Category: General management

Any successful business is a legacy business

The proven business modelI was struck last week by the story of the Netflix customer revolt — it shows that even young companies have problems managing change.

To review: Netflix want to shift their business to video streaming, and away from DVD delivery. As part of this they’re reducing the service to DVD customers so that you can no longer add to your wishlist (aka queue) from devices which also allow streaming. There is much wailing and gnashing of teeth.

What’s remarkable about this is that Netflix is only young (14 years old) and yet it’s having problems transitioning from a now-legacy position to something more current. The irony is that Netflix itself was once the radical disruptor and dramatically changed the film rental game. It would like to change the game again, but it’s not so easy this time around.

The darlings of the tech media are the young startups — what innovation! What promise! And the cutest stage-school darlings are the lean startups — thrill as they pivot when faced with insurmountable problems!

But these media darlings too often lack a certain… revenue stream. Or reliable customer base (which is what Netflix has). Or any other success factor that’s generally considered meaningful. And as soon as any business hits on that then they’ve got something they need to protect. And that makes change really difficult. All that promise and innovation and game-changing energy is suddenly anchored by the need to retain that success factor — that thing they’ve worked so hard for for so long.

That’s why any successful business is a legacy business.

There is one thing which will prevent this, and that’s if the business is explicitly designed to continually change. Otherwise even very young companies will find they’re facing similar problems to very old ones.

When board leaders fail to grasp technology

I’m amazed and disappointed that it’s still acceptable for people who run major companies to show wilful ignorance of technology. And I don’t mean what firewalls do or how to get wifi working on your laptop. I mean what it means to the companies they run, how it impacts their people and their customers, and how to make sure it’s an asset rather than a liability. And there was an exemplary demonstration of this on last week’s edition of The Bottom Line on Radio 4.

Another CEO prepares to demonstrate IT leadershipThe programme is a straight discussion of business issues with Evan Davis and a number of business leaders. It’s not dumbed down (any more than it has to be edited down) and is a consistently excellent listen. Last week the guests were Luke Johnson, chairman of Risk Capital Partners, Vincent de Rivaz, chief executive of EDF Energy, and Jacqueline de Rojas, UK and Ireland vice president of McAfee. And they dealt with two major topics: organic growth versus acquisitions, and problems with IT. Luke Johnson in particular seemed to really have problems with technology, and to me there was overwhelming evidence that some of the causes might be rather closer to home than he might like to think.

Coming up is some criticism of what Luke Johnson and (to a much lesser extent) Vincent de Rivaz say, but don’t mistake it for a criticism of them as individuals. The point of what follows is that their attitude is representative of so many board leaders. Even though there are many board leaders who have a very confident grasp of technology issues it’s still remarkable there are so many others who handle technology as if they were wearing boxing gloves.

Problems with technology

As the resident IT expert it was Jacqueline de Rojas who was asked first about her own experience of IT problems, and in particular the bad software update that her company issued in April which disabled many of its customers’ computers. Notably, she responded to a technology-related question with a positive and human answer: “The key in a crisis like that is how you respond; that’s how you’re judged”. Then Vincent de Rivaz was asked if he had ever had any IT disasters, and before he could finish his response (along the lines of “no actual disasters, but we have had problems”) Luke Johnson cut in:

LJ: “Every business I’ve ever come across has always been having problems with [its IT].”

VdR: “We have to invest in our IT and we have to develop our IT systems which we are doing at the moment [with a new online system to help our customers with their bills.]

ED: “What sort of problems have you had with your IT?”

VdR: “The problem is to control the costs. That is the permanent challenge for me, to be sure that we are spending the right amount of money on the IT systems.”

LJ: “All my experience of IT systems is they are always overdue and over budget, and I think it’s a built-in part of the IT industry that they deliberately under-quote and then they may get up on the extras.”

Now there are many problems board leaders could have with IT: We aren’t getting the best out of our technology investments. Our technology portfolio isn’t broad enough to help us in a constantly-shifting market. We don’t have the people who really understand how to manage and change our technology infrastructure.

These are all problems that require board-level investment and oversight. And they are also all questions that, if you substitute “financial” for “technology” all boards do deal with. But sadly it’s okay to ignore those matters if they’re technological, and so the top-of-mind IT issues for our token CEO and chairman are (1) cost control, and (2) IT people are sharks.

