The New Enterprise Strategy Problem – Too Many Options

In the good old days, when most of today’s most senior executives got their business education, only three ways to acquire sustainable competitive advantage were on offer. At least that was the theory of Michael Porter – they were cost leadership, differentiation and focus.
I guess today you’d have to add: creating a platform that has a committed community, being the modern utility (in other words providing a platform on which other people do business), capturing the high ground in an ecosystem (like ARM, by owning and developing the major design skills in mobile chips), or providing a very high level of integration to the end customer (as Alibaba is doing by covering off merchant sales, financing customers (on the way to its second multi billion dollar business), providing ticket sales, taxi rides (on the way to its third multi-billion dollar business) and being a bank, among other things.
None of these rely on cost advantages. Alibaba’s rapid development is all about ignoring cost (within reason) and delivering new services (profitably). Uber does not obsess on the cost of its payments model. Nor is there a key element of differentiation involved. The core advantages in these companies is speed of execution, the level of security, customer-centricity that is usually data-dependent, the capability to deliver as near to perfect service as possible and an ever expanding offer.
As the old dictates of the industrial age die,  strategists need to do a radical and rapid about turn. Historically, we have thought in terms of severe limits on corporate activity and on scope. The main focus has been on economies of scale. Economies of scale have not exactly gone out of fashion but economies of scope are the new mantra – a trend I analysed in Shift – put succinctly it says: do more, a whole lot more, for customers.
For that reason we also have to question the value of traditional management tools like scenarios and scenario thinking and what these deliver to decision makers.
The disruptive activity around us creates uncertainty and uncertainty = unmeasurable risk. Scenarios suggest the unmeasurable is very knowable, that, actually, risk comes down to two or three knowable threats,  and that we can therefore control the future.
That there is no way to control the future is obvious – who for example would have though that software-driven test manipulation at Volkswagen would, possibly, put electric vehicles on the road to being mainstream? Who could have anticipated file-sharing as a disrupter of the music industry? There is no way to draw up these scenarios ahead of time with any degree of comfort around their likelihood. And of course originally scenario thinking wasn’t intended to – it was designed to explore the unthinkable.
Right now though we are in a period of disruption where markets are reforming and restructuring. The new dimension to this is optionality.
For a long time I thought the problem faced by enterprises was an unwillingness to develop optionality because their decision processes were grounded by a devotion to core competency and linear business models. Put another way, they tamed scenario thinking so that it wold keep them in their comfort zone.
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But now something else is happening. Let’s divide the novelty into two parts.
1. The reality is that in a period of disruption companies face too many options.  The fact of being over endowed with options is difficult for people to grasp if they are stuck in the pre-disruption mindset -there you have very limited options.  But my recent conversations inside organizations suggests that there sense too many ways to turn, too many options to chase down, too many technologies to evaluate, too many new skills to learn. So what they need is to find ways to embrace that reality and introduce business discipline to it.
2. The second aspect of this though is the very senior executives live in the pre-options moment. They prefer a limited number of alternatives, the three scenario consultant powerpoint that keeps them close to their core. Yes it does, but it also defers the day when they have to recognize all is changing around them and the core is not a good way of facing the future. Lower down the organisation there is ample awareness of options and the problem lies in this gap – the two broadly different perceptions of what the company faces.
I touched on it in this earlier post – the problem of inter-generational leadership, the need to create leadership teams that embrace different generations of managers.
I’m going to come back to it though because this abundance of options needs new management thinking and technology support.

Should Banks Be So Fired Up About Bitcoin or The Blockchain?

In my book Shift, I said open source movements like Bitcoin are the wildcards that keep the economy moving in strange and unpredictable directions. It is disruption as a way of life. Built on blockchain technology, surrounded by an immediately scaled, global community, Bitcoin feels like a very Napsterish moment, shifting the way people think about distribution (in this case the distribution of value) without necessarily having all the credentials to be the fundamental building block of change (see a well argued, opposite viewpoint here).
Yet many banks are bullish about the blockchain (way before any proof of concept has given them good reason). Why?
The first reason is that many banks have serious legacy technology problems that get multiplied when they contemplate interacting with other bank legacy problems. Blockchain seems like a very simple ledger, one you write to once, gain instant agreement (through cryptographic discovery or some kind of consensus algorithm, in the case of payment and settlement startup Ripple) and then move onto recording the next transaction.
One shared record is immutable and cuts out any process errors that arise as records are transferred between different systems or curator costs that come with having a custodian be the record keeper, as happens now.
The second reason is that banks have now separated out their innovation functions from their execution funtions. it is possible, if not too easy, for innovation departments or technologists that have been granted Google time to rethink processes, to play with the blockchain and be seduced by its apparent simplicity
Business Insider quotes Aditya Menon, MD of global digital strategy at Citigroup:

On the blockchain, there are two parts that interest us. One is, today we are one of the largest movers of money -up to $1 trillion or more on a daily basis – because we’re the only bank that actually operates in 100 countries. So, there is obviously an opportunity around our own general ledgers.

