Executive Advisory Program

Globalization: Winners and Losers

 Posted by: Jack Santos

From the Globalization desk. 

I was surprised to learn last week which countries are the biggest losers and winners, based on acquisitions.  This was  data on change of ownership control, as measured by a company's purchase price.  Interesting analysis in this month's Harvard Business Review by Ken Smith at Secor Group.  By analyzing the data, he showed the resulting net (gain/loss) to a country for all of the companies based in that country that were sold or bought by companies from other countries.

Interestingly, and not so surprisingly, from 2000-2008, the US/UK/Canada and Netherlands (Yes! Netherlands!) were the biggest net losers: 220/187/158/111 billion dollars, respectively).  Apparently the bulk of the Netherlands loss was due to ABN/Amro's sale; even more surprisingly – doesn't part of that ABN sale go to Bank of Scotland?  Yet, the UK came in second with a net loss.  Had that not happened, would the UK net loss of ownership be staggering?

But even more surprisingly  were the winners.  One would expect, by way of press coverage, that it would be India, China, maybe even Indonesia.  Not even close.  Belgium, Spain, and France, the latter dwarfing everyone with a 234 billion net inflow of ownership value.

The long term implications of globalization to IT are significant – not just from a sourcing perspective, but also from a management viewpoint.

As for the conlusion: Viva la France...

Train Conversation

posted by: Jack Santos

Interesting interaction on the train the other day.  Conductor saw me on the laptop, and we got into a conversation about how he is not very computer fluent, and needs to get a new one.  Doesn’t want to spend time learning new things, a poor typist, and didn’t like the weight of his laptop – but he was eyeing my tiny Dell.

He asked me for advice.  I asked him what he used it for.  No Word. No Excel. (or not much). Mostly internet usage, and consumer type stuff. The smaller the better, and anytime anywhere access (like 3G) a plus. Time to replace his cell, too.

My prediction: another iPhone aficionado is in the making. And the laptop/desktop consumer market?   A candidate for cannibalization.  Watch out.

Protectionism Leads to Conflict

Posted by Chris Howard

Protectionism is in the news. As the global economy continues to slow, politicians are uttering protectionist rhetoric, some of which may make its way into legislation. I happened to be in Ottawa during Barack Obama's visit in February 2009. Despite his soaring popularity north of the 49th parallel, the shadow of protectionism could not be avoided. If held to the letter, the US Administration's "Buy American" statements produce a grim scenario for Canadian trade. On further reflection, I wonder what it actually means to "Buy American" anyways. The flat world scenario suggests that the interconnectedness of supply chains and strategic initiatives extinguish national boundaries. Protectionism is unlikely to be able to roll back that train: it has already left the station.It seems that the US Administration understands this, based on promises to soften the language. Economic officials worldwide are breathing a cautious sigh of relief (e.g., see this Reuter's article).

Regardless, protectionism is dangerous. That's why, especially in Europe, there has been such an uproar against it: Idealogical protectionism is verboten. I was reminded of this while reading Tony Judt's Postwar: A History of Europe Since 1945. The nationalist fervor and concomitant protectionism that characterized Europe at the end of the 19th century eventually led to the 30-year conflict that encompassed both WW1 and WW2. Judt writes:

The internal conflicts and inter-state antagonisms of the years between the world wars were exacerbated — and in some measure, provoked — by the accompanying collapse of the European economy. [Those countries that were able to rebuild following WW1] were brought low by The Slump of the Thirties, when deflation, business failures and desperate efforts to erect protective tariffs against foreign competition resulted only in unprecedented levels of unemployment and wasted industrial capacity but also the collapse of international trade [...] accompanied by bitter inter-state competition and resentment.(p4)

Europe's experience with the direct catastrophe of the wars fostered an economic pessimism (realism?) that shaped the second half of their 20th century. American lessons were considerably more optimistic, at least until late 2007.

OK, enough history. But I do have a point.

Protectionism is also at work within our organizations. The classic inter-state conflict occurs between business and IT ("If only we could just align", he lamented). But, I see it just as often (and with more venom) in the relationship between lines of business. As the economy constricts and budgets atrophy, it is typical for groups within an organization to protect what is theirs: Hold on to those discretionary initiatives! Shield the cuts!Let your business peer take the fall! My priorities are paramount!Better them than us! (Note the dead guys in the margins of the Bayeux Tapestry.)

But, a corporation is not a collection of fiercely independent nation states. It is a collection of highly dependent nation states. The effective corporation (or government entity, etc.) balances centralization with autonomy. and makes it easy to accomplish horizontal goals without sacrificing vertical advantages. The verticals within the organization provide a variety of experiences for the consumer (i.e., appropriate for their needs), while the horizontal efficiencies drive down cost and minimize conflict. In the end, everyone benefits.(This has been the promise of the European Union, for example.)

Protectionism within an organization sets up dangerous dynamics that are harmful to the overall health of that organization. In these economic times, it is essential to reduce risk by encouraging pervasive trust within our corporations. People are nervous, and isolation is no solution.

