, their needs and expectation change.

Projects and technologies develop inertia. As a result, it is extremely difficult to kill off old technologies and old projects. Encouraging change requires leadership and the willingness to specify the need for a major increase in performance improvement.

All this seems obvioius when you put it down on paper, but we all seem to forget these basics.

Alistair Davidson
Using Sarbanes-Oxley (SOX) to Improve Your Business Analytics, Competitive Position and Performance

Metagroup has suggested that Sarbanes-Oxley compliance spending can be thought of in two ways. You can either think of your spending as a compliance obligation. Or you can think of it as an opportunity to improve your Business Analytics - the more forward thinking way of keeping track of your business (vs. Business Intelligence or BI software).

Conventional wisdom suggests that SOX (as it lovingly referred) to will cause increased audit bills, more review work by software systems providers and increased spending on IT.

But CIOs are under pressure to reduce spending.

So, how can you resolve these conflicting demands.

The solution, I think, is to step away from conventional solutions. Conventional solutions - information warehousing, OLAP, etc. - are not going to solve the problem. And they are certainly not to going to build competitive advantage.

Let me briefly explain why.

1. Most companies using OLAP tools will find that they suffer from exponential growth. What that means is the more you are interested in connecting information in your enteprise reporting, the slower and the more expensive the solutions become. So, if SOX means an order of magnitude or more increase in complexity, your OLAP tool is either going to fail, or you are going to have to subdivide your problem into pieces. Lots of different cubes for looking at your business.

But isn't that going against the grain of what you were trying to achieve in the first place? You have a failing technology, massive and deteriorating technology performance and an increasingly high cost of maintenance. Not really a very good solution.

2. Information warehousing tends to be very expensive. Cleaning data is very expensive. And the best strategies in information warehousing mean starting small. but you have a compliance problem which means that you cannot really start small. You need to grow quickly and, even worse, change frequently as you figure more about your exposure. A very expensive problem.

When technologies start to break down, it's time to change the paradigm.

I have been working with a different paradigm - a object oriented enterprise peformance reporting, modelling and tracking paradigm for about seven years. For a number of years, I built strategic planning, reporting and modeling systems. What we found in our work with OLAP and database tools is that we were always building similar applications, but they varied just enough that each project required starting pretty much froms scratch. Which made consulting tough.

So we decided to ask the impossible question: "How could we deliver complicated views of businesses, their activities, their transactions and their performance measures using an approach that was incredibly fast at low cost?"

If you don't ask such a question, then you are pretty much guaranteed that you won't engineer that kind of exceptional value for money performance in your technology. Over three years, we figured out how to deliver complexity easily at 1/20th of the cost.

What we concluded was that the relational and OLAP framework did not match the strategic and performance reporting requirements that managers needed.

Essentially managers see the world as consisting of pieces of information that they want to combine in many different ways. Sometimes they want to look at information from a product perspective, sometimes from a process perspective, sometimes from a geographic perspective, sometimes they want to compare time periods, sometimes they want to compare versions (actuals, plans, scenarios, revised budgets, etc.)

But what remains constant is the manager's interest in looking at data in new and novel ways on short notice. And business is more complicated that most current software technologies can handle.

If you don't believe t his assessment, ask your top database designer how he is going to handle rapidly changing large scale many-to-many mapping relationships in a relational database. If he tells you the truth, he will admit that relational databases can't deal with the problem. He will tell you that you need to simplify the problem. But SOX and strategic performance improvement mean that you don't want to or can't simplify the problem.

And ask your OLAP vendor how they would model a 13 or so dimensional view of the business. Let's say you want to be able to track and relate the following:

1. Suppliers' suppliers.
2. Suppliers.
3. Administrative processes.
4. Manufacturing processes.
5. Products and product campaigns.
6. Distribution channels.
7. Customers.
8. Market research.
9. Time periods.
10. Actuals, budgets, plans, plan updates, scenarios.
11. Chart of accounts.
12. Currency.
13. Raw operational data.

