Thursday, January 30. 2014
Tomorrow I will be giving a short talk at the Open Data Institute on the Dark Side of Open Data. I don't intend to steal my own thunder in this post (I write this to praise, not bury, myself ) but here is a heads up on the direction I'm going in.
Essentially, those who forget the past are doomed to repeat it, and there are some big lessons from the Online past here:
Firstly, and most crucially, history shows us that the early developers of all these New New Online Tech Things, from the DARPANet on, are usually enthusiasts, hard working, honest and genuine folk, who want to Change The World and cannot believe that Bad People would use their creation for Bad Things. Cue shock and horror when Bad Guys do Bad Things with their New Thing.
Secondly, because these are Good people, not enough look at Open Data with a hacker's black hat on. There is a lot of gold in Open Data, which means all sorts of people are going to mine it. And not all are going to play nice. One of the major risks will be triangulation of different datasets, or just applying Big Maths to existing data - see here how to work out police helicopter flight path
Thirdly, a lot Open Data relies on the good will people who actually contribute "their" data. As early events are starting to show, play fast and loose with those people and you start to get unexpected consequences. If you monitor the social media, you will see grass roots reaction to the latest Health Data "Opening" scheme is springing up all over the UK for example.
Fourthly, as with so many usages of "commons" goods, from wind power to open data, those who benefit are not the same as those who have to put up with the downsides. History tells us that until this gap is bridged, the outcomes are usually very asymmetrical and can lead to major backlashes. And what very recent history shows, is that social media can amplify the backlash.
And Fifthly, Data is a Political Object. Ignore this aspect at your peril. Nate Silver, talking about the unexpected consequences of the US administration releasing large amounts of Climate data to "calm" the Climate Change debate.
“…the more informed that strong political partisans were (about global warming), the less they agreed with each other”
(Nate Silver, “The Signal and the Noise”, quoting a paper from Nature)
And I also believe that going forward, as every single-issue and special cause enthusiast starts to "analyse" data in their own interest:
“…the infographic will be the new stump speech, questioning the data will be the new rebuttal”
(Alistair Croll, O’Reilly blog>)
I will also discuss some suggestions about what to do to ensure the worst case scenarios don't come to pass.
I will put up more of what I wrote afterwards - assuming I come out praised, not buried
Update - my presentation is over here and the audio is over here
(Update to update - its all collected by the ODI over here)
Update 2 - good commetary by Wendy Grossman on my talk over here
Saturday, January 18. 2014
The Broadsight "Keep Your Job Sweet Spot" Chart
Article in the Economist on the impact of technology on work, makes some pertinent points about the use of technology to automate jobs, increasingly white collar jobs that were once thought un-automatable and un-offshorable:
Larry Summers, a former American treasury secretary, looked at employment trends among American men between 25 and 54. In the 1960s only one in 20 of those men was not working. According to Mr Summers’s extrapolations, in ten years the number could be one in seven.
The outcomes are fairly dismal for the less skilled in OECD countries....if your job can't be offshored, it may be automated - those in the firing line are the easier to reproduce electronically.
For a task to be replaced by a machine, it helps a great deal if, like the work of human computers, it is already highly routine. Hence the demise of production-line jobs and some sorts of book-keeping, lost to the robot and the spreadsheet. Meanwhile work less easily broken down into a series of stereotyped tasks—whether rewarding, as the management of other workers and the teaching of toddlers can be, or more of a grind, like tidying and cleaning messy work places—has grown as a share of total employment.
In other words, the only safe spot for OECD jobs is, as I show in the chart above, jobs that are too complex to automate and where the output can't be delivered by people on the other side of the World. Those at the top of my mind are jobs like plumbing, where it has to be delivered on site and to automate the whole job is probably impossible. Ditto delivering mail order parcels, stacking the shelves at the local mini-market etc - I'm sure you can think of others that fit these criteria.
The risk for "craft" jobs like say plumbing, is if it is possible to replace the current ecosystem with a more automatable one. Self stacking supermarket shelves, or if Google's recent acquisitiongasm results in a Google PlumberBot. (Optimised to run in mass produced Googlehouses, all made of TickyTacky ?)
Now interestingly, there is evidence that even as the automation threat is advancing, the offshoring one is receding as "cheap" labour overseas is increasing in price, and some of the new technology, such as mini-machining (3D printers being the most sexy example) means it is now cheaper to re-shore some production.
