What can we learn on Offshoring/commoditization in IT Services from garment industry?

The above is a very interesting question.... I remember while as a kid in India, how the textile outsourcing promised endless employment opportunities to the skilled and unskilled labor of India...so much so that having a sewing machine was considered as an insurance plan for the unemployed spouces of bread-winners....

Lets look at something interesting from the garment industry....

The shift in factors of production to offshore was triggered by the low-cost labour to stich garments and the labour intensiveness (both skilled and unskilled) of the industry itself....As consumer started pushing for lower prices; the textile industry quickly pushed production to the offshore centers in Asia (China, India, Phillipines, Bangaldesh, Pakistan, etc...). The developed countries retained the designing and marketing at their respective centers. The entire offshoring/outsourcing in the Garment industry (textile and clothing) has been highly regulated through GATT, MFA, and ATC regulations limiting the scale and scope of offshoring to developing countries (in other words low-cost). It would be interesting to understand what contributed to commoditization in this industry:

1. Consumer propoensity to spend less on textile/clothing, and
2. Skill/capability requirements required to participate
3. the support provided by local governments which perceived it as a means to generate employment to the masses (both skilled and unskilled)
4. Low labour cost from developing countries and
5. Higher degree of automation in textile and clothing industry (more so in the latter)

The disincentives for commoditization and offshoring are:
1. Regulation (quotas systems, quantitative restrictions, etc.)
2. Customer proximity that helps in understanding the tastes, preferences, needs, wants and choices...this basically relates to lot of qualitatives that are difficult to do from offshore

An interesting additional perspective on this can be got from the web site: http://www.tno.it/tecno_it/fashion4_2_05/documenti/WTO%20Discussion%20Paper%20TExtile%20and%20Clothing%20after%202005.pdf

How much of it relates to IT services? I think most of it in different shapes, sizes, and in scope...We will address this in a seprate article...

What is common or different between "Product Lifecycle", and "Technology Hype-Curve"?

 

To understand the basic jargons here are few references for you:
1. Product Lifecycle: http://www.quickmba.com/marketing/product/lifecycle/
2. Technology Hype-Curve: http://en.wikipedia.org/wiki/Hype_cycle

 

A quick Narrative

When we look at the combined figure all new technology trigger leads to new product introduction in the market. The unabated hype results in inflated expectation this is usally marked by the growth  and maturity phases. The market soon comes to grips with the real potential of a technology offering in terms of the benefits/utility of it and troughs in disillusionment, this often is the stage of market decline. The final phase is a plateau of productivity reached by the new technology, this is where the product sales tanks… This is where the “Innovators dilemma” creeps in and also if there is no innovation dilemma there is the “long tails” for the product…Which way it heads to depends on what is the nature of innovation….

Now lets look at the commonality and difference between the curves….

 

First Lets tackle what is common:
1. They all have a "S-Curves" or seemingly a "Normal curve"
2. They all explain the phenomena of a seemingly predictable pattern for entities through their lifecycle
3. They all appear to be simplifying (maybe somtimes trivializing!) the challenges of Technology Forecasting. (Refer more on techniques one uses in Technology forecasting...)

Lets look at what is so different:
1. They use different jargons (depending on your subject of interest: Marketing, Change Mgmt, etc.) to explain the inflection points on the curves


I cant see any more differences though...Need your help! Any comments or perspectives you can share?


We can look at few ideas like Grid Computing, Cloud computing, SoA and so on on the curves to see how they pan-out... Quiet interesting to view these trends by positing them on the curves....I was quiet amused when I was reflecting on my journey through school where I was so obsessed with AI and NLP...Thanks to my internship in one of the premier R&D center and few Terminator type movies, I was able to see through the disillusionment :-)...

Its a worthy exercise after all!

For more reading on this topic visit : http://www.au.af.mil/au/awc/awcgate/awc-futr.htm#adoption

Its time well-spent I would

Your superstitious Strategic consultant- What do they say for IT?

I read this article on S&B advice for CEO on how to prepare for difficult times....Let me relate this to some of the IT firms that mushroomed all over India:

1. Acquire captive units of clients whos operations are sub-optimal...just as you note they are 10-20% more expensive then running thorugh a boutique offshoring company
2. Shop for acquisitions...but dont do an AXON one plz....
3. Screw your employees as they are 80% of the operation cost for IT companies..they have nowhere else to go! (Apologies for being rude but I think it is more effective to use strong words)
a.Put them in any project any technology...throw them into the first available project....if they dont survive fire them
b. If your employees ask for change or roll off from engagement lower their performance rating
c. reduce their salaries
4. Anyways IT companies are cash rich and dont need long-term debt (well corporate Financiers will disagree) so we can raise funds on carry huge assets on balance sheets that needs recapitalization (hopefully the operating leases are not revised here)...so use all the cash and diversify into other businesses (for example I know one few large corporates in India going into "Green" business :-)...
5. Take more forward covers and currency options....well you anyway lose them due to volatility...no doubt the currency futres in India is shining like a Star...
6. Invest in Innovation...good for integrated players..what about Pure IT services companies! Just buy more companies in the market to provide integrated services....diversifying into products is not a bad idea after all...
7 Take more risks and bid agressively for deals with lower margins...something is better than nothing...

Any other views!

Ponzi schemes in IT- Do we have ponzi schemes in IT?

Definitely yes...If you thought ponzi schemes are prevelant only in Capital markets you may be wrong...havent you heard of the latest Ponzi scheme run by Madoff ripping off $ 50 billion in corporate debt markets and becoming the undertaker (not an insurance jargon plz...i'm getting tierd of those at work) of few hedge funds exposed to corporate debts!

