Weekend rant on Innovation , Industrialization & Watching Your Back


I missed watching Seth Godin’s keynote in person couple of weeks ago in Orlando, and ended up watching the recording later. http://www.asugonline.com/asug-annual-conference/videos/keynote-persentation/?catid=asug-annual-conference-keynotes&slg=2013-asug-annual-conference-keynote

I don’t read his blog regularly, but every time someone I follow on twitter tweets out one of his posts – I tend to check it out hoping that it is something I can relate to and learn from. Unfortunately, the keynote replay did not exactly excite me – I tuned out along the way, around the time he explained what a Fermata is to his audience. I am not an expert in western music theory, but I had a very different idea of what a Fermata is compared to what Godin said..But I digress…

There is a part of the keynote that made sense to me – the need to be very good at what you do, to market effectively and so on. But the rest of it generally didn’t sound relevant to me in the context of my work in enterprise software.

I am as big a fan of innovation as the next guy – but I firmly believe that we have enough examples around us to indicate that not everyone can or should innovate. Enterprise Software business is largely made up of fast followers and a minority of innovators ( or inventors) . However, industry wide we spend a lot of time trying to democratize innovation – although with limited success. Shouldn’t we know better by now?

Innovation is a high risk and high reward game most of the time – with characteristics like failure, chaos, disruption etc to go with it. And for a company (especially a big company) to afford innovation, they need to be masters of industrialization . Although not an exact statement – a company that can afford to put 20% of time and effort on innovation, needs the other 80% to be an efficiency machine to innovate on a sustaining basis.

Startup companies are usually in an “all in” mode – since there is no cushion from a portfolio of offerings when you are in a new business. On the plus side, everyone is motivated and will do their best. On the flip side, vast majority of start ups fold without making a tangible impact. However, VCs etc who take a portfolio approach and invest in many startups (usually with opposing risk characteristics) generally have better chance of surviving and thriving.

Big companies typically follow some version of the 80-20 rule. 80 percent runs at high efficiency and pays the bills for the 20% of innovation experiments. And depending on cushion available – as soon as innovations look viable, they try to industrialize partly or fully. And if it is not panning out as planned, they can move out and focus on next big idea without going bust.

I think this model is what we will continue to see for a while – enterprise customers love innovation, but they can’t usually stand an over dose of disruption and chaos. So in my opinion , the vendor part of the ecosystem will need to constantly up their games and compete harder to remain relevant. And that won’t happen by everyone innovating – it will only happen by a minority innovating, and a majority industrializing in a fast follower model. Otherwise the amount of chaos, the cost of innovation etc will make sure the so called innovation will die without adoption.

This also means the leaders in the industry have to constantly watch their backs – when fast followers get their act right, the leader will find it harder and harder to keep their lead. Enterprise software only needs to look at consumer electronics companies to know what that means.

It is time that our industry recognized its unsung heroes who make sure that their counterparts have the cushion/opportunity to innovate. Stop looking down on them – appreciate them – A LOT.

 

 

True Innovation Needs A Viable Business Model


The news that caught my attention the most this lazy long weekend was that Better Place was liquidating . http://news.cnet.com/8301-11386_3-57586236-76/electric-car-startup-better-place-liquidating-after-$850-million-investment/ . Of course there was the SAP announcement of organizational changes – but my thoughts as an employee ( that too just 5 months as employee) might not be of much interest to anyone else.

Although alternate sources of energy is a top concern of our generation, that was not the reason I remembered this company called Better Place . I remembered it because of my sense of awe on how quickly Shai Agassi raised multiple rounds of funding – each in 100s of millions of dollars – to turbocharge the progress of his company . I have always been a fan of Shai’s ability to explain his vision in a compelling way to his audience . So it was no surprise that he could garner support like he did . This vision was further backed by investment bankers who concluded that the days of gasoline engine were numbered.

On Social media, the mood I saw was along the lines of “This was bound to happen given the idea was ahead of its time, but admirable that someone chased a dream despite many obstacles”. I beg to disagree – There is nothing admirable in reckless spending of investor money and running a company to bankruptcy in my opinion . If anything , that just is a terribly costly way to show how not to innovate . Innovation without a viable business model is just wishful thinking at best and an unmitigated disaster at worst .

I do hope that Shai dusts off quickly, and becomes successful at this venture itself or something else. And I hope and pray that alternate energy problems we face do get solved one day soon .

The other topic that I got to discuss with my friends this weekend was whether “disk is dead” – In the context of software innovations. I think the electric car company’s unfortunate demise has some lessons that IT industry should pay attention to . For most of the last decade , I have spent most of my time supporting clients in semiconductor industry. Every time I hear “disk is dead” – I am reminded of the economics of that industry that I have watched over the years. When we try to innovate without keeping the economics in mind, what suffers the most will be adoption .

I might be off in exact numbers – but roughly, I think there is 10 to 12 times the capacity to create disks today compared to flash . No doubt flash will increase market share many fold going forward, but not at a clip that disk will become extinct any time soon. Why ? Because it is not easy or cheap or fast to set up a new fab to manufacture flash . All semi companies of the world together might not have the resources (probably in hundreds of billions of dollars) to convert the world from disk to flash any time soon . And if they did so on leverage, most of us would not have the purchasing power to afford our fancy mobiles and tablets anymore 🙂 . What about DRAM then ? A similar logic exists – compared to SSD , DRAM is dearer by 3X or so.

