investiledysfunction

Monday, February 11th’s Financial Times had an article entitled "IT Spending Forecasts Cut on Recession Fears" which discussed Forrester Research’s estimate the IT spending will grow just 6% over last year.  What is most impressive is that Forrester not only predicts IT spending, but also has cracked the code on so many other pressing economic issues as evidenced by this quote by Andrew Bartels, author of the report:

"Historically, there has always been a strong correlation between the economy and technology spending.  Our forecast is premised on a mild recession in the US economy in the first two or three quarters of 2008, caused by a shrinking housing sector and tapped out consumers reining in their purchases due to higher interest rates, energy costs and consumer debt services."

Wow!  These guys at Forrester are good.  Not only do they predict IT spending but they predict recessions (type: mild) and their length & timing (2 or 3 quarters in 2008).  I am impressed that their multi-variable model is robust enough to spit out all these prognostications.

Of course, Forrester had 2 months ago predicted growth would be at 9%.  Last week, Cisco Systems said it saw "a rapid slowdown in orders in January."

To this, Bartels commented,

"The Cisco announcement was coincidental to the revision in our forecasts…"

Coincidental, eh?  Right right.

I remember reports from Forrester and their brethren in 1999-2001 which predicted B2B marketplaces and e-commerce would be the end of traditional methods of commerce.  These predictions were also accompanied with stylized reports and lots of impressive analysis and survey results.  You know what?  If I had a nickel for everytime these guys were right, I’d be pretty broke. 

As I always say, be wary of the experts. 

Yesterday’s Wall Street Journal had a great cover story piece about the increasing use of the term "Headwind".  As the Journal points out, "To hear executives tell it, headwinds are to blame for the weak sales of cars, tires, paint and books.  Just what are these headwinds?  Everything from high-fuel prices to slow foot traffic in handbag stores to rising newsprint costs."

And everyone is getting into the headwind act sprinkling the term in their addresses to analysts, shareholders, etc.  Users include Rick Wagoner, CEO of GM, Jerry Yang, CEO of Yahoo, G. Kennedy Thompson, CEO Wachovia amongst others.

The term itself is not very interesting.  It’s sort of intuitive in its meaning.  What is interesting however is how organizations talk about these headwinds as a way to seemingly absolve themselves of accountability.  GM has been doing mediocre while some of their foreign competitors are holding up ok, right?  Are they not facing the same "headwinds" or perhaps their headwinds are weaker because they execute and innovate better.  What about Google as compared to Yahoo? 

At the same time, when the market or economy is doing well, how many of these CEOs will speak about a tailwind helping them out?  When things are good, it is generally a cocktail of genius, innovation, our people, products and "customer-centricity" which drive this.  It’s not the fact that the market is growing at 5% or 10% and we’re just rising with the tide.  And even though we may know that is the case, we’d rather take credit and attribute the successes to our management prowess.

I’m undecided.  Are these headwinds or just hot air?

I’ve been impressed with Nike for some time.  As a runner, I’ve never really liked their running shoes to be honest, but I’ve always been impressed with their ability to build a great brand, several sub-brands around specific sport and consistently innovate.

After reading an article in the Feb 11, 2008 issue of Forbes entitled, "On the Run", my appreciation for how Nike innovates increased.  When most companies think about innovation, one of the first dimensions they’ll think about is "size of the the opportunity" and this does make sense, but not always.  What size of the opportunity filter fails to do is include those initiatives which may not be big today, but which could, even tangentially, give you an entree into a larger market tomorrow.  We are talking about optionality here and options have value.  And I call what Nike does micro-innovation.

They micro-innovate on products.  "Nike has revenues of $16 billion a year. Roughly three-fifths comes from footwear, most of the rest from apparel, but it slices its markets very thin. There is one shoe aimed only at Native American athletes, another for cricket players in India, yet another for folks who play lacrosse. The count of different sneaker and apparel styles has reached 13,000 a quarter. On this extravagantly diverse product line Nike will probably net $1.6 billion in the fiscal year that ends in May."

A lot of companies would say that this many products is confusing and they should prune the offerings, and in the case of a P&G where one detergent is really not that different from the next one they have, this may make sense.  But in the case of Nike, they’re working with consumers who play sports and who are governed by styles, cultures, etc that are different. 

Most organizations would say, "Why focus on Native Americans or Lacrosse?"  And what ultimately ends up happening is some upstart will see the demand there and build a product for them and then over time, they’ll go upstream and start to encroach on your turf.  In the case of Nike, Under Armour is the example of this.  They started with their sweat-wicking clothes and unveiled their footwear line at the SuperBowl.  A Nike misstep may have enabled them to do this.

Beyond their micro-innovation from a product perspective, the company also is willing to micro-innovate on the marketing front.  They spend $2B per annum (that B as in billion) on marketing but spend little on mass-market television ($60 million in the first 9 months of 2007).  Instead, CEO Mark G. Parker, would rather spend money on events or on the Web (for example, the LeBron James Showroom in Shanghai or a web video of Brazilian soccer star Ronaldhino which got 35 million hits).  Again, these are not marketing vehicles guaranteed to get the most viewers or eyeballs like TV and are arguably less "safe" than TV, but Nike is willing to push their thinking on marketing to also go after micro-channels.