Applying Santayana's Law (those who cannot remember the past are doomed to repeat it), its worth looking at what happened the last time round - the Industrial revolution spawned massive upheaval - not just in the movement of people from land to factory, but the response of the people - Marxism and all its offspring, Labour Unions, mass movements for every form of human liberation you can imagine, as they tried to reclaim some part of the new value created.
To the Economist, the long term future is going to be rosy in oh, about 100 years time - but the problem now is that all the victories of past battles things have made today's OECD poor too well off, and too protected from being thrown on the scrapheap in the next creative destruction binge:
But that's the Economist, cheerleader for Big Capital, they would say that (It would be poetic justice if someone invented a Punditbot that could knock out neo=liberal economic commentary automatically from India ).
To me the real lesson of history is not about the problems the new mill owners are having exploiting todays ungrateful proletariat, but that the rapid switch of wealth to the rich and the hollowing out of the middle class happening now is going to drive the sort of forces that unleashed things like Marxism, Unions et al the last time round. You can fool all the people some of the time, but eventually....
Although the Economist wrote this paragraph and then knocked it, I think they hit the bigger truth:
Even if the long-term outlook is rosy, with the potential for greater wealth and lots of new jobs, it does not mean that policymakers should simply sit on their hands in the mean time. Adaptation to past waves of progress rested on political and policy responses.
History shows that when technology drives a major economic shift, first huge social forces are unleashed - and then comes the political and regulatory forces. At first these are laughed at, then put down with force, then accomodated, and then they win. But it is a distinctly unsettling time as they play out and lasts decades.
Now where did I put my Dummies Guide to Plumbing?
Friday, December 20. 2013
Bitcoin/Dollar exchange rate periodicity (courtesy CustD)
Ooops, there has just been another one....quite a good analysis of the Bitcoin beliefset is over here friom Alex Payne, but in short, as Alex says:
And why the excitement in SV?
In Bitcoin, the Valley sees another PayPal and the associated fat exit, but ideally without the annoying costs of policing fraud and handling chargebacks this time around. Bankers in New York and London see opportunities for cryptocurrency market-making. International investors see the potential for arbitrage and are taking advantage of cheap electricity, bringing the environmental destruction of real-world mining to the brave new world of digital money. In other words: Bitcoin represents more of the same short-sighted hypercapitalism that got us into this mess, minus the accountability. No wonder that many of the same culprits are diving eagerly into the mining pool.
So there you have it.
There is a lot of good around he idea of virtual currencies, but this ain't it. An unregulated currency, with no safeguards, supported by all the people that reason tells you are the last people trying to build something good for the average person, yet bitcoin bugs are a prevalent as goldbugs it would seem. To quote Alex again:
The only thing “profound” about Bitcoin is its community’s near-total obliviousness to reality.
The cynic in me believes its just a speculative bubble in most bitcoinbugs' case (See our article on a South Sea Bitcoin Bubble). There is a periodicity to bitcoin busts which is "interestingly" regular - see chart above. So long as there is a belief in a medium term upcurve and a greater fool, this will rise and rise.
Thursday, May 9. 2013
Broadsight Simplified Value Creation Flowchart
We have been asked to be on the Microsoft Business Re-Imagined panel on the 15th of May, looking at the potential impact of Social Media in business. We've been consulting to and building social media systems for clients since 2005, and it seemed like this was a good time to boil down our experience down. Above is a simple value creation flowchart, and we look at how, in our experience, social media can impact value creation. Stripped to it's bare bones, a business creates sustainable value by increasing revenues and/or reducing costs. Social Media is a new set of technologies that can help in a number of ways.
Essentially, there are only 2 ways of increasing revenue, which is sell more stuff, or increase the price at current volumes. In my view, Social Media is more powerful (with current technology, anyway) in dealing with Consumer sales, rather than Business sales, as the main cost in a consumer sale is reaching the large mass of disparate consumers. With business sales the target market is much easier to identify, and there are less customers to contact so current approaches work well.
Sell More - Social Media is a potentially very powerful tool to generate new demand - to find new customers, to bring them to the enterprise, create trust, ease their purchasing journey, and help optimise website design to maximise sales throughput. Taking it to greater extremes, Social Media data can be used to start to psychologically profile your customer base to understand what sort of people may also be your customers. It is also a very powerful tool to optimise the product - to discover the features or configurations that customers really value, and you can identify what competitors do well and include those in your product. But it is not a substitute for existing methods today, it is an adjunct, it can't be the only tool. It is not an appropriate tool for overt "hard sell" marketing, for example.