Most OLAP vendors will be forced to explain that you need to decompose your problem. Which makes a lot of sense, but not if you don't have to. Unfortunaately decomposing your data means more work when you try to look across the decomposed data.

And processing times will start to grow very rapidly every time you add data and complexity. None will be able to handle the raw data. So you will be forced to manage data in at least two places, in relational databases and then in the OLAP environment.

The way out of this box is move to what the Convergent Engineering Institute has called an enterprise representation of the business. It's modern, it works and it is both fast and inexpensive. It's a new paradigm.

With this approach you can now start to look at stakeholders, processes, activity based models; be able to model products and marketing programs, market research and channels, you can focus on the issues that are important rather than the issues that have historically been easy to look at.

There is old story about the wise fool Nasrudin in the Sufi literature. He meets a drunk crawling on the ground beneath a lamp post. Nasrudin asks the drunk what he is doing. The drunk replies that he is looking for his keys. Nasrudin asks in turn: " But where did you lose your keys?" The drunk replies: "Well, I lost them over there by my front door, but there is more light over here."

Looking at SOX, strategic issues and improving performance means looking at what is important, not what is necessarily easy to look at in your legacy systems and legacy technology.

For more on this topic take a look at under Performance Reporting.

Alistair Davidson

Thursday, September 04, 2003

Drowning in Data, But Needing Conclusions: Some Solutions (Part 2)
But let's assume that you do have an information warehouse, or you are thinking about how to look at all the information that your myriad systems are collecting and feeding into a number of centralized locations (physically or virtual centralization). What do you do to explore this enormous and complex data?

There are I think a number of solutions.

First, you can rely upon the brilliance of your people. People can become very expert in using such systems and can learn to extract key information over time.

Second, you can find suppliers - consultants, software package developers, and those rare organizations with high levels of skills in both - and have them come up with best practices in extracting information that is tied to your strategic and operational objectives.

Third, you can pursue a more biological approach. Develop small and often simple pieces of technology that act as a "software agents" and look for connections between information in your information warehouse or information marts. Software agents might have different objectives. Some might look at patterns that drive performance in a company. Some might look at financial transactions to spot fraud. Some might look at relationships with suppliers. Some might like at sales force effectiveness. Some might like at customer segmentation and buying practices.

In fact, you might have multiple agents floating around your systems with different induced hypotheses about patterns in your data. And over time, outcomes will provide feedback and allow the agents to evolve.

In other words, there is likely not one answer to the problem of using the information you own or have access to to create new and valuable conclusions from your explosion in data. Over time, you are going to see interactions and learning occurring between your people, your suppliers and software agents reviewing your performance and data.

People's knowledge evolves. Managers learn what works. Suppliers spread best practices. And "software agents" may discover patterns in complexity that are invisible to other ways you are using to look at your organizations.

New conclusions developed in new ways -- it's rather interesting and potentially quite powerful for some organizations.

Alistair Davidson

Drowning in Data, But Needing Conclusions: Some Solutions (Part 1)

You can tackles this problem from various perspectives.

The technically inclined will want to pursue best practices. How can we simplify our processes? How can we pursue architectures and data representations with high reuse and low cost modifiabilty? The Convergent Engineering Institute has argued that a move to a an object representation of an organization has enormous pay off for companies, a view I agree with.

The methodologically inclined may want to pursue the Capabilities Maturity Model (CMM) and begin the process of creating an organization that can reliably and predictably engineeer systems, optimize them, make rational decisions about what to do internally and what to outsource or purchase in a best practices manner. The CMM model can make a lot of sense, but with so much of information management purchased and so many legacy systems being maintained, then sometimes the decision to eliminate old systems may be more important than improving the processes of maintaining them.

But my take is more strategic.

It seems to me that while best practices, better engineering and architecture make a lot of sense, reengineering the IT practices behind a "legacy system or activity" makes no sense in having the system or doing the activity in the first place.

In other words, if you don't know where you are going or what your objectives are then it is very hard to figure out the return on investment or the prioritization of investments. Having ROI on an information technology project is not as important as knowing whether the activities it supports are critical to the company.