For a large company like Nike, this type of nimbleness is commendable.  It seems that their ability to segment the market thinly and serve those needs will continue to allow them to dominate footwear and sports apparel.

In Time Magazine’s Feb 18, 2008 issue, there is an article titled "Downsizing Style" by Kate Betts which as as you are reading it gives you the sensation of those Sour Patch Kid candies - it is both unpleasant and pleasant at the same time.  The article discusses how many high-end European and American Designers a la Marc Jacobs, Dolce & Gabbana, Missoni, etc are offering $300 cashmere sweaters and $150 jeans to new 6-year old fashionistas. 

The Pleasant - I applaud the designers for seeing a market opportunity and innovating in a way to fill this market need.  This is capitalism at its best.

The Unpleasant - Why do 6 year olds need $300 cashmere sweaters?  (Maybe the question is why anyone, but let’s focus on the kids for now)  My blog is not usually filled with social commentary, but this does scare me especially when folks say things like "Kids are more sophisticated about fashion now.  Fashion is a major part of how they express themselves.  It’s a huge part of their culture, and boomer moms definitely want the very best for their kids."  (quote by Gela Nash-Taylor, who along with Pamela Skaist-Levy launched Juicy Couture kids).  I live in NYC and maybe this is only a big city thing (I hope), but sophisticated 6 year-olds? C’mon now…

Fortune’s Feb 18, 2008 issue has an article written by management guru, Ram Charan, which offers some useful advice as we enter uncertain economic times (possible recession).  While he covers a few key principles around people and customers, I found two of his points most salient and wise.

1. Keep Building - Charan argues that typically organizations go after discretionary spending when the top and bottom line look uncertain.  And he says this is the absolute wrong thing to do.  Product development, innovaton and brand building are not optional he insists.  And he is 100% right.  These investments are ways to ensure that you come out flying when the downturn invariably ends.  In essence, you are not selling your children as Charan puts it "for a slightly more comfortable present." 
2. No across-the-board cuts - Related to his keep building credo, Charan argues that cuts should have logic behind them, not just equal opportunity cuts across the organization.  "Don’t be fair about it" he comments.  What should happen is that you cut those less useful expenses and reinvest those areas to build future growth avenues, capacity, etc.

Despite the wisdom of this advice, I’m sure that if the economy persists in slowing, we will be reading about wide-scale layoffs and reductions in spending for many organizations.  Those organizations willing to be a bit contrarian in this environment are likely to do very well when the cycle turns.

The Business Technology section of Feb 5th’s Wall Street Journal had an article about software as a service (SaaS) entitled "Online Software: Buzz vs Business" (login req’d to read article) which discussed online software and their inability to do what a company needs it to do which ultimately is leading to decreased adoption.

SaaS is supposed to make business computing cheaper, faster from an implementation perspective and easier, but it is running into several hurdles including not being able to handle customized requirements of organizations and fears around the data being off-site. 

At present, SaaS accounts for 6% of software sales of $5.1 billion according to Gartner.  They expect it to become 15-18% of the market in the next few years. 

Some thoughts:

1. The security concerns will have to be resolved, but this seems entirely achievable.  Proper safeguards can be put into place to get customers comfortable on this front (at least over time)
2. The flexibility hurdle is a bigger one for SaaS vendors because unfortunately, it seems every company thinks its requirements are unique and that the software must be customized to reflect their reality.  Hopefully, companies that want the benefits of SaaS will take a deeper look at their own methods and see that the customizations they were requesting are really not that required or material (wishful thinking perhaps).  At the same time, I’m sure SaaS vendors will develop means to be more flexible/customizable.  I hope the two groups can then meet in the middle as SaaS seems to have significant upside potential.

What do others think about the prospects for SaaS?  What are the hurdles to SaaS adoption?  Do you have any good stories or nightmares about SaaS you can share?

Deprivation research is a market research technique where marketers measure how loyal consumers are to a brand, product or service by taking it away from them.  Yesterday’s Wall Street Journal talked about the use of deprivation research at Burger King.  You’ve probably seen the ads where real customers are told the Whopper had been taken off the menu and they then express their outrage.  Great ads which show customers’ loyalty to the Whopper. 

I was thinking about this deprivation technique and thought that corporations should apply this to their own processes and practices (with a little twist).  Let’s take the wonderful budgeting process.  Get rid of it and then see how many people actually complain.  Sure, there will be some folks who will miss the tedium of the budgeting process, but overall, people driving the business will probably not care as the process is generally of such little value.

Of course, I am exaggerating here (but only slightly).  There are lots of internal practices & processes which result in low value and significant unproductive complexity in most organizations.  And oftentimes, these have been passed down from generation to generation with little scrutiny to the value they provide.  And quite honestly nobody really cares about many of these.  Whether it is budgeting, internal transfer pricing, recurring and repetitive management meetings, strategic planning exercises,  etc., there is lots of value to be derived from "depriving" the organization of these practices.  You’ll then get firsthand perspective into how "necessary" many of these practices and processes really are.  I think you’ll see that many people won’t express much loyalty or miss the things you deprive them of.