There are few in IT, let me name some of these schemes:
1. Offshoring
2. Productivity gains
3. Quicker return on IT investments
4. Zero transition cost
5. Transformational IT engagements
5. Lower TCO

hee hee i wish I can go on for some more....I'd love to elaborate on this further...wait and watch this space in the coming months....let us see what it all throws up...

What is the right Support cost to be factored for large SI engagement?

This is a very interesting topic for the academics & practitioners. Lets look at some examples of clients and large product vendors like Oracle and SAP only the cost side.



Academic

---------------

Statistic presented in the paper for a 10 year software life: http://www.ifi.uzh.ch/rerg/fileadmin/downloads/teaching/seminars/seminar_ws0203/Seminar_9.pdf

GTE – 60% cost is maintenance and 40% is development

USAF Command & Control - ~65-75% Maintenance

GM – 80% (probably it’s the darn EDS who ripped them off!)

Oracle

----------

Oracle charges 22% for Product Update and License Support. The Product Update is 15% and License Support is 7%. Product update includes enhancement to products, patch release, internal R&D amortized expenses passed on to clients and so on…7% is their charge to clients to provide on-line support suchs as Tars, patches, etc this is typically the amortized cost of providing Level 4 (if you will for using the terminology here…J) for their on-call support. This has been consistent stand of Oracle. They usually do not separate Product Update and License support and sell only one to customer, but then for strategic deal they can do that. The above means once in every 5 years we should replace the software ;-) ……it has a shelf life of only 5 years if we do not pay support fees….

SAP

------

SAP had initially priced their support at 17% and later increased it to 22% and invited client CIO wrath!. This aligns with what Oracle has been doing for a long-time (22%).

Lets look at the effort side of the game…

Based on same research mentioned in the Academic section above for a 100 man days of effort. 49 man days is spent on Maintenance, 43 man days in development and 8 man days in others…

No offence meant to anyone. Based on the above understanding of mine, I was surprised that some IT Consulting/Services orgs seem to anchor 25% - 33% number. I can see the rationale of where this number could’ve come from based on above. But not sure whether we are applying it right

The other challenge I have is to base estimates on call pattern and object maintenance pattern using our typical estimator. If the application built happens to be cutting-edge and innovation, we cant anchor based on SAP/Oracles of the world. There is no precedent exists in such solution similar to what is being proposed that I know off…

For now, it seems I’ve proposed the above 25% rationale on effort per annum.

Impact of 2008 crisis on IT – Driving forward looking at rearview mirror…

I read a very interesting article in Mckinsey: Industry trends in the downturn: A snapshot http://www.mckinseyquarterly.com/Energy_Resources_Materials/Steel/Industry_trends_in_the_downturn_A_snapshot_2264

Quiet interesting for those of us in the High-technology industry to look at the trends…The IT spending as a trend has reduced 5 to 7 times that of GDP (With h/w 8-9 times and the IT S/w/Svs 3- 5 times)…The article sites the trend chart reasoning rather shallowly as contributed by high-spending in the Y2K and .Com boom…I completely disagree with this, having participated in both the Hardware, Software and IT services in my checkered Industry experience…Lets look at what has really been happening…..

H/w 2001 hence
In Hardware industry the prices has been falling the moment Industry revolutionized the Intel-based servers call it Titanium and/or multi-core technologies…I don’t see many proprietary server uptakes growing anywhere in the market…The commoditization of server has been doing extremely well to drive out the “Elephants who cant dance”
The processor is not he only driver to this trend…the trend is further supported by falling prices of Memory and memory access technologies…so you may use the additional terminology of “Economies of Scale”…Sorry Adam Smithsonians out there, I haven’t seen “diminishing rate of returns” yet…I attribute the reduction in cost driver to Innovation in Marketing first and technology next…

Storage:
In Storage industry too the price per MB/GB of storage has been constantly driven down…more than the commoditization of server it can be attributed to fine slicing of the storage segment for different application requirement of storage: archival, static, dynamic storage:
SATA/ATA disks vs the expensive SCSI disks
Falling prices of controllers
Falling prices of interface cards, and so on…
I attribute the reduction in cost driver in this segment to Innovation in Marketing and not so much the technology…

Network & Peripherals
There are 2 components that has been witnessing drop in prices one is the cost of communication equipments and the services associated with keeping these technologies up and running….some of the key developments contrivuting to these has been the following:
Falling prices of components to assemble network equipments
More efficient routing algorithms and efficient transmission of packets
Technology evolution both mobile and standard in transmissions (I may sound stupid rattling the technologies here without devoting a separate article on the topic backed by solid research: MPLS, ATM, FR, Ocnet, etc…)

Software
The greatest cost has been those of the reduction in license cost while increasing Product support and upgrade cost….

The license cost has been going south facilitated by the following:
Innovative subscription models and SaaS…written by me in other articles
Piracy forcing vendors to reduce cost lest it is completely free
GNU & freeware (spurious ware)

IT Services
No doubt the factors reducing the cost are not just India and China, but also the promise of the COTS packages and the industry specific features that are requiring less effort to manage on the lon term…(I’ll cover this more in detail later)…you can get more view to it on my article under “Outsourcing” category

Is there anything I’ve missed….share your comments and views on this…..

Does Ombudsmen process or Grievance cell created by firms deal with inappropriate behavior by firms’ agents effectively?