Increase ARPU (Average Revenue Per Unit) - Social Media has two main functions here - to aid in communicating the value proposition of the product, and to improve the perceived value vs competitive offerings. Communicating the value is fairly straightforward, as it serves as an extension of traditional channels, with the added benefit is that it has a strong feedback loop so it is quickly possible to see what is working and what is not. It is also probably better at communicating implicit values than more traditional media. Social Media can also help to improve the pricing point by optimising product differentiation amomg dofferent customer groups, and find pricing points for these different customer groups. That feedback loop, and the data it drives, can be used to to find attractive product combinations, and to optimise the website design to maximise value per sale. Taking it to greater extremes, Social Media data can be used to start to psychologically profile your customer base to understand their hot buttons better
Again, essentially there are only 2 ways to reduce costs - reduce operating expenses (Opex) and reduce Churn (Customer defection). I will ignore Capital expenditure (Capex) for now. Social Media in my view is as useful in both consumer and business facing enterprises, as it's power is about increasing productivity and effectiveness in reducing costs
Reducing Opex - In most companies, there are two major cost areas - raw materials and labour, the sum of them is typically the "80/20" of the cost pie (companies with near zero raw material costs tend to be professional service businesess, with very high labour costs). So far in or experience the two major Social media impacts are from:
(i) getting better market information (both pre and after sales) from customer to company, allowing the company to both reduce costs or lead times of raw material while not reducing value, and being able to better place its human resources where it really matters - it can work like a real time value engineering approach. It's not just useful for line operations, social media can be used to influence better design and innovation, and can be used to increase "brain cycle cpacity" by tapping into customers and the overall milieu without having to employ it
(ii) getting a better flow of information between people in the company, so co-ordination is better (less balls are dropped because A didn't know what B knew about customer X) and spped of reaction is faster.
The third cost element, overheads, is interesting. I have some thoughts about using Social Media transaction data to better allocate some overheads, but I don't have a fully formed set of ideas and I haven't seen it put into practice anywhere yet.
Reducing Churn/Increasing Retention
Churn is often not well understood, as many businesses are not aware of the huge differences in cost between retaining an existing customer, and finding a new one. There is often an order of magnitude difference. Thus reducing churn can have a massive impact in cost reduction and revenue increase Social Media can be used to aid customer service, to serve as an early warning for customer problems, to find out what people really value in post sales service, and to improve the product lifecycle. Social media also means bad service is more likely to leave a company's reputation punished, which can also impact sales, as customers typically research online before buying. In saturated industries, having a better churn than the competition can radically alter the market share and strategic positions within a few business cycles.
A brief word on Capex costs - if Social media is helping a busines to make better use of existing assets, in theory it will slow down future Capex requirements - but Social Media technologies do have Opex and Capex costs of their own, and these are typically incurred early up, while the benefits are then gained over a series of cycles. Which brings us to the dreaded Return on Investment (RoI) question.
Return on Investment
For any new technology, ROI is hard to work out, as few case studies exist to allow calibration of cost and benefit. If history is any guide, new and risky ideas are typically implemented first where forces are greater than a pure ROI worry:
- Piloting: trying out the New new thing in some areas of the business, somethimes structurally, often though by "Intrapreneurs" who do it locally out of passion, or seeking promotion etc.
But eventually, for Social Media to take off and scale, believable ROI needs to exist. We are dubious of some of the various "Returns on" currently touted for Social Media, as it is hard to tell which are valid proxies for hard to measure benefits, and which are just Snake Oil. Our test is that if a proxy measure cannot be linked to an underpinning economic benefit logically, its more likely than not to be snake oil.
So far we have seen 3 meta-impacts of Social Media occurring
Firstly, there is a synergy when multiple of the above areas are pursued. The marketing listening systems can influence the customer satisfaction and product design systems, the customer satisfaction system can improve the marketing message, better staff co-ordination can improve customer service and salesforce knowledge and thus effectiveness. In general as more information flows in a business, better decisions are made throughout the business. But its not a given - if organisation culture is not open, if individual reward structures do not encourage sharing, if management use the new dataflows to further expolit staff, these systems can go nowhere, even potentially accelerate problems as they are just better ways of making sure all the sh*t hits the fan.