Indeed, Luke Johnson seems to have something of a chip on his shoulder about technologists. Jacqueline de Rojas goes on to explain a bit about the difficulty of  turning “woolly and aspirational” IT demands into concrete deliverables, but that doesn’t stop him:

LJ: “I think the IT experts blind clients with science, and I think very often they themselves overestimate the benefits, and overcharge for what they do. And the fact is there isn’t another industry, except perhaps pharmaceuticals, that makes the returns on capital and margins that software does. Huge margins.”

JdR: “The level of investment we have to make to stay ahead technologically is also huge. So where do you think that money goes? It goes right back into making sure we stay one step ahead of — in our case — the hackers and cyberterrorists and the competition”

ED: “Let me challenge you, Luke. Is there something different about IT from other areas of company purchasing? Is IT unique in being difficult and awkward for a company?”

LJ: “No, I don’t think it’s unique, but I think it is mission critical, and unquestionably we are all more dependent on IT than ever. I accept all that, and it can deliver huge values, and the very nature of it is it’s constantly evolving. But the truth of the matter is, what other sort of project or product, rather, do you buy that requires these perpetual upgrades and offers such super returns? I was involved with a retailer once, Whittard of Chelsea. We spent, many years ago, the best part of half a year’s profits on building a fully-integrated website. This was in the early days of the web. Within two years we had to throw it away. Because it just didn’t work. We used the wrong suppliers and we made a lot of mistakes.”

To him IT is a homogenous  blob, and he transfers his anxieties freely between commodity software sales (“returns on capital and margins… perpetual upgrades”) and individual business change projects (“a fully-integrated website”). Maybe he’s just exploiting the opportunity to have a go directly at a software vendor, because when Jacqueline de Rojas highlights how technology change really does improve our lives he’s having none of it:

LJ: “What are the cost of goods in software? What are the cost of goods? How much does each new program cost Microsoft? Zero.”

Which is silly, because he knows perfectly well that software (like pharmaceuticals) costs a lot of money to create, and Jacqueline de Rojas has already explained the cycle of investment, return, and re-investment that her market demands.

IT - easy moneyWhere the problems lie

I’m not for a second denying that Luke Johnson’s frustration is unfounded. It’s clearly borne from many hard experiences: this is a man who’s job is to cast his net widely across many, many companies, to look into them seriously, and having done this he finds that “every business [he’s] ever come across has always been having problems with [its IT]” and he’s witnessed one of his companies building one costly system only to have to replace it unexpectedly early.

But from where I sit a lot of his problems are of his own making. If you treat IT primarily as a cost then the best you’ll achieve with it is cost control, whereas the best you should get out of it is business transformation. If you think IT contractors under-quote on the basics and expect to make up for it on the extras, then you probably want to structure the next deal differently and be prepared to make it more of a partnership — if you can be confident of being able to act as a partner. If you think IT experts blind you with science then you’re talking to the wrong people — and if you don’t know who the right people are then you need to start filling that gap in your personal network. If you think IT experts overcharge then you’ve created a relationship with conflict at its core and the best you’ll get out of them is the minimum they’re contractually obliged to deliver, whereas you should be getting them to apply their creativity and rigour to help propel your business forward.

The thing that’s really shocking to me is that there are many company leaders like this, who are unashamed of their blunt handling of technology — which is undeniably mission critical — and yet the same people wouldn’t stay a week in their jobs if they demonstrated the same disregard for, say, legal matters or finance.

Which is rather ironic, because earlier in the programme it was Luke Johnson who was called on to be the resident expert on organic growth versus acquisitions, and one insight he provided was this:

LJ: “Many studies suggest that even perhaps a majority of all acquisitions fail to deliver shareholder value. So it’s important to put it into perspective and say if we can achieve returns through organic growth, but perhaps a little more slowly, then maybe that is the more sensible way to proceed.”

Let’s take a second to understand what we’ve just heard: possibly more than half of acquisitions fail to deliver value to the owners of the business — which sounds very similar to his problems with IT. And acquisitions are a significant part of his company’s business — mission critical, even. Just like IT. But in that conversation he wasn’t remotely upset or bitter about this, he just treated it as something to deal with. He could do that because he was comfortable with working in that sphere and, I suspect, because while he might have had his share of acquisition failures they will have been outweighed by his successes.

It seems to me that if board leaders were obliged to grasp technology to the same degree as they are obliged to deal with financial or legal matters then their companies — and their companies’ technology — would be in a much better place.

Two final things

A couple of parting thoughts.

First, some not-at-all-serious observations about Risk Capital Partners. While confirming that indeed they don’t invest in any IT or software companies, I found they do have an interest  in InterQuest, “a fast growing IT recruitment business”. So if Luke Johnson is concerned about the high cost of IT professionals then he might want to have a word with them. Also, I couldn’t help but think if software really is the fantastic high-margin business he thinks it is then RCP really should start making some investments there. I don’t know if they really will make a lot of money, but I do know they’ll learn a huge amount.