It has been noted that firms often create Ombudsmen process or Grievance cells to deal with inappropriate behavior of firms’ agents i.e. supervisors/managers within an organization. Especially in difficult environment (read economic) conditions there are more incidents where employees are often exploited by supervisors/managers (and vice-versa as well)… This has typically been dealt with in traditional industries by the employee unions….Unions can be effective or ineffective in dealing with such problem, without causing other implicit challenges to efficient functioning of the firm…(Well you know that I’m hinting at the UAW and their ballooning health benefits and other benefits, that is almost sinking big auto players in US…) Unfortunately in IT industry we do not have registered unions…atleast those that were sprouting due to firms entry in certain delivery locations where worker unionization has a strong political will, has also been rendered toothless due to several reasons attributed directly and indirectly to firms and their agents….Lets stop digressing and look at a simple model to look at the cause and effects of such Ombudsmen/Grievance cell in organizations…

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The above model clearly indicates the causal reasoning applied when the ombudsman/grievance cell is put in place to tackle with inappropriate behaviour..On analyzing the above flow it becomes clear that only very few oppressed employees will complaint through the Ombudsman process as they inherently know the effect of retribution by the supervisor/mgr against whom the complaints are launched, but those who do so are already prepared their exit options when retribution arises….The few employees who do not have exit options remain in the system and vent their feelings, which eventually erodes trust impacting the high performance of employees…(countless books written on trust vs. High performance…I’ve written few book reviews on the same topic, those interested may check out my book review section of blogs site http://insightful-journey.blogspot.com …)..You may be wondering how I know this? Well I’ve experienced it myself and seen countless people seeking my advice as well and how to handle this…(I’m not alone out there you see…J..)

 

Now if the above system is not effective from a systemic perspective why is this being put in place in the first place…Not all it seems is as negative as what is being portrayed above…It is very clear if you know why the system will break you would also define how to correct them by changing the rules of the game (I’m not going to discuss how strategies can be defined using concepts from Game theory though) like for example moving a complainant immediately out of the specific management & control of the oppressor.. Also, there are very few instances where employees utilize these processes and contribute to the system…as always there is a cost the firm and oppressed employees pay as well (either quitting or sometimes even staying on in the organization)…

 

How differently can such system be designed so the real problems highlighted above can be resolved? There are few potential, untested ideas I have as an effectual reasoning person….The best is to create a Points system (similar to the rewards system) which is objectively designed…whenever an employee is oppressed he/she raises the issue on the portal site using key pneumonic of issues (harassment, Oppression, favoritism, Integrity, etc.)..Each such reason has a certain points that can get debited from the manager who is also cited by the complainant (we can use techniques like AHP to crystallize on the quantitative points for the pneumonic). This can then effectively feed into the yearly appraisal cycle resulting in penalties and eventually affecting their pay-package/promotions etc….Now this system may create vested interest on employees as they may collude to weed out objective decision…the counter-balance to this is the complaint process that can be effected by the supervisor/manager through points system as well overseen by a neutral third-party (can be within the firm or outside the firm…its better to have an outside agency)…On a systemic level this system may figure out an efficient means to weed out  managers and employees with inappropriate behaviors…. What is your opinion on this any other system you think can be devised that is fool-proof and more objective?...

Work-Life balance- Looking through a multi-specialty view (economist, Sociologist and Maybe philanthropist…)

Work-life balance is often the most pronounced topic especially in the IT world…..I was just reading Paul Krugmans book on economics on production frontiers and would construct a very simple model of work in one axis and Life in other axis…to me the graph may have a very interesting bell shaped curve….(depending of course on which axes you put work and life…J….)

 

Let’s look at the graph to really understand this model….

 

 

If one has to view it very simply…there is an optimal balance of work required for a decent life…in effect no works leads to no life and in the same context increased work leads to decreasing life (due to stress, loss of health, poor quality)…again this curve in general applies to a normal productive resource…I mean normal for those who has a balanced life (life is not all about work; but also about spending time with the family)…the above graph itself  demonstrates that the perception of balance is often subjective….

 

The graph above does not differentiate race, color, region, sex, status and so on…it generally applies to all…though the social norms may vary and promote diversity in perception of what a balanced resource means….

 

Going now by the same logic does it mean then that during difficult times increasing work-hours or putting in more productive hours benefit the organization or economy as a whole…This is a very interesting topic to discuss…what the increase in productive hours seems to do is basically shift the kurtosis of the above bell shaped curve…lets look at this in context of what increased working hour does to the above graph as represented in Fig 2….

This has basically reduced the quality of life for a productive resource…but did it commensurately increase the productive hour of a resource…this may be debatable as one needs to understand what is productive hour of resource…especially if resource contributions are not measured or directly account to achieving or not achieving an outcome…Achieving or not achieving a outcome is usually better achieved through the means of shifting accountability to resources rather than just increasing the productive hours….Again, there is another interesting debate on whether working longer leads to passing on productivity benefits to client…not really so it seems especially for new deals as the new deals will drive towards charging more to client per hour in a day by ~11%...however the old deals contracted for 8 hours a day may stand to benefit due to increased hours of working? Not to sure again it shifts back to what resources really do in that 1 additional hour of work contributing to the outcome….. This is an interesting topic….my hypothesis is just increasing the productive hours may be a bad decision in long run ceteris paribus….What do you think?

What are the IT Service trends that would reduce the cost of providing IT Services by half?