I gave a keynote address at the Palladium’s Planning & Budgeting Conference earlier this week and had a great time.  Of course, the conference had the typical conference adornments (consultants pushing frameworks and software solutions), but to my pleasant surprise, there were many speakers there who were practitioners who are/were making change happen.  This resulted in lots of great conversation and idea sharing.   

Notable presentations included those by folks at Bose, StatOilHydro and Unilever.  It was good to see discussion of several topics and themes including:

1. The somewhat useless nature of traditional budgeting
2. Increasing realization that dynamic resource allocation needs to be enabled to allow organizations to react to and more nimbly adapt to opportunities, changing environment, etc. - A great commercial for the increasing need for corporate portfolio management
3. Belief that strategy, process, and systems are all interesting and nice but that organizational behavior and culture are just as important

I also wanted to thank those who I talked with for their kind words regarding my presentation.  It seems with the discussion of resource allocation being so much more prominent that the discipline of corporate portfolio management will gain greater adoption.

I often read statistical and mathematical analyses that have an ‘agenda’.  Whether it is folks promoting research that shows corporate governanance, IT, environmental impact, etc and their relation to company performance, I’m always a bit skeptical of the findings because these ‘research organization’s have a vested interest (often) in their findings.  (See my recent posting on IT research firms - Aberdeen in particular - to see what I’m talking about)

So needless to say, it is nice sometimes to see a mathematical analyis which is just plain useful.  As someone who lives in NYC, there is always a question of whether to wait for a bus (or in my case the subway) or is it in some instances just quicker to start walking. 

Well, you needn’t wonder any more.  A mathematical equation developed by the smart folks at the California Institute of Technology and Harvard says that it is better to just wait then to start walking and hope to catch the bus/train at a stop down the line.  (please note:  their analysis was only for buses so I’m assuming/extrapolating its relevance for subway trains as well).  They also found that it doesn’t make a difference how many stops there are on the trip or the length of wait b/w buses. 

In a nod to decisiveness, the researchers found that if you are contemplating walking, it is smartest to just start walking immediately.  Too much time spent contemplating is time wasted.  Many organizations can probably benefit from this advice as well.

Thanks for the useful research ladies and gents at Harvard and California Institute of Technology.  I wish more mathematical research would be useful like this

Today, Lee Gomes’ Portal column in the Wall Street Journal today entitled, "Vendors Still Paying For IT Research That Flatters Them" (subscription required) delivered a serious bodyblow to technology consulting and research outfit, The Aberdeen Group.  Gomes’ essential point was that companies like Aberdeen (and I’d say all other big IT and Finance research firms) are far from unbiased and actually quite conflicted in the work they do. 

Let’s first understand Gomes’ arguments.  He writes about the old Aberdeen "which was for the most part a "pay-for-praise" operation.  If you saw an Aberdeen report saying that Acme MicroMacro sold world-class solutions, you could be sure that Acme had written Aberdeen a world-class check."

He then goes on to discuss how Aberdeen has repositioned itself by ending this practice and now doing "sponsored research."  He writes, "The new Aberdeen is better than the old one.  How much better, though, is the question, because the new reports also seem conspicuously flattering."

Basically, sponsored research lets firms pay ~$30,000 to Aberdeen who then conduct surveys with tech users.  The sponsors Gomes talked to said they like to sponsor a report because it provides a "chance to rise above the noise of the marketplace by being associated with something customers consider "research"."  Even sponsors know the research is of dubious value, but it gives them an air of credibility.

He goes onto describe the conflicts which are clear.  Aberdeen did 212 reports last year with 4-5 sponsors each.  He writes, "But if much of your top line is dependent on getting tech companies to sponsor your research reports, you’ve got quite an incentive to design questionnaires that will yield the kind of reports tech vendors will want to sponsor." 

"In that regard," Gomes writes, "Aberdeen delivers.  The reports seem to invariably discover that "best in class" companies use, or are thinking about using, or somehow embody, whatever technology the report happens to be discussing."

I hope more people will take heed of what Gomes is writing.  I’ve written about it before in my blog as there are too many inherent conflicts that such organizations have and so their advice is far from fair and balanced.  But when someone brings it up in the Wall Street Journal, it will get attention which it deserves.  I’m sure the PR machines of the big research firms are going into overdrive to demonstrate how unbiased they are, but there is no way to get around these massive conflicts.  Beyond research sponsorship, other conflicts include:

• Conferences are hosted with technology vendors sponsoring booths, dinners, etc.  In many instances, it is these vendors who speak at these conferences.  Why pay to goto a conference to hear a salesguy drone on when you could call him and he’ll come to you? 
• There are entire magazines which claim to provide objective advice and "best practices" to readers but whose article authors are consultants and vendors pushing concepts that they "happen" to have expertise in.

As I have argued previously in my blog, (see one posting) you have to remain skeptical because objective research on the myriad self-anointed "best practices" is often not objective and the practices they’re advocating are often far from best.  So before you use a report to help make the case to buy a piece of software or undertake an initiative to mirror some "best practice" within your organization, be mindful of the source.