Secondly, the same influencing ability that works on attracting potential customers can influence sentiment, and thus share price. But this has always been a temporary game in the past, and its unlikley Social media will be any better at selling the sizzle if there is ultimately no beef.
Thirdly, expanding on this, a basket case will be exposed far more quickly - disaffercted customers, employees, investors etc will make their feelings known. In teh old days, they sued to say one disgruntled customer would on average tell 7 people. Now they will tell tens, hundreds, thousands, will write on review sites, will push negative pages higher in the search rankings than "official" company narraticves, etc etc.
Beware the Snake Oil
There are too many Social Media snake oil merchants promising miraculous cures today. We talk about what Social Media can do above. This is what it cannot do:
If we had to give our sanguine view, Social Media is the sort of cluster of technologies that today can give low % increases to all those areas we cover above - but once you sum up say a 5% increase in sales volume, a 5% increase in ARPU, a 5% reduction in OPEX and 5% reduction in churn, you wind up with a shift from (ay) 5% margin to near 30% margin. That is life changing for any business, but it has to be done within the current business systems to get the full impact. The medium may be the message, but it isn't the modus operandi*.
The Downside Risks
As with any powerful new technology, used improperly it can blow up in ones face. There are two main dangers that have emerged so far
The devil in doing all of this is of course in the details. So, we hope to see you on the 15th.....
(*With the exception of wholly new businesses that are Social Media businesses, of course - but that is the subject of another post)
Tuesday, April 23. 2013
After all this hullabaloo today, all you need to do is look at Apple over 35 years and you will see that they:
Its a waveform. Find a wave, ride a wave, find the next wave. Quarterly numbers are irrelevant. They rode the PC wave very well, then the portable music device, then the smartphone, now the tablet.
What will they go after next? And will they be able to reproduce Job's genius for getting onto the board at the right time?
Update - my colleague Keith McMahon nailed the current tactic perfectly when he notes that market expectations currently outstrip reality, hence best strategy - buyback shares
Tuesday, March 26. 2013
I went along to hear Geoff Mulgan (NESTA CEO) at the RSA tonight, talking about his new book "The Locust and the Bee" - a larger summary of the book than this post is over here. The topic is parallel to our Big Potoatoes Innovation manifesto (we aessentially argue that "Innovation" in the last 20 years or so isn't, and Mulgan to an extent explains why. In essence he believes that Capitalism has two forces:
These have been with capitalism (and I'd argue human nature) forever, but from the 1980's (especially post fall of Communism in 1989) Predatory capitalism has moved into the limelight. Now Mulgan is not the first to make these observations (cf Karl Marx, Paul Colinvaux, Jared Diamondl), but the narrative needs repeating. Leading up to 2007, Finance had become increasingly detached from real economics, and predatory behaviour made more money than investing in innovation (apart from innovation in money making). Hence the stultifying of real innovation over the last 20 years or so. The 2007 Crisis was caused by Predation.
The question of course, is what to do next. Six years later, there is still no real agreement on what happened leading up to 2007, the vested interests that caused it are largely still in situ, so its hard to find solutions. Failure to agree cause and solution has led to sullen resignation and resentfulness by populations. In a perfect market, a reciprocal "do unto others as you would have them do unto you" ethos reigns, and in simple transactions we feel unfairness - viscerally - but in complex markets it's far harder to see/control predation. There is an evolutionary argument in New Scientist on this as well, i.e that we are well adpated for controlling predatory (cheating) in small groups, but we haven't yet evolved to control it in large groups where the pain is diffuse:
Mulgan notes that Adam Smith wrote a lot on predation, and he showed us how to spot it - profits are from reciprocal relationships, but Rents - surplusses due to are asymmetric power - are predation, and are still all too common in every value chain today. Mulgan argues these rents are why the Western public is still very wary of Capitalism.