In the current environment, downsizing and outsourcing are enormously popular strategies. But to be frank, cutting costs is always easy (however hard it is on the managers doing the job and the unfortunates being laid off). But cutting costs often has hidden and unmeasured consequences. Take for example a customer information repository, where a company tracks key information about customers, their accounts, sales activities towards the customers, purchases, warranty information, etc. Cutting costs in this area might have the consequence of storing inaccurate information that would cause customer alienation, lower loyalty and repeat purchase.

In the same way, failing to maintain procurement systems and the other supporting systems that coordinate with key suppliers may put you out of business in a hurry, particulary when disasters strike.

And information systems go through life cycles, so just as you need to separate out the different management, marketnig and reporting requirements for early stage, growth, mature and declining businesses, you also need to make sure that you are not starving new IT projects that have the potential to change industries.

RFID or radio frequency identification (wireless tags for tracking people, inventory and assets) represents one of those technologies in retailing and asset intensive industries.

Alistair Davidson
Drowning in Data, But Needing Conclusions

In a world where companies are trying to integrate information, the fascination with technology combined with a lot of bad practices often causes companies to invest in projects that are tactical rather than strategic. The first posting lays out the problem. The next will discuss some of the ways of solving the problem.

The Problem
When you think about information technology strategy, one useful framework is the pyramd.

At the top of the pyramid is the stuff that humans understand and which is not captured in information systems. This kind of knowledge is called wisdom, insights, judgment, values - it's the stuff of which we are made.

The next level down is sometimes called BI or business intelligence software. Typical software in this area is used for decision support, for reporting on the activities of the firm (recently named BAM or Business Activity Monitoring by Gartner Group). Tools in this area are budgeting tools, consolidation tools, activity based costing tools, simulation tools, strategic and financial planning tools, all forms of reporting tools e.g. Balanced Scorecard and other measurement reporting, and OLAP (on line analytical processing or multidimensional spreadsheets).

A layer deeper lies the information warehouse where information from multiple sources is collected in relatively raw form. At this level, customer, product, sales, and operational information is available but not terrible useful as there is so much data it is not comprehensible.

At the lowest level in the organization lie the transaction reporting and data collection systems. These are used for collecting the raw transactions that make up every organization. Some of these systems are integrated into the information warehouse; some are not. For example, a building security system might not be linked in with the HR system in the ERP (enterprise requiremens planning) package.

The Consequences
With all this complexity, five predictions can be made safely.

1. Moving information from each layer requires work and expense and often causes errors and opportunities for fraud.
2. The more ways that you represent your information, the more likely it is that maintenance costs for your system will be high and transitions in the way that you represent your business will be expensive to implement.
3. The more ways you collect information about your business, the harder it wil be to draw conclusions.
4. Cleaning data will be a material activity in firms.
5. Most human beings will find it very difficult to understand the sources of information in the organization.

By the way, the problem is probably getting worse. There are likely three major reasons why the problem is bigger today.

1. Companies have been downsizing.
2. Companies have been spending a high proportion of their budget upon enterprise application integration (40% is one quoted figure).
3. We now have more companies with a huge and wide investment in traditional information management systems, large ERP systems, and e-commerce and web front ends for servicing suppliers, employees and customers.

So, unless you are in a market leader with exceptional profits and an unlimited IT budget, what is the way out of this box?

I'll try to answer that question in the next posting.

Alistair Davidson

Wednesday, September 03, 2003

How should you choose a strategy?
Many companies in the current environment are unhappy with their performance. Most are asking the question: "How do we improve our performance?"

A less frequently asked question is: "How should we choose between potential strategies and projects, tactics and methods of implementation?"

Arguments about these issues can lead to firings of the right people of the wrong people, short term improvement and long term improvement or short term declines and long term declines. So what should a leader do?

My guess, from listening to and working with many companies is that there are a couple of basic ideas that people are relying on:

1. Things are going to get better. And when they do, we will do better, so we just have to survive.

2. We are going to lower our breakeven. If that means cutting costs and outsourcing, that's what it takes to survive.

3. We are just at an early stage in our life cycle. If we just get those early buyers, we will be OK. The market will grow.