This is an interesting question. There are some trends that are interesting to track, as they have a bearing in reducing the cost of providing IT Services:

1. Labor Arbitrage: More low-cost countries China, Africa replicating the IT service model and providing the labor cost arbitrage benefits to developed markets - Probability 40%
2. Growth in OSS: and the associated services - Probability 60%
3. Automation through IT tools - Probability 30%
4. More stable platform based COTS applications that reduce the cost of maintenance for S/w - Probability 80%
5. Seeking lesser skills and hence lower cost of providing the required IT maintenance services - Probability 70%

One needs to look at the above trends and run correlation of the above models growth to the reduction in cost of providing maintenance service...The interesting challenge here would be to first track the cost of maintaining the Software and definition of right elements to be considered here such as:

a. Labor payroll cost
b. Non-Labor costs such as Software/Hardware/Network Support, Maintenance & Upgrade license costs


It seems the above is relatively straightforward factors to track. The impacts of the above trends on the elements of costs are interesting to see as in the following table:

Events\Factors	Labor Cost	Non Labor costs
Labor Arbitrage	Medium	Medium
Growth of OSS	Medium	Low
Automation	Low	Medium
COTS package	Medium	Medium
Pyramid rationalization	Medium	Low

Based on the above matrix…it seems one can evaluate the effect of the impacts by understanding the proportion of cost play for the Labor and the Non-Labor factors... Typically this ratio swings from 70-80% of payroll cost and shift the maximum impact to lowering the Payroll cost….It will not be too far when the Non-Labor cost factors moves up to take a significant share of the cost primarily due to COTS packages oligopolistic powers, increasing customization of the packages, extraneous other factors such as inflation/forex mkts and so on….

Entrepreneurship: A great article on what makes entrepreneurs entrepreneurial and the gauge of value...

I came across this really interesting article written by Saras Saraswathi, which I downloaded while looking up Vinod Khosla the No: 1 VC ranked by Forbes & Fortune. http://www.khoslaventures.com/presentations/What_makes_entrepreneurs_entrepreneurial.pdf. The article clearly brings out what qualities makes an entrepreneur unlike the qualities that make a good manager by bringing out the difference between causal reasoning and effectual reasoning. While in causal reasoning the manager often knows that goals to achieve and may or may not use creativity to pick the best means to achieve the stated goal, while the entrepreneurial effectual reasoning takes stock of the means and set out to action on several means to achieve a unstated or not clearly articulated goals. The author brings out an interesting nuance that good entrepreneurs demonstrate both the qualities of reasoning fairly well....Quiet interestingly entrepreneurs have 3 very important principle abstracted by the author so well: 1. "The affordable loss principle", 2. The strategic partnership principle and 3. The leveraging contingency principle. The Causal reasoning fellows look for predictive model to enable them control a situation, while the effectual reasoning fellows don’t care predicting things they can control nevertheless...Quiet interesting insight for some managers out there :-)....it often sparks a question in my mind why are managers so paranoid about risks-contingency plans, issues etc. on an opportunity...aren’t they the experts who should take it on stride and solve it as it comes along or atleast influence the desired outcomes being the players rather than the spectators... to me that separates leadership and management....

I've also been simultaneously reading about the value created by entrepreneurship http://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2006.1.1.97 . One is an Opportunistic entrepreneurship and the other is Necessity Entrepreneurship.
Opportunistic: It seems leads to tapping the opportunity for unmet need in the market through Innovation. This will result in creating probably a "New Business Model" with new job. This I also come to believe has a positive correlation with GDP and growth of country, thereby adding the maximum value.
Necessity: This I understand stems, when a new entrepreneurial venture is started as the resources are not employable or lack of opportunities for employment. Classic example is that of an agriculturist who ploughs his/her own land to make a living. This does not add great value to the society...
The article also goes ahead in identifying three stages through the development cycle that a country goes through resulting in entrepreneurial ventures/self-employment opportunities: The 3 stages are: agricultural/small manufacturing firms with high self-employment but limited value, stage 2 where managers are in great demand and small firms become bigger, here the self-employment opportunities shrink, this is then followed by Stage 3 where services overtake and creates more self-employment opportunities. Interesting to see in which stage a country is in, thereby giving us cues to what we can expect as the next stage of development/evolution of firms.... But, interestingly it also helps us understand whether an entrepreneurial venture would eventually lead to contributing value to the society on nation-sate.....interesting reflections for me is to consider if any of this thoughts could be used to view the new deals that we sign for our firm....are these deals value adding or value eroding....which stage of cycle is the firm in considering the unprecedented volatility in the markets right now....interesting to think about it....

Is R&D spending a good indicator of Innovation?

To understand that we first need to define what Innovation means. Innovation is a defined as new way if doing something. There are interesting ways of measuring this and one can get more information from the Oslo Manual, Frascati Manual, Patent Manual, and so on.

So now let’s try answering the above question on whether measurement of R&D spending is a good indicator of Innovation.

No maybe not. Let’s look at some examples all research does not fructify to useful innovation as in the case of Pharmaceutical research. Similarly all development expenses do not lead to innovation either, this cannot be more true than looking at the auto industry...Interestingly the R&D spend for 2007 by 1000 top companies (in terms of revenues) is 3.6% of their sales decreasing moderately from last year. Interesting pattern to observe here is that Software/Internet/Computing & electronics, Pharmaceuticals and Auto are the top R&D spenders. Software and Internet industry has been spending 13.7% of their sales on R&D and are on top of the table even before healthcare...isn’t it surprising....how much of their innovations are we seeing that is making difference to the lives of millions of ppl out there...contrast this with pharmaceuticals....interesting parody!

I'm dying to get the "Grabbing Lightning" book about innovation where the authors’ state: “We found no relationship between R&D expenditures as a percentage of sales and innovativeness,” . They reached this conclusion after reading the same article that I read :-)....( “Beyond Borders: The Global Innovation 1000,” by Barry Jaruzelski and Kevin Dehoff, s+b, Winter 2008.)