The need of course, going forwards, is to control predation, and help creation. But how? Mulgan argues that Passionate "More" and "Less" Capitalism advocates are both ineffective and unhelpful, and a new way is needed as the old polarities don't work. He cast back in history to look at what worked, and some examples are:
- 1930s - initial attempts were to return to 1920s, but new solutions emerged (He emphasized the "good" ones however, while glossng over other solutions, like Nazism and Stalinism), and noted the pain of the 1930's set the building blocks for the social transformations of the next 50 years
Mulgan's message is essentially one of "do good things, and good things will happen"
All good stuff, but nagging away in my mind the whole talk was a slightly different fable, the Locusts and the Ants. Except the version in my mind was not Aesop, where the Locusts played all summer while the Ants toiled and stored up grain, then come the winter the Locusts all starved. No, the fable in my mind was the one in Disney's "Bugs Life", where the Ants toil and the Locusts rob them of all their surplus every so often. I'd argue that that is a far closer analogy to where we are today. And right now, it seems to me that the only country that has got shot of its Locusts, Bugs Life style, is Iceland
Incidentally, talking of NESTA, we did some work a few years back on Innovation in the 1930's US Great Depression. It showed that yes, creativity and innovation absolutely flourished (a large number of the really Great US corporations of In Search of Excellence fame started off in that period, and they tended to last 1-2 generations longer than the average corporate lifespan. But the work also showed that the Locusts died - old companies crashed in the Depression - leaving space for new, innovative ones. Braver 1930's politicians cracked down harder and faster on the Locusts than - Iceland excepted - we are seing today (separation of retail and domestic banking happened in 1933, only 4 years after the crash. We are still waiting for that now, 6 years in and counting...) Roosevelt's New Deal in 1936 was direct government interruption on the side of teh ants. Arguably, without some form of pest control of the Locusts today, as eventually occurs in Bugs Life, I think a far more plausible future is that the capitalism of next few decades driven by Sovereign Wealth funds and "Financial Repression", with minimal real innovation and ever poorer living standards.
On that gloomy note, there was an interesting possible solution mooted - Innovation in "Life Models". Mulgan pointed out that there were a huge number of Utopias being put forward in the late 1700's /early 1800's, just when Monarchism seemed to be at its most powerful (except for a few years in France before Napoleon crowned himself Emperor) and these ceated huge debates, among large number of people, creating a common drive for freedon that, by 1848 had caused open insurrections and by 1860 Monarchism was radically changed, and power had shifted hugely to more democratic institutions, releasing a never before seen period of Innovation before (or since, as we have argued) that pretty much created todays world.
Our argument is that a New Utopia should be based on a massive, societal investment in fact based innovation. If Sao Paulo can spend 1% of its taxes on Innovation, with measurable benefits, why can't London?. Or the UK? Or any country? Hence the Big Potatoes Innovation manifesto. Part of our Innovation Utopia is to use innovative technology to remove Locust rents, which will eventually disempower them. As to agents of this change, two other points of interest from tonight:
- Cities willbe agents of change rather than nation state, as nation state influence was waning - then 2007 hit and "global" companies had "national" debts - and now no one trusts them (I'd argue post Cyprus no one trusts Super States either). But would you die for your city yet?
But history shows that as well as creation, we still need some Locust pest control as well. And if no one steps up to play Roosevelt, history tells us some far less salubrious characters wait in the wings.
Thursday, February 21. 2013
These graphs come from The Atlantic, and contradict a supposed Science/Technology/Engineering/Maths skills shortage we continuously hear about:
So what is happening? How can you have a skills shortage and a decling level of employment for skilled PhDs. Well, one argument is that they are over-educated and useless outside academe. In fact, one of the commentors to the piece notes that it doesn't look at the BSc and MSc data. But, before I am accused of having Mr Wolowitz Syndrome (as only a lowly holder of a Masters in Eng myself), I must note that it doesn't take a rocket scientist to work out that IF there was a major skills shortage, these graphs wouldn't look like this (the 2001 dotcom spike is a clue...) and all the BScs and MScs would be over-employed and companies would also be sucking in PhDs post haste.
Neither do I see a huge increase in STEM wages over the period of the supposed shortage of the last 2 decades or so, which, if there was a vast shortage, you would expect to see.
Thus, I think there is something else going on, which is that STEM graduates are not prepared to work for the sort of wages that those always wailing about a "shortage" in STEM skills want to pay. My hypothesis on this is based on three streams of data:
You get what you pay for, and if you won't pay*.....
Now admittedly The Atlantic data is US based and my datapoints are from the UK, but (having lived in the US) I have heard similar tales of woe about STEM pay in traditional engineering and science R&D vs other opportunities.
* I have no hard proof, but I'd hypothesize a strong correlation between those wailing about a skills shortage and those using (cheaper) skilled labour from developing countries.