If you are head of global digital strategy then you have to be looking at blockchain but that doesn’t make it the right technology for banking functions. Citi is taking a slightly bolder step by experimenting with its own currency CitiCoin (BNY Mellon has dome something similar internally by using a digital currency to reward staff).
While the idea of moving so much money around appears highly scaled, think of the number of API calls per day on the servers of companies like China’s Alibaba and TenCent. Hundreds of millions of users (350 million active users for Alibaba; annual orders, 12.7 billion, deliveries 4.3 billion) in the world’s largest Intranet (China), these systems run on best of breed web technology managed through a continuous process of code reduction and system improvement built into the working practices of the programming community.
Scale, in other words, doesn’t necessitate the blockchain – probably the opposite as blockchain is difficut to scale.
Banks though are keen on what they call the distributed ledger aspect of blockchain, one where consensus is created by the ledger being openly available to all participants. However, Bitcoin is a replicated ledger rather than a distributed one – each instance, each transaction, the whole blockchain is continuously replicated across the servers of all participants. Replication negates the value of a distributed computing system.
And in a sense bank-led digital currencies bring the banks into conflict with the startup community and possibly regulators – Ripple has its own currency XRP, which operates as a kind of token for money flowing through the Ripple system. Competition is no bad thing, in principle, but bear in mind the Fed and the Bank of England have also talked about creating digital currencies (and they are not the only central banks to do so) – much more of this and we will need a derivatives structure to de-risk the different valuations between fiat-backed digital currencies, a development that would be just self-defeating.
If you then ask why are the bank so interested the answers are:

  • They have to be – they are struggling to find radical cost reduction and the blockchain could (but won’t) be it.
  • They have embraced innovation and it would be tough to turn a blind eye to the possibility of blockchain, though in reality it would be more courageous to do so.
  • It provides built-in thought leadership, a feature startups are only to happy to cultivate – we have yet to see  a senior banker though create a real vision for the future of finance; blockchain provides that thought leadership, even though most banks are already advocates at some level, so the search for leadership increases the sense of a race.

I think the lessons from the blockchain gold rush are:

  • Ok, it pays to look at options but you need to be looking at viability at low cost (a fact that some banks get), what one might call minimum viable optionality. Blockchain should be put in perspective quickly, by a disciplined process of low-cost viability testing.
  • Look to how web pioneers are handling much larger record systems than banks do. The answer lies in highly granular innovation processes where developers fight for great fixes and are smart enough to take the latest ideas and push them to new limits.
  • And finally don’t be too preoccupied with your own needs – what do bank customers’ want? That should be the guiding principle of the minimum viable option.

 

An un-patched server led to attackers infiltrating JPMorgan

JPMorgan Chase’s big hack this summer could have apparently been prevented if the mega-bank’s security team had properly updated a neglected server, according a report in The New York Times that cites unnamed sources.

The data breach supposedly took place this summer when a bunch of [company]JPMorgan[/company]’s security team left for the payment processing company [company]First Data[/company]. While it originally seemed that Russian hackers were responsible for the hack, the FBI said that’s not the case and no one really knows who caused it. Current evidence does not seem to lead to North Korea either, the Times report explained.

It’s common for banks to use two-factor authentication (the same security measure Apple decided to use after its iCloud was hacked, resulting in the leak of nude celebrity photos) as a way to secure their systems. In JPMorgan’s case, however, security staff forgot to upgrade one of the bank’s servers with the security verification process.

Security experts told the Times that because of the size of JPMorgan and other similar banks and the fact that these institutions acquire a lot of companies, it’s difficult to ensure that their entire networks are secure.

This is just one more reason to remember that you really ought to take time to make sure that all of your servers are patched up. As CloudPassage CEO Carson Sweet told me in late August, regarding the companies he’s been talking to, around 50 percent of servers spun up in the cloud have vulnerabilities because the original servers they were spawned from weren’t updated.

€10m Transferwise blows a raspberry at bankers

London-based peer to peer currency exchange Transferwise has passed €10 million in transactions, saving customers nearly half a million Euros in fees that would have otherwise landed in the hands of the banking industry.

Today in Cloud

Spanish bank la Caixa has signed a $2.6 billion IT outsourcing deal with IBM, extending a partnership between the two companies than spans more than 50 years. The agreement will allow la Caixa to save around $500 million over the 10-year period, according to IBM. Big Blue is spinning the deal as a cloud computing win, but just how much cloud technology this bank will see remains to be seen.

Keys to building better mobile websites

Google this week launched an initiative designed to help businesses build better mobile web sites. But while GoMo is a valuable resources, there are a few other things businesses must consider before addressing the finer points of the mobile web.

Today in Cloud

Ben Kepes draws my attention to some interesting news for customers of Barclays bank here in the UK. As part of a broader package of support for their small business customers, the bank will be pushing online backup with Mozy, online accounting with FreeAgent, online business planning with LivePlan, online training from MindLeaders, and online forms and legal docs from Rapidocs. It also looks as though the bank’s MyBusinessWorks package will include the hand-holding that some new customers may require before gaining the confidence to proceed on their own. I’m impressed; I sometimes wonder if my UK bank (not Barclays) even knows what “online” is… FreeAgent is particularly popular with small UK businesses (I’ve used it myself for several years), but Barclays’ backing could take them and the other featured companies to a whole new level of audience reach.

Today in Mobile

The FCC this morning issued a new mobile data roaming rule that requires carriers to deliver data on their networks at  “reasonable” rates. It’s a move that was lobbied for by Sprint, T-Mobile USA and many small carriers, but it was opposed by Verizon Wireless and AT&T. The FCC found that the two largest network operators had engaged in few data roaming agreements on their 3G networks, and appeared even less willing to commit to forging such deals with the LTE services. Both VZW and AT&T complained about the new rule, but I think it’s a reasonable mandate that will ensure users can access data without breaking the bank when they’re not covered by their own networks.