It is altogether interesting topic to discuss whether innovation has contributed to profitability and sustenance of a firm in industry more than anything else? I'm not too sure if I'd look at Auto companies in the US....

What should Indian IT industry do to minimize the impacts of reverse offshoring?

What can the Indian IT Industry do to ensure that we dont loose our jobs when we become less competetive (assuming the technology innovation are not mature enough to eliminate the need for significant labour)?

Any ideas!

The reversal of IT Offshoring - How far is it?

How far is the reversal of offshoring witnessed by IT companies?

That question may probably be answered by looking at why companies actually chose to offshore:

1. Labour cost arbitrage in other words low wages
2. Currency arbitrage - Appreciation of US dollars against developing economies
3. Flexibility of resources - For example Loose labor policies & its enforcement allowing companies to exploit Indian labour (Imagine overtime in Indian IT services need not be paid). Working in odd hours to make few extra bucks!
4. Availability of Talent - Tricky bit lets defer this for later
5. Scalability of workforce - Ability to quickly ramp-up resource. Another tricky one which we can defer to later

Some of the above conditions may not hold for too long.
1. The wage inflation in developing countries are faster than that of developed world. For example the wage inflation in Brazil, China and India are in the range of 21%, 19% and 33% in last 5 years as per EIU
2. Currency have been artificailly maintained at pegged level, we had seen enough debates of this between China and US. India is not a open market....How many times have we seen RBI intervention in the currency market to manage the float of rupee against the dollar.
3. Labor in developing can no longer be taken for granted...Gen X & Y dont want to work overtime anylonger and defintely cannot tolerate working in graveyard shift...
4. Availability and Scalability are tricky bits....i'll not address this...but they are more perception then reality...Imagine tomorrow technology innovation eliminates a need for huge labour skills!

How long before we can see the trend reversing...it is a worhtwhile study by looking at the above factors. India today is 1/3rd cheaper then the wages in US...so we can do a simple math to arrive at the number of years 11. Now we've not even included the predictions of exchange rate.

What can the Indian IT Industry do to ensure that we dont loose our jobs when we become less competetive (assuming the technology innovation are not mature enough to eliminate the need for significant labour)?

This is an interesting topic in itself...we'll try and deal with it in another Post...

Exploiting the Market gap through innovation

Interesting interview from Charles Geschke on his life at Adobe....http://knowledge.wharton.upenn.edu/article.cfm?articleid=2038

Amazing to know that this 4th largest IT products company was the first to pioneer freeware with Adobe much before the Linux of the world. Charles cites of how Microsoft has bullied its way into the market by cloning someones innovation on Excel, Word, PPTs and so on and did so well for itself. He also mentions how the company belts out new products so frequently into the market and monetizes it. The simple rule he says is by exploiting the market gap i.e. identify a unmet need in the market, and launch a product to get 100% of market share....


But honestly, how does one spot such market gaps and exploit them for economic profit in an increasingly complex world! Lets look at what structured approached we have to uncover potent unmet needs:

1. Marketing research - which companies in CPG industries: P&G, Unilever, etc. constantly exploit
2. Proximity to customer by eliminating channels - which company like Dell has exploited so well...

Or a sheer gut feel and intuition!!!! or reading "Blue Ocean Strategy"!

Triggers for Innovation - A Laundry list!

What ae the triggers for innovation?

1. Unmet customer need/unfullfilled demand
2. Supply Side Scarcity (resources, capabilities, etc.)
3. Survival instincts!


Any more that can be added to this list!...

The innovation cost of information assymetry..

Is information assymmetry one of the biggest Innovation impediment?

My hypothesis is Information assymmetry can inhibit:

1. Innovating new product/service
2. Taking innovation to the market for economic benefit

It is often the case that innovative ideas do not come to the fore not coz' it is not potent to produce economic benefit, but more so coz the innovator does not have a method to its madness to tap it for econmic profit.

Some case in point:
a. Toyota did not invent innovative cars when they started off.
b. Dell did not invent innovative personal computers.

All they did was copied a FORD/GM or cloned IBMs innovative thoughts and exploited them to economic profit through ingenious process innovations. They did that as they knew that some of the methods when cross-pollinated in their industry can aid them in reaching far-fetched profits (which other wise would not be feasible). They exploited the information assymmetry of the existing companies in uncovering customers unmet need and applying these techniques/methods to economic profit.

Another way of looking at information assymmetry, I've seen countless number of cases where an innovative idea never reaches the light of the day due to several reasons:

1. Inability of a technologist to understand markets/customers well (case of Palm PC)
2. Inability of a marketer to understand a technology and its capabilities (cant get a case right-away bit can get back to this later...)
3. Inability of an innovator to understand legalities leading to loosing a patent and hence commercial benefit....


The cases could be innumerable. Whenever one understands and plugs these information assymmetries we have often seen successfull enterprises generating great economic benefit not only to its stakeholders but to the society at large...


Do you agree/disagree? Any interesting insight of yours!

Brains As a Service (BAAS) - Brains on rent

Is there a scope to offer brains on rent?

There are so many interesting innovations we hear lately especially in the Business-to-business space where enterprise services can be rendered as a utility (like electiricity, water, etc) without assuming ownership of resources & capabilites (power plant, river, engineers, etc...) and their risks (issues in dealing with resource & capabilities).