Second, a much more serious note. Earlier I said that if these sorts of leaders had IT problems then some of the causes were close to home. But it’s also true that some of the causes lie with us technology professionals. If technology really is seen above all else as a cost to be controlled, and if we are finding ourselves in unbalanced, conflict-driven relationships, then we really do need to do a much, much better job at explaining what we do. And then we have to carry that through into our actions. Technology in business is about making the business more effective and people’s working lives better. We ought to be able to find routes to even the most sceptical business leaders to explain that, and get a positive reception.

Never mind Google, this is for you

Even the greatest ideas aren't readily applicableMy public service for today is that of matchmaker, and specifically finding a match for the many online commentators who have a start-up-shaped solution for newspapers’ current crisis of faith and future.

Over on Mashable, Vadim Lavrusik has a useful round-up of “12 things newspapers should do to survive”. It’s good to see a lot of thinking brought together, and nice that the Guardian’s last Hack Day was noted with approval. But if there’s one thing that rankles me it’s the seemingly glib assertion that newspaper companies should emulate Internet start-ups, and which features at number six on Vadim’s list. He says that “creating a startup-like environment that encourages innovation in the newsroom” is one way forward, and cites three sources.

First, start-up veteran Scott Porad on the problem:

Over an 8 year period, my last startup grew from a startup into a corporate environment with several hundred employees and layers of management.  For the last 5 or 6 years of that I felt like we spent 80% of our time planning and only 20% of our time doing stuff. […] On the other hand, my current startup is the opposite — we probably spend 5% of our time planning and 95% doing.

Then Mike Briggs on how a newsroom can generate some start-up-like energy. And finally Ryan Sholin of Publish2, who thinks that you should “Make your newspaper function like a start-up.”

Somehow start-ups seem to be the panacea: not only do they make good stories, but it’s so easy to spot the successful ones: for instance Google started in a garage, and Microsoft was started by just a couple of people. And let’s not forget the many, many start-ups from more recent times. You probably remember Kevin Rose’s, which was successfully bought by Six Apart, which loved it to death; or, which was so successful at making URLs short, they’ve practically made them vanish. And let’s not forget the current media darling, Twitter, which is generating so much profit they’ve run out of positive numbers to express it and have had to start using negative ones. Meg Pickard has a more complete and up-to-date history for those of us with selective memory.

But that’s not to say there’s nothing there; a typical start-up has the kind of drive and energy in its half dozen employees that any corporate CEO would love to have reproduced across their 1,000-plus workforce. I’ve written before on about injecting start-up goodness into the newsroom, so you can go there for that. Mark Briggs does acknowledge all that is easier said than done.

Instead of me explaining why, let me introduce the start-up standard-bearers to the new blog from Simon Waldman. This extract from his first entry is worth quoting at length. Although his examples are older, rather than new, internet companies the principle is the same, being about “the general ways of the online world”:

It has always struck me that there has been a huge amount written about Google, Amazon, Wikipedia and eBay and the general ways of the online world. Some of this is brilliant, and genuinely insightful, some of it is frothy digital euphoria.

There has also been plenty written about what is wrong with newspapers, broadcasters, Britannica, record labels etc, and what they should or could have done; but there have been very few books that I’ve come across that take a systematic look at the what has happened to these businesses – and what they have done that has actually worked, often in the most trying of circumstances.

The point is – businesses that have to deal with the internet are fundamentally different to those that are the products of it. It is great to look at Google; great to admire Amazon, and Wikipedia is as fascinating a social and creative phenomena as you fan find. But if you are running a business that is profoundly structurally challenged, you share very little of their corporate DNA.

Yes, everyone needs to know about their world, but thinking you can just graft on the bits you like from them in a hope that you will ‘get digital’ is no more likely to succeed than putting on a flashing bow tie and hoping everyone thinks you have a sense of humour.

Simon is writing a book for the rest of us, who need to listen to those with ideas about how to save our challenged industry, and who also have the responsibility, along with our colleagues, to actually do the saving. The blog is the online counterpart to that book, which will be called Creative Disruption. As you can see from the extract above, it’s less “What would Google do?” and more “Never mind Google, this is for you.”

In ten or twenty years we’ll be able to look back and see which ideas from who were the wisest. For now I’m going to be a paying a lot of attention to anyone who recognises the fundamental DNA difference that Simon describes, and who deals with it.