Monday, January 28. 2013
Investors price for miracles - Yahoo Share Price (source: Yahoo Finance)
One has to pity Marissa Mayer, as soon as she climbed into the Yahoo hot seat the stock price rocketed (see above). That is the sign of naive investors thinking one person can turn around a megatanker in a few weeks. Now of course, 6 months later, without the anticipated miracle, there are rumblings of discontent - CNN:
Analysts want to see a return to strong growth, not just stabilization. BCG Financial analyst Colin Gillis put his thoughts in a haiku: "Time for the next stage, of the turnaround story: drive revenue growth," he wrote in a note to clients Tuesday.
The message from the Analysts, as CNN notes, is that Mayer's honeymoon period may be ending. One assumes the short sellers are lining up now, just to add to Mayer's woes....
Our message to the Analysts and Yahoo Investors is that expecting a dramatic turnaround of a basket case company in 6 months is
Thursday, January 17. 2013
There is no problem - Economist
Well, I don't know - you co-write a manifesto (Big Potatoes Innovation Manifesto) in 2009 railing about the main issue with modern Innovation, i.e that its been watered down to safe, easily funded, short term ROI "Continuous Improvement" (see some previous blog posts on this), and that R&D spending is draining down the plughole even faster than bankers' bonusses are rising (a true measure of where Western society places its value, and why it's going bankrupt) - and people tell you that you are being too alarmist, contrarian, just seeking controversy. This was not a popular message at the time.
Then this week, at the beginning of 2013, 3 articles appear in the same week - the Economist, Wired on Larry Page of Google, and the BBC all covering the dilution of innovation.
The Economist one is really a reflection of the "corporate comfort zone" resistance we have found, as it bye-lines "The idea that innovation and new technology have stopped driving growth is getting increasing attention. But it is not well founded". Their argument, beautifully written as always, is that Innovation is there - it is just that we can't see it, that Innovation takes longer than you think anyway, and - an Economist drum they always bang - is that there is Too Much Regulation, which is slowing diffusion down. That these 3 arguments are contradictory is avoided by much circumlocution of the issue that even their own data shows - something has slowed down drastically (see chart, above). They also take the oppotunity to pooh-pooh Paul Romer's 80's research, that ease of access to cheap global labour meant that OECD countries took the foot of the Innovation pedal (despite the visible evidence of reducing R&D spend over these same decades) - but then The Economist Luffs Globalisation, so no surprises there either. It really is one of the more disingenuous attempts to explain away vast swathes of data all pointing in the opposite direction.
Maybe the best way of illustrating the poverty of modern "Innovation" in the consensus the Economist defends is to look at the interview Larry Page had with Steven Levy in Wired (linked above), and this summary paragraph:
Now its a puff piece, sure - but it makes clear what the Google ambition for "Innovation" is. It also possibly goes a way to explaining why Google is where it is today, and many of those The Economist would defend...aren't.
The last piece was a BBC piece looking at the career of Mario Capecchi, who studied genetics at Harvard but concluded it had become a bastion of 'short-term intellectual gratification' (In my view one of the main causes of the popularity of "Innovation as Continuous Improvement" - it is easy to predict progress, so everyone looks liek a winner, it's easy to understand what they are doing as as it isn't "novel", and it rocks no existing boats). So he went to the University of Utah and set up the Eccles Institute of Human Genetics. His work there on the 'knockout mouse' is the foundation stone for mucch of gene therapy and won a Nobel Prize.
What the BBC article points out is that the problem with this 'short-term intellectual gratification' model of Innovation is that despite an illusion of progress every year, there is an inevitable "decrease in returns", as continuously improving the existing thing will always eventually reach a point of no further benefit. People like Capecchi however "look like they are failing" - until of course they succeed and hit the new idea. As the BBC points out, some researchers never do hit the new things all their lives, and the piece shows that overall, in a new study of medical research, the places that do follow the harder path and go after radical Innovation, despite not being able to show a year on year progress, are the ones that hit the home runs - and measured over a longer timeframe of several decades, that is what makes all the difference. They are the more effective approach.
Update - this piece has been picked up on Y Combinator and elsewhere asking the question "Is an obsession with Lean and Agile killing true innovation?"