But what if these ideas are not the best way of thinking about the future? What if the future is not going to be the like past? And rapid drops in the price of computing, telecom, lower barriers to entry, internationalization, terrorism, disease overpopulation, break down of health care systems, rising government debt levels combined with demographics do suggest problems or as a very minimum new challenges.

Cathleen Benko and Warren McFarland write in their book, Connecting the Dots, that the future is so uncertain, that companies should position themselves to adapt to the future as it unfolds rather than assuming it is predictable. If you buy their view of the future, then both of the three ideas listed above don't really work very well.

Benko and McFarland go further - they argue that companies need to think in terms of building capabilities or Traits as they call them, that will allow companies to survive an uncertain word.

They identify four traits in particular - though I suspect there may be others and they may vary in importance by industry:

1. Eco-trait: instead of trying to do everything internally, your organization needs to be part of a virtual coordinated value chain where you take advantages of other's superior capabilities.

2. Outside-in trait: instead of focusing on how the world looks from the inside, companies should thinks of themselvese as a collection of processes that represent the way in which suppliers, distributors, customers and stakeholders maintain relationships with you.

3. Fighting trim trait: companies need to focus on being able to react quickly to changing markets instead of assuming and relying upon the inertia of markets and relationships.

4. House in order trait: companies need to make sure that there systems and procedures are flexible and integrated able to power the other three traits.

It's an interesting perspective. The analogy is that character is more important than skills for the individual. As a parent, you hope to give your offspring the character that is necessary for them to learn, adapt and gain the skills necessary for success and happiness.

So, how do YOU choose your goals?

Alistair Davidson

One to One Marketing

You meet clients and get asked for business advice in the funniest places. The most bizarre situation I have experienced recently was under a full moon at the Stanford Mausoleum at a discussion group about intellectual property and the Internet.

This past weekend, it was a poetry reading. The executive in question was talking to me about his market position and how they were doing lots of market research on their customers. He talked glowingly of his web site as a source of information about his customers, that was going to help the company figure out what to sell them.

And then he mentioned some large generalist producers moving into his niche market.

I suggested that perhaps he ought to turn around his thinking. It's not like doing market research on your customers actually creates any value or relationship with them. I suggested he ought to be thinking about how he could own the relationship with his customers. Rather that thinking about selling more products to them, I suggested maybe he should be thinking about selling the experience, his customer were buying products to achieve.

He sat back in his chair. You could see the light bulb almost going off in this head as he realized he was talking a product-centric rather than a service and relationship-centric view of his customers. And his one big advantage was his focus. He and his company cared a whole lot more about the experience his customers were trying to achieve than his new and larger emerging competitors.

He thoughy out loud: "So what you are saying is that maybe we should be selling them the full service rather than just the product - the holiday, the organizating of the travel, the information about when to travel, the feedback from other customers."

He liked the idea.

What he had not thought about is what Tracey and Wiersema talked about in their book, The Discipline of Market Leaders, many years ago. You have a choice: you can be the product leader (like Apple), the process leader (like Dell) or the customer intimacy leader (like IBM deciding to buy PriceWaterhouseCoopers Consulting). Each strategy has its merits, but in a world where commoditization is always a risk, owning the relationships with customers and doing one-to-one marketing is increasingly attractive.

You still have to be in the ball park in producing the product, but owning the relationship means that if your products fail to be competitive, you can resell someone else's and not lose the relationship.

Something to think about for man at the poetry reading.

Alistair Davidson

Tuesday, September 02, 2003

Relaunching Failed Technical Products
The reason for product failure are many: bad management, wrong choice of features, poor sales strategy, bad distribution, competitive actions, mispricing, poor marketing and messaging, inappropriate segmentation - the list goes on.

But practical experience and empirical measurement give some guidelines on what you can do to relaunch a failed product.

First, the empirical data: the data on new product launches is very clear.