Think about few such themes:

1. "Cloud computing" where IT processing power is rendered as a utility service. Imagine something similar to electricity. We dont care who produces it, how it is distributed and how it is transmitted. All I care is I plug into a electric socket when I need power for my laptop and I get it. I pay a fee for it. I like the baby steps of Amazon here with their EC2 (Elastic clound computing) platform.
2. "Software as Service": Amazing feature to offer software as a service to clients. The client does not have to bother about infrastructure, software license, supporting the application and so on. All he needs is the IT information service rendered to it on paying rental for such a service. Good examples www.salesforce.com, Sugar CRM, SAP Business By Design???


All the above have a viable business to be made on the "long tail" of clients who need simple service at utility rates, without having to bother about the INfrastructure, Software, people to support and so on. Lot of business to be made out there it seems.

In similar light, can we lend our brains to enterprises to solve their productive problems? A kind of Brain as a Service model. Ofcourse, some of us can make a living out of it and that too a prosperous one at it. I guess, this is what Consultants and IT engineers off late do it seems, but by being part of a consulting firm or a enterprise. Imagine if clients can lend the brains of just the individuals and not contract out with companies/firms/enterprises and put them to productive use. All this, without being encumbered with large companies/firms/enterprises out there...Why should I have to go to consulting companies (like Mckinsey, BCG, etc) or Service providers (Accenture, HP, IBM, etc.) to hire the people they have. If I know that all I want is specific talent from people and not the encumbrance of these companies....

Some contractors out there have already doing this like for e.g. teamlease...are there business more companies out there that work on similar model? I contract with individuals not with companies then....

Maybe my idea up there is quiet raw! on the edges of being incoherent or senseless :-)....

Lean in ADM - Mckinsey Chauvinism

Sometimes I like criticizing Mckinsey and their superficial thoughts. Here it goes again on using Lean techniques for ADM engagement. How shallow and superficial they seem to be sometime! http://www.mckinseyquarterly.com/Information_Technology/Management/Applying_lean_to_application_development_and_maintenance_1979

I remember dealing with bunch of Mckinsey consultants donning a impeccable (Armani) suit and combing hairs in the rest room before a scheduled meet with CxO of my former organization - guess what they were pitching to get a consulting assignment to pioneer lean techniques in IT Services. Ironically they reviewed the work I was already doing for a large utilities companies, pretended to ask me questions and understanding what I've done (well ofcourse deep down I could sense they were thinking how to make their USD 25 Million money out of this client, and were giving me the "Rats-Ass"). They then repackaged whatever I told them into a nice document/ppt and pitched to the top mgmt. claiming to solve all the problems of the organization.

Guess what you can fool around with some people some time, but not all of them all the time!. They got mutiliated when their idea was presented to the leadership and lost the deal. On the contrary some good sense also prevailed among the leadership, to let us pioneer lean techniques ourselves by just reading books and applying it innovatively in our organization...the rest was taken over by the HBR case study on whether applying innovative techniques like Lean can help change course of my former organization over the other formidable competeitors in the IT services market....

The next I heard was 3000 miles away in Germany when an ex-Mckinsey partner messing up with a Communication giant telling them that vendors should apply lean techniques to cut-down ADM to accomodate + or - 30% variability after committing to the estimates....

Anyways happy reading Mckinseq quarterly....It is good sometimes to introspect!...

Now, I feel a lill good bitching about Mckinsey! I'm a mere mortal and this is my second nature!

Can we have a People Exchange platform to trade resources?

Think about this! We always struggle to get resources with right skills and experiences for an IT engagement. Though, we get the resource sometimes, we are unable to gauge the salary expectation and price them for a client requirement for a profit. How do we manage the resource economics?

I look at the above situation akin to a stock market where instruments (shares, bonds, options..) are brought and sold for profit. The analogy I can draw between the instruments and resources are as below:

1. Instruments have a certain buy price similar to the payroll cost for resources
2. Instruments can be sold in the market for a price, whereas resource are in turn deployed in engagements with client for a price.
3. The differential in buy and sell price of instruments can lead to profit/loss similarly for resources
4. One can speculate on the prices (buy/sell) of instruments in the market, similar to the one we do for resources. All that without agreeing on the intrinsic value of the instrument/resource...

Now lets look at what Stock exchanges do:
1. Provide a platform for buying and selling instruments based on demand and supply
2. Aid in speculate/price discovery of instrument based on whatever rationality/irrationality

Can we then create an exchange for resources as well similar to stock exchanges then. The resource exchange can then provide this platform for buying and selling these resources based on the need and also aid one in price discovery. Now let us devise this model to face the resourcing challenges for IT Services engagement:

1. The Job portals (like Monsters of the world) become the brokers similar to the agents who fulfill the resource transaction obligation
2. The IT Service Provider can behave like companies that house these resources based on intrinsic value the resource with specific qualities come with a specified price to sell in the market...there can be a standard valuation that is agreed by all IT Service provider in the industry for a specific grouping of resources based on skills and experiences...
3. The clients who want resources to solve their issues then bid to buy the resources through the exchanges
4. Have a new stakeholder regulating agency that comes up with a standard/proprietary valuation model that all Service provider agree on....


The benefits this will bring to the IT industry are:
1. Clients can benefit by discovering the price through the resurce excchange platform
2. Resources get what they are worth by having a standard pricing based on valuation model, rather than having a bazaar type negotaitions on salaries
3. Service providers can value the resources based on a proprietary model
4. Job portals can get their commissions based on the value they add to the clients and service providers


Can we develop similar model? Let me know if your thoughts if this model is viable!