I can see why it arose, as "Lean" is used these days to describe a bunch of techniques, Continuous Improvement among them, to reduce all wastage in an existing process. I think there is the potential for the "Lets Not Innovate" issue to emerge with "Lean" thinking - initially is an easy win, progress is predictable, everyone looks good, it is improving what is already being so there are fewer political battles to fight, investment is returned in short timescales. Accountants, funders and bosses love this therefore, so yes I think the obsession with Lean - or more accurately with the low hanging fruit it picks - is an enemy of Innovation if people forget to also invest in Innovation (finding the next fruit tree). Lean then falls over when the product/process has been "leaned out" (or more typically you get a hyperbolic curve, where the costs of going from 70% to 80% to 90% Lean rise massively, with 100% being near infinity). The risk (as can be seen in quite a few industries) is that if the enterprise spends all its time and braincells on going Lean with the current technology cycle, then it doesn't innovate for the next wave - poor ROI, dont you see - and gets sidewiped. Being the Leanest movie rental business store on the planet does not save you from Netflix, etc etc*.
Agile is slightly different, it is (re)designing existing processes so that they have resilience and flexibility - but in a Lean World though you can't use capacity redundancy in the design, so it has to be done with multi-skilling/multi tasking/multi purpose assets, culling all lead times, and breaking the product into very modular parts, so any set of operations/workers/etc can be rapidly shuffled to face a new situation. My experience of "Agile" - in both manufacturing and software - is that it is fine within bounds of capacity fluctiuation, but can't cope easily with rapid up-spikes. But I don't see Agile as an enemy of Innovation per se, in fact with ite emphasis on groupwork, multi-skilling, resource sharing and so on I think its probably an ally. But I would note that a disproportionately large amount of "change the world" innovation does not fit in any set process, and happens when there is space, time (and money) to dream of blue skies, and put pies in them.
*Arguably Blockbuster - or any major bricks n' mortar retailer - could have invented their industry NetFlix by applying some Lean analytical approaches (Value Engineering, say) to its supply chain - but this very seldom happens, as it requires a "leap" (aka Innovation and Risk) to go to online while the Lean methodology favours continuous, incremental improvement of what is (and the company gets hooked on short-term gratification). Which of course leaves the space open for startups....
Wednesday, December 19. 2012
The bigger the risk of "getting it wrong", the less appropriate a pure online solution is
Bricks and mortar retail is coming back into fashion - NYT:
After years of criticizing physical stores as relics, even e-commerce zealots are acknowledging there is something to a bricks-and-mortar location. EBay and Etsy are testing temporary stores, while Piperlime, the Gap Inc. unit that was online-only for six years, opened a SoHo store this fall. Bonobos plans to keep opening stores, and Warby Parker, the eyeglass brand, will soon open a physical location.
Why? Well, in the words of the proverbial bank robber, "it's where the money is"
Or to put it another way, the dog days of the biggest recession since 1930 is a good time to score some cheap retail space, and come in with low cost retail techniques.
I'd also look at it strategically - it was always predictable that the online world would succeed with low cost, low uncertainty goods; i.e. where you don't need to experience it first, either because it is a commodity (or at least least getting product testimonials was fairly low hanging fruit, eg books, movies, white goods etc) and/or the risk of getting it wrong was low. But getting out of that bottom left box (see graphic above*) was always going to be much harder. Pre Internet, catalogue retailers used devices like self measurement, lots of photos, no hassle returns (satisfaction guaranteed, or your money back), "lifetime" guarantees (some to extraordinary lengths), and of course discount pricing. Online retailers are experimenting with all these, and new ways to reduce uncertainty (brand trust is playing a big part here), Amazon succeded largely by building an extremely well oiled end to end supply machine (as has iTunes in the digital world, by the way). But even so there comes a point at which you have to experience the product first, before buying, and as online retailing starts to saturate the low cost, low uncertainty (aka low risk) box, it needs hybrid strategies to do this. As yet there is no way of seeing if your bum looks big in those jeans, or that car is just "you" (and not a lemon), without trying it. At that point only trying it on or out yourself will make the sale. Also, there are still large areas of the retail market where only a relationship (high touch) will work.
And since the higher value demand mountain isn't coming to Mahommed fast enough.....here we are, the online players are gettin' on down(town). This is happening while some old Bricks and Mortar retailers are coming in the opposite direction, so it seems like a New Retail World is potentially emerging - New Argos, anyone?
Thing is, bricks and mortar have higher costs, and are easier to tax - so these hybrid retailers need to ensure that there is extra margin to cover them. Maybe temporary stores avoid this, still - one to watch....
(*That graphic, by the way, is about 20 years old, I first did something like it in the mid 90's)
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