Then there is the cost of disruption – customers have heavy investments in existing technology. For sure there are enough cases where price-performance plays in favor of the more expensive DRAM and SSD solutions . However, the “right time” for all business problems is not “real time” ( Yet ). So for innovation to be viable – at least till hardware manufacturing economics catches up – solutions working on DRAM and SSD need to be able to work closely and efficiently with those that make good use of Disk . And if you listen closely to industry observers you will already hear a lot about “RAM is slow” ! So in a few years, we will need yet another version of hybrid solutions .

Smart vendors realize this and build solutions that make good use of existing technologies, while enabling rapid and useful change with disruptive technologies . Their not-so-smart competitors stick to old or new technology exclusively and either die of obsolescence ( innovators dilemma types ) or of running short of resources and demand ( like better place example) .

Easier said than done – even a genius like Shai couldn’t get technology and business model right at the same time . But cheers to the leaders who get it right ! And I do hope Shai gets it right in his next try as well .

Free Does Not Work Most Of The Time


Ever since I had my first job, I have wondered about the concept of “Free” in corporate world. And many years later, I am pretty convinced free is usually a bad strategy for all parties. This is strictly a rant on my personal views – nothing official about it, and do not represent the views of my present and past employers .

Nothing is really free

That took me some time to realize – absolutely nothing is really free. Someone has to pick up the tab always. Since I have worked in the consulting business most of my life – let me use that as backdrop to explain . This is true for big and small consulting companies I have worked for.

Customers do pay a pretty penny for consulting – and rightfully think that since they are giving so much business for the consulting vendor, they should get some things for free. This is usually in the form of proof of concept work. And most of the time – Vendors do agree to throw in free POCs. Vendors do not do this out of kindness – since they typically do this only if there is upside down the line for them via more business. The POC starts – customer does not always go all-in for these projects , given they are not putting in direct money on the table. And eventually the project finishes with no one happy and no decisions made . The Vendor does not exactly lose here – they will make it up in next project, either at that customer or at another customer. Those vendors who do not have multiple projects and clients might actually lose serious money in these POCs, and hence they might not do it a second time either. Whichever way you look at it – no body is moving a good step forward in this picture.

Even when something is given away for free, it does not get used much

If you walk the show floor at any trade show, you will get a lot of free stuff – from coffee mugs to iPads. I have seen software companies give iPads to their prospects and clients preloaded with presentations etc, that usually end up in a teenager’s back pack in few days, usually without the presentation ever being looked at. And no prizes for guessing who is paying for those iPads 🙂

Then there is the case of vendor charging a maintenance fees for software, and using part or all of that fees for “free” new functionality added to already sold software. Customers might genuinely like to see all kinds of things to come out of this arrangement for free – new business processes, mobility, BI etc. The hard part is – it is next to impossible to draw a clean line on what should be free.

If you look at the adoption of the new functionality provided for free , very rarely do you see big adoption. But if you look in further – there might be other reasons for this , like cost of hardware, testing, change management etc. So on one hand, the vendor uses a lot of money for making stuff, and on other hand customer has no way of using it – due to lack of awareness, lack of resources or lack of interest. The take away here is again that Free did not work as expected.

It can of course be argued that in a multi-tenant SaaS model, customers might use free stuff more often. I seriously doubt it. Example : if you never had parallel ledgers till today, and now your cloud vendor gave it to you for free – will you implement it ? Many customers will not – either because they don’t care, or because it needs more change management , SI work etc (probably less than on premises world, but still usually enough to help inertia rule). And it is not as if cloud does not have lock in – if you have any doubts, look at the SEC filings of cloud companies on internet.

Should Vendors charge for a different UI or for mobile versions of existing applications ?

UIs will change over time – as technology changes (hardware and software advances, consumerization of IT and all that) . Should Vendors charge for that? Will making it free increase adoption and make customers happy? I don’t know the answer – but my (of course biased) answer is that it is fair to charge for this. Here is my rationale – when customers don’t like UIs, they will find work arounds. Vast number of screens delivered by vendors are replaced by loads from spreadsheets . I know a company where the financial analyst loads JV entries twice a day by putting it in an excel sheet and putting it in a sharepoint drive, System does the rest and the analyst is happy and productive. I have asked this guy personally many times if a different UI is a better solution, and he consistently likes to stick with his excel in sharepoint approach. I know a hundred other examples like this where people refuse to move to better UI for fear of change. Giving a free UI for these cases just would be a bad investment.

Mobile is a harder nut to crack. Vendors with a limited footprint – like just HR or just CRM as their offering, might throw it in for free and build it into their price case. I think that is the right thing to do for them since it makes business sense. However, for vendors who sell many different things – they might not have a good way to do this across their portfolio. For these cases – All I can say is “pick your battles” . They are probably better off selling packages mobile applications for best usecases. Or they might sell (or partner with) some development platform that helps customers build their own. Or maybe leave it to the partner ecosystem to bridge that gap. It might also make sense to throw in a few things for free on mobility front if it makes sense for competitive reasons.

But if you charge – what is fair and what is not? I have a simple POV on that – the price to charge is the maximum $$ that will not stand in the way of adoption. Price is driven by market – if you over charge, customers won’t buy and use it. So start with what you think is fair, adjust as you go – with a good tradeoff between adoption and your financial KPIs like revenue and margin.

What about consumer side of the house?

You would think that consumers are happy with all the free stuff they get – like facebook, free uploads in flickr and so on. Nothing is really free there either – you still pay in terms of sacrificing privacy, suffering through advertisements (or paying to avoid the advertisement). And of course you use the same facebook to complain of their free service 🙂

So in short (well, I guess this was not very short – sorry) – I doubt “free” really works anywhere. There is no free lunch – I have accepted that and made peace with it. What do you think ?