- The single largest predictor of new product success is offering a high value and differentiated product/service offering. Companies in the top 20% on this rating have a 25X better economic performance than companies in the bottom 20% i.e. those offering undifferentiated me-too products.

- The major cause of new product failure is doing inadequate or no market research.

The two issues are connected. Value varies by segment, so if you have not done market research, you may well be pitching the wrong benefits or you may be pitching benefits that are only appropriate to one segment, while your overall marketing message is too dispersed across multiple segments.

Second, if your product is technical, it is extremely likely that you are spending way too much on the technical side of your features, and are not doing enough to put yourself in the shoes of the customers.

Third, if you are selling a product that you have developed, you probably have a bad case of NIH (Not Invented Here) Syndrome. Customers are profoundly indifferent to the source of R&D. They want superior value, so if you have limited resources, your likely first step, once you have established what value means to customer segments is to figure our how you can immediately increase your value proposition. Often this means:

- introducing a service element into your product mix
- licensing and incorporating third party technology and services
- identifying business ecosystems that you can become part of (i.e. becoming more compatible with standards)
- changing your pricing model
- altering the risk of doing business with your organization
- doing usability testing and user interaction design to improve the performance of the product for target users.

Fourth, if you really don't have a clear idea of which segment will buy your relaunched products, maybe it would be a good idea to put yourself in the shoes of the customer. Go live with your customer and observe them in the wild. How do they live? How do they talk about their problems? What triggers decision in their organizations?

Fifth, if you have a big product with a long development cycle and the product is incomplete (and inevitably you don't have the money to finish it), sell a service. Make up for your product imperfections with human beings. It may not be the business model you originally envisioned, but get revenues and interact with customes.

Sixth, consider the heretical. Stop developing your failed product. License a third party product. Sell it. Learn more about customers. Launch new versions based upon what you learn by servicing customers.

I will write more on this topic in a later blog.

Alistair Davidson

Solution Selling and Pricing
Pricing is a much ignored area in business. Marketers certainly spend a lot of time on pricing, but the strategic impact of pricing is inextricably linked with value and the structure of your value chain.

In my last blog, I write about the difference between tactical use of pricing and strategic use of pricing. Tactical pricing is often used to get short term sales. Strategic pricing is about gaining not just short term revenues, but positioning your value proposition to build a loyal customer.

There's another part of pricing that worth considering as well. That's solution selling. Examples abound and in a complicated world, solution selling addresses a big problem for consumers. The explosion of choice and increasing complexity of products leads to uncertainty and perceptions of risk. If a digital component in a car or electronic appliance fails to work, the entire investment in the product is typically lost. And while products with microprocessors, software and signal processors may be attractive, it is impossible for consumers to know in advance the stability or reliablity of such engineered products.

Take cameras. In my career as a photographer, it has been exceptionally rare for a camera to have a mechanical defect. It just wasn't really an issue. In contrast, I took out a four year warranty on my first digital camera (which has produced the best pictures, I have ever taken) and I needed to use the extended warranty this past month just prior to the warranty expiring. My most recent notebook, a marvellous three year old Thinkpad T-20 from IBM has had to go back twice to IBM. My last cell phone had to be replaced under an extended warranty. And many high end luxury cars incorporate service into their price. They are selling transportation of high reliability. By incorporating service and extended warranties into their product offering, they are simultaneously insuring that owners maintain their cars and delivering what customer actually expect - hassle free ownership.

But the trend is even greater in information management. Organizations cannot keep up with technology, so they are forced to move in the direction of (1) purchasing packages from suppliers that anticipate their integration needs, (2) outsourcing parts of their business, (3) out-tasking highly specialized tasks where they lack expertise, interest or economies of scale, and (4) strategic partnering.

What this means for startups is that in many areas, the old strategies no longer work in the same way. Service based launches will often be more successful than product launches. And the type of distributor you need will alter because the method of selling software may have such a high service component. And your pricing strategy has to be different too.

The good news is that services based launch strategies can both reduce risk for buyers and make it easier to sign up customers.

Alistair Davidson