Graph Theory, Influence Diagrams, Morphological analysis - Which method is suitable for Offshore/Outsourcing Mix (OOM)?

I had this interesting conversation on using AHP, ANP and Graph theory to determine offshoring mix with my good friend Navneet over phone the other day. We had a healthy debate on futility of using graph theory to solve the problem, and some pointers to look at Influence Diagrams. I did a search up on the Web for Influence diagrams (ID) and hit upon a very interesting discussions on this and Morphological analysis (MA).

While debating about the merit Graph theory, I did realize that the challenges of applying it to solve the OOM problem. Think about it how am I going to get the strength of the edges connecting 2 nodes and the influence of the nodes itself on the OOM. Apparently, I do agree with Navneet that the OOM factors, its (inter/intra)influences and the objective function of OOM are not physical phenomena to be objectively used to reach the optimal OOM goal. But going back to using AHP for the same still does not convince me!

So the endeavor continues!!!!

I somewhat liked the idea of using the MA method. MA method is specifically meant to handle the challenge that I'm perplexed with i.e. the the complex nature of systems (OOM) and the unquantifiable nature of the factors (both nodes and edges) to determine the optimal OOM. The MA method has been used successfully in several fields: Zoology, Geology, Sociology and several other-logies. Now the challenge of MA itself is to define the problem very well, identify the influencing factors, establish the boundary conditions for each factors, Analysis-Synthesis loop to identify a consistent configuration (principles of contradiction and reduction) applying filters: logical contradictions, emprical constraints, and normative constraints.

Pretty interesting to think about the above. Now I'm more confused looking at above that the marrying of so many concepts: Exploratory analysis, Constraint theory, influence diagrams, etc. that can help in determining OOM. I'm not sure I can apply any of the above unless I get a broad set of principles based on which I can zero into a good principle.

Bloggers please help me, give me the direction.....

Mean, Lean and the Almighty!

Is 6-Sigma the answer to managing the Cost of Poor Quality for IT projects?
Thats a mean sales gimmick...by just staring at the UCL and LCL for metrics and then determining the means and reducing the variability does not lead to reducing the CoPQ.


Is Toyotas Production System abstracted as Lean management a panacea for IT services productivity?
It is a pretty interesting question, and its answer depends on whom, when, how and with what intent you are asking.


Can applying any of the above method lead to 30% IT productivity?
Maybe Almighty can answer this!


Is it better than using Agile methodologies for Software development?
The answer to the above, in my opinion is fairly easy for anybody who is seasoned in the IT industry and has dealt with a typical SDLC/V-Process model for their Software products' development.

Analytical framework for decision criteria: Onsite-Offshore mix in outsourcing engagement

Having used the AHP and a simple linear graph to translate the AHP score to Onsite Offshore mix for a outsourcing solution in IT (some 4 years back), I realized the futility of the model premised on MECE criteria for the factors. On reading ANP (http://chern.ie.nthu.edu.tw/IEEM7103/937805-paper-1-may6.pdf) and weighted graphs, I was curious which of these technique is most suitable to determine the Onshore-Offshore mix for a outsourcing solution.

ANP: This technique is better suited than AHP as it will consider the internal dependence and cross dependence between factors, the issue however is that it still does a pairwise comparision as we did in the AHP model within the cluster. But, usually some factors can appear in more than one cluster and can have interdependency.

Weighted graph: The weighted graph model is better suited than AHP and ANP as it has the benefits of ANP, without ANP issues (factors interrelationship across clusters can be suitably represented).

The scores we get from the ANP or weighted graph can then be used to transform into a onshore-offshore mix.

Deciphering software complexity - Cohesion, Coupling, threading and concurrent engineering

I was just curious to understand software complexity & concurrent programming...increasingly so as I was encountering several deals where there is a requirement for software concurrent engineering to reduce cycle time from requirements to production deployment especially in AD engagements. It reminded me of the complexity assessment throuhg dependency matrices and application of DSM technique expounded by my former collegue Navneet. It reminded me then to look into cohesion, coupling, concurrent engineering and cyclometic complexity topics in software engineering that I learnt long back while in college. I never got the time to look at it, except for now as I was thinking of a novel approach to handling this problem and write a paper!

Cohesion is defined as the closeness of the relationshio between its components [Ian Somerville on Software engineering]. There are 8 difeerent levels of cohesion in order of increasing strength: Coincidental, logical association, temporal cohesion, procedural cohesion, communicational cohesion, sequential cohesion, functional cohesion and object cohesion.

Coupling is the strength of interconnectedness between the components during design.

In general a reduced software complexity requires high cohesion and loose coupling.

For concurrent engineering perpective one can look at how multi-core processors are handling concurrent execution. This takes me back to the basics of concurrent execution and synchronization basics [Terrence W Pratt, Programming language] I read while at college. Concurrent execution is facilitated through syncronization techniques such as interrupts, semaphores, guarded statements, multi-tasking and so on. Now the paradigm for concurrent execution has shifted with multi-threading and the concept boosted with multi-processor and multi-core systems.

What of the above technique can we use to address software complexity and concurrent
software development?

Breaking down the cost-to-serve parameter for service management optimization

The objectives of managing the service (any service Consulting, System Integration, Application Outsourcing, etc.) through application of innovation techniques are to reduce the cost to service. It is critical for one to understand the constituent factors that influence cost to serve goal. The following diagram crisply captures the factor trees that influence the cost to serve goal.



Now we can capture the difference in the estimate/forecasted cost for each of above
parameters, measure the actuals during execution and drive management and control to minimize the differential.

