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.
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.


Box buys small security startup to court more risk-averse clients

Fresh off its IPO in January, Box has made its first acquisition of the year, buying a small security startup called Subspace, the company said on Wednesday. Financial terms of the deal were not disclosed, but all seven Subspace employees will be joining Box and the startup will be closing up shop by April 3.

Subspace touts a supposedly secure browser that connects to a corporate network, whether it be on-premise or cloud-based. The browser is hooked up to the Subspace cloud-based backend where an organization’s IT staff can control access and craft data-protection policies for the websites and applications that a user might visit within the Subspace browser.

?In a blog post on the acquisition, Box CEO Aaron Levie wrote that the Subspace staff will be working on Box’s data security efforts and “will let us go even deeper with our security and data policies, enabling reliable corporate security policies, even when content leaves the Box platform to be accessed on a customer or partner’s device.”

As [company]Box[/company] continues to push its new Box for Industries product lineup, its going to need more security features to court customers who may be paranoid of cloud offerings. The types of customers Box wants to sign up for Box for Industries are the types of clients found in heavily-regulated industries like healthcare, finance and legal. So far, Box has made public that Stanford Health Care, [company]Eli Lilly[/company], T Rowe Price and Nationwide Insurance all feel comfortable with using Box as their work/cloud storage hub.

In February, Box rolled out the Box Enterprise Key Management (EKM) service, which lets users hold on to their encryption keys while using the Box platform. Box partnered up with the company SafeNet as well as [company]Amazon[/company] Web Services to help customers set up the service.

IBM unveils a mainframe built for the mobile world

If you thought the rise of cloud computing spelled the end for the mainframe, think again. IBM announced Tuesday its new z13 mainframe, a system that took over five years to develop and which Big Blue says will be available in the first quarter of 2015.

The new machines are tailored to meet the “the massive growth of the mobile commerce,” said Mike Gilfix an IBM director of enterprise mobile and can supposedly process process 2.5 billion transactions a day, which [company]IBM[/company] equates to one hundred Cyber Mondays.

It’s clear that companies that specialize in financial transactions and commerce are the customer targets that IBM is eyeing with these machines, Gilfix said, as these organizations have typically been the “bread and butter” clientele for mainframes. Companies that specialize in logistics, like the airline industry, are also potential customers of these machines.

With more people using mobile apps to send payments or do their online banking, the financial industry is now dealing with enormous amounts of data streaming into their backend than ever before, explained Gilfix.

The new machines can supposedly handle the flood of traffic sent from mobile devices and can encrypt those transactions in real-time; this emphasis on security is something that distinguishes these big iron machines from the cloud.

“I need to know that the money you sent me is the money you reported,” said Gilfix. “Bar none, for transaction processing, you wont find a better platform than the mainframe.”

IBM mainframe and mobile

IBM mainframe and mobile

The z13 mainframe — which comes loaded with a microprocessor that IBM said is twice as fast as a typical server processor — also supports Hadoop so that unstructured data can be analyzed inside the machine. It used to be that if users wanted to analyze captured data, they would have to transfer the data out of the mainframe into another storage location for examination. In the z13, the analytics engine co-resides in the machine so that you analyze your data “all in the same virtualized hardware environment.”

IBM’s in-memory database DB2 is also included in the z13 mainframe, which Gilfix said helps boost the speed of queries.

And if you wanted to use one of these machines in your own private cloud setup, the machines also supports [company]OpenStack[/company] and Linux. This is helpful if you’re a company looking for one piece of hardware to setup up cloud infrastructure as opposed to procuring multiple pieces of equipment like networking gear and storage devices and having to tether those parts together.

“If your definition of cloud is that you can run large-scale virtualized workloads, then you can absolutely use the mainframe to do that,” said Gilfix.

On IPO day, New Relic CEO Lew Cirne eyes the future of analytics

Software-analyzing specialist New Relic is now a publicly traded company. The startup’s shares are priced at $33.43 as of 9 AM PST, which is a bump from yesterday’s set price of $23 a share.

While the boost in the share price is significant, New Relic CEO Lew Cirne (pictured above) said he’s been trying hard not to set any sort of expectations for the short term, and instead is focussed on continuing to build value in what the company already has.