Our transformation intiatives can be focussed on reducing the estimate/forecast cost in the first place...we'll dvelve more on this topic later...

Any thoughts on what factors I might've missed

Does too much focus on core competence leads to slow decadence...

I came across a very interesting intreview od Richard Ruemelt (strategy's strategist - http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Strategys_strategist_An_interview_with_Richard_Rumelt_2039_abstract) on how misconceived the strategy plans of organizations are. According to the interview they are nothing but a 3-5 year rolling plan focussing on market share, lobbying for resource allocations and financial projections. Seldom does on see a concrete actionable to handle a changed scenario in the environment, innovation or tapping into a unmet customer value in an industry that could lead to incremental revenue for an organization.

Interestingly he also beleives that organizations by focussing on their core competence discussion during strategy plan often miss innovation opportunities that would sustain the organization on the long run. The only thing that eventually sustains such large organization is their captive customers, and the strong networks in the business ecosystem preemting the entry of innovative/entrapreneurial company for a short-run, and eventually yielding to them. This is not new if one reads Clayton Christiansens "Innovators Dilemma". One can see this more prominently in the Telecom space. Imagine Telecom organizations leapfrogging to 4G without going through the arduous 3G journey....To do this one need to consider the followng challenges:

1. Will the regulators allow?
2. Will the Communication technology vendors right-price the 4G technologies foregoing their massive investments in 3G technologies (EDGE, UMTS...etc.) leading to its quicker adoption
3. Will the consumre electronics companies (read the handset providers) mass produce their handsets @ reasonable price to consumers to facilitate its adoption (ofcourse foregoing huge investments in the 3G network)?

All the above needs to be seen....Atleast, some of my neighbours in my apartment and my collegues at work do not think 4G really has any scope unless one passes through the drudgery/decadence of 3G...Blame it all on core competence....

What do you think?

Illustration of a constraint model for optimal outsourcing decision

Lets assume the client has shared the following volumetric and requested the service provider to bid for the Application maintenance deal:

Guiding factors:

Utilization %	60%
Call Data Period	1 Month

Call Characteristics:

Domain	Technology	Sev 1	Sev 2	Sev 3
Billing Application	Java	3	15	13
Customer Care	.Net	5	10	28

Required SLA:

		in Minutes
	Availability	Response Time	Resolution Time	Actual Resolution time (Billing)	Actual Resolution time (Customer Care)
Sev 1	24/7	5	60	45	60
Sev 2	8/5	15	240	160	173
Sev 3	8/5	120	480	300	390

Based on the above details we can apply the step-wise resolution step to shape the deal:

Step 1: Assuming that the demand is even and the incoming calls has a poisson distribution, the l

Since Sev 1 calls are 24/7 availability we are assuming the pattern is evenly spread over 24 hrs, 30 days and 60 minutes and l for sev 1 is Number of calls/(24*30*60)

	Sev 1	Sev 2	Sev 3
Billing Application	0.0001	0.0016	0.0014
Customer Care	0.0001	0.0010	0.0029

Step 2: Assuming the service rate is an exponential distribution, the m

Service rate = 1/(Actual resolution time in minutes)

	Sev 1	Sev 2	Sev 3
Billing Application	0.0222	0.0063	0.0033
Customer Care	0.0167	0.0058	0.0026

Step 3: The number of resources for each domain, the r

	Sev 1	Sev 2	Sev 3	Total	# of resource
Billing Application	0.0052	0.4167	0.6771	1.0990	2
Customer Care	0.0116	0.3003	1.8958	2.2078	3

Step 4: The deal optimization based on the above characteristics can be illustrated as follows:

Lets’ assume the following assumptions:

1. We consider 2 locations US and India for this deal

2. We assume there are no shift requirements and the support will be on-call basis

3. There is only 2 levels in workforce: Software engineer and System Analyst

4. The cost for onshore-offshore is as identified in the following table:

	All figures in USD per Hour
	India	US
System Analyst	21	65
Software engineer	19	60

5. Lets assume the pyramid definition is as follows:

	India	US	Engagement Pyramid
System Analyst	5%	95%	10%
Software engineer	95%	5%	90%

The objective function can be laid out as follows:

Min X_onshoreC_{onshore, System Analyst}R_{Onshore,System Analyst} + X_onshoreC_{onshore, Software Engineer} R_{Onshore,Software Engineer} +X_OffshoreC_{Offshore, System Analyst}R_{Offshore,System Analyst} + X_offshoreC_{offshore, Software Engineer} R_{Offshore,Software Engineer}

Based on the above equation we can represent it as follows:

Min X_onshore*65*R_{Onshore,System Analyst} + X_onshore*60*R_{Onshore,Software Engineer} +X_Offshore*21*R_{Offshore,System Analyst} + X_offshore*19* R_{Offshore,Software Engineer}

The constraint for this is defined as follows:

R_{Onshore,System Analyst} + R_{Onshore,Software Engineer} <= 5*X_onshore

R_{Offshore,System Analyst} + R_{Offshore,Software Engineer} <= 5*X_offshore

R_{Onshore,System Analyst}+ R_{Offshore,System Analyst} <= 0.5

R_{Onshore,Software Engineer}+ R_{Offshore,Software Engineer} <= 4.5

X_onshore + X_offshore = 1

X_offshore - X_onshore >= 0

Any Optimization engineer will be able to solve the above equation using a tool to arrive at the optimal deal parameters. We did the above and identified the following optimal function.

The above is an approach 1 for constraint model for outsourcing deal.....how do we do this in approach 2? What are the limitations of the above model?

We'll revisit these issues later...any ideas and recommendations....