“What happened today is one of thousands of days in the future,” said Cirne.

Now that New Relic is publicly traded, Cirne believes that it can land some more enterprise customers — a roster that already includes GE, Adobe and Salesforce — who might be swayed with the new recognition the IPO brings.

“Honestly, we think we are ready and there’s a huge opportunity for software analytics,” said Cirne. “In 2015, there will be more software delivered than ever before.”

While NASDAQ currently shows New Relic having 534 employees as of September 30, 2014, Cirne wouldn’t give any specifics as to what its planning for employee headcount in 2015, but he said “it’s safe to say the best days are ahead.”

Regarding using the extra capital for possible acquisitions in the near future, Cirne wouldn’t lay out his plans. But he did say that the company wants to make sure any acquired company’s technology is successfully integrated into New Relic’s product line so that customers won’t be able to tell if it came from another organization. The startup recently bought Barcelona-based startup Ducksboard, which creates visual dashboards from data it aggregates from different cloud services.

Cirne said that New Relic “will really bring our A game” now that it’s in the open marketplace and compared the company to a football team who goes from playing on Saturday to playing on Sundays. The company can’t lose track of what got it to this day, and it must ensure its striving for a “hall of fame career.”

“History is littered with people in the NFL that think they made it,” said Cirne. “Two years they are out of the NFL. They forgot what they did to get there in the first place.”

NEWR Price Chart

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Uber raises $1.2 billion and promises to change corporate culture

Uber has raised another $1.2 billion, bringing its total finance up to $2.7 billion. In a blog post announcing the news, CEO Travis Kalanick said the company acknowledges its recent mistakes — most notably its threats against journalists — and seeks to learn from them. “The events of the recent weeks have shown us that we also need to invest in internal growth and change,” Kalanick said. “We are collaborating across the company and seeking counsel from those who have gone through similar challenges to allow us to refine and change where needed.”

With the additional dough, the company is now valued at $40 billion according to an Uber spokesperson, who spoke to Re/Code. That’s almost twice the market cap of Twitter and nearly four times the reported valuation of Airbnb. There’s no companies quite like Uber, with its mix of transportation and logistics. Hertz and FedEx are near cousins, however. Uber’s current valuation is nearly four times Hertz’s market cap and it’s only $10 billion less than FedEx‘s. Bear in mind, Uber has only been around for half a decade.

In the blog, Kalanick explained that the money will be used largely for international expansion, especially in Asia. A slew of taxi services in countries like China, India and Thailand can be hailed via apps, so Uber doesn’t have its incumbent power there. Some of its international nemeses are raising big cash reserves of their own, albeit at not nearly Uber’s drop-dropping amount.

At a time when private companies are raising greater and greater funds in lieu of going public, Uber has become the poster child for doing so. With the new funding, it’s far and away the most highly-valued private tech company in the U.S. In addition to this huge round, the company is reportedly in talks with Goldman Sachs for even more money via a convertible debt round. Kalanick suggested that may still be in the works, saying in the blog post that Uber has “additional capacity remaining for strategic investments.”

With great funding comes great responsibility. Kalanick’s apology shows the fingerprints of former White House staffer David Plouffe. Recognizing problems with internal company culture and promising to change should have been Uber’s response to its latest missteps from the get-go. Instead, Kalanick’s initial tweet storm apologizing for SVP Emil Michael looked more like an internal company memo to rally the troops. Plouffe took the reigns on the company’s communication strategy in late September, and I suspect Uber’s media savvy blog post bears his touch.

LinkedIn’s former VP of product joins Greylock as entrepreneur-in-residence

David Hahn, the former VP of product for LinkedIn(s LNKD), will join Greylock Partners as an entrepreneur-in-residence, the VC firm announced Monday. At LinkedIn, Hahn oversaw the company’s monetization products, including Sponsored Updates. According to LinkedIn co-founder and current Greylock partner Reid Hoffman, Hahn’s product portfolio generated $1.5 billion for the company. As an entrepreneur-in-residence, Hahn will advise the leadership teams of the firm’s portfolio companies, which include both social and enterprise startups, on monetization and product.