Despite its intentions, protectionism is a risky proposition.

Cisco moves - and "Unified Communications" experiences an earthquake

Last week, Cisco announced their purchase of upstart Instant Messaging vendor Jabber, and suddenly we find that we're not on a football field, but a baseball field.

Now we're serious.  Jabber brings to the table some very clear bets on underlying technology (like XMPP ) that has been around since the  late 90s, and Cisco's approach really looks like an attempt at tying a lot of, what could be viewed as disparate, trends together.  The emphasis is collaboration, and that plays on the fact that our IT infrastructure as not just a data storage, process oriented vehicle, but a real-time communication enabler and heir apparent to the telephone (which it, fundamentally has always been).

Cisco has positioned itself very well (see Mark Cortner's post and Mike Gotta's blog and comments in the WSJ.  And with economic and energy pressures to improve collaboration across distances, this may be a master stroke of marketing and strategy. Avaya, with its prior commitment to jabber technology, looks like a company with vision; so does Google. Losers?  IBM, Microsoft. They and the rest of the field (mostly old-school telephony) are rapidly falling behind.

The fun begins.

Another Hole In The Head? No Wait! Another Browser!

The general IT response I get about Google's Chrome announcement  ranges between "oh no" to "oh hum"...

When Netscape and Microsoft were going at it, the angst in IT departments revolved around browser specs, support, etc.   Although that has never truly gone away (Firefox, and others still have a significant market share), most corporate PC-oriented IT departments just focus on IE, then let the chips fall where they may.   And since it usually just affects the user interface, the disruption was annoying, but not system threatening.

And now we have Chrome.  Clearly a step by Google for positioning in the Cloud Wars (see my earlier post), and it carries with it the potential to introduce issues that are NOT just UI specific.

Just what we in IT need. Clearer battle lines, more choices, more innovation.  A mix of good and bad.

Chrome is worth taking a look at and, as the battle for the cloud progresses, it may even be a factor. 

But for now, like Google Apps, its more of a curiosity, a toy, and a harbinger of things to come.  After all, it is Beta; and so is Gmail -- for over 4 years, in fact....maybe someone in Google thought "beta" is NY slang for "Better". 

Microsoft, Yahoo, and You, Redux

Posted by: Jack

Ben Wortern's article in the Wall Street Journal ( "What's the deal for techies?" )on the Microsoft-Yahoo deal mirrors the thoughts in my post a few weeks ago.  Sure - advertising is real dollars now, but it's the long term game (Internet Services) that everyone is jockeying for.

But I just had an interesting viewpoint come up from the other camp....Is this just a desperate measure by Microsoft to be relevant in the Internet Age?

Interesting premise.  Yes Microsoft is considered the legacy vendor, and there is some truth to the fact that they are trying to protect their cash cow.  Their Internet efforts (Microsoft Live) has been mediocre at best.  And once they do get Yahoo -- they'll be paying a ton of money to be second, and most likely lose the people that made the difference in the process.  Could this be a Hail Mary pass? Is Microsoft our industry's Hillary Clinton (last years news)?

The long and short of "Longhorn"

Windows Server 2008 is about to be released. WHA!!?? It's 2008 already?

I really need to look  back and take a look at my notes to see when I first was briefed about longhorn by MS…my guess would be in the 97/98 time frame, which would make it 10 years in the making.  I also looked at Google trends (which only goes to 2004); longhorn interest peaked in 2005.

In fact, it appeared to me at the time of the win2K3 release that Longhorn was becoming the garbage dump for a lot of stuff they couldn’t fit into win2k3, but were under pressure to deliver…..  The real question is can MS AFFORD to go through another product cycle like that, for an uncertain income stream?????  And, more importantly, can end users???  The disruption for retraining/new technology just gets bigger and bigger as the legacy installed base gets huge with time.

Take a look at a mature industry like autos….there was a period where the technology was uncertain and significant new car models based on underlying technology was the rage (Steam, gasoline, diesel, crank, 4, V6, Wankel engine, etc etc)….now that innovation tends to be on the edges, and annual product cycles don’t typically don’t mean major changes in technology (that last major one was the hybrid), and certainly doesn’t mean significant retraining or service changes.  I would even make the case that significant car model introductions happen every ten years or so, even though in the first half of the 20th century innovations came in 1-5 year cycles (any gear heads out there that would carry this analysis further, or challenge it?). 

Economists would make the case that the governor for innovation is the human mind and its capacity to absorb new stuff – typically measured in 4-5% economic productivity growth per year, but shown to take a long time to ramp up over time (look at historical productivity statistics associated with computers).  All that says is that change comes quick, early, then levels off while it is being assimilated by that ultimate end assimilator – our brain.  That has held true with manufacturing, autos, and now computers.

Which all goes to say that MS better figure out how to add market-acceptable add-ons to the server that don’t take so long to develop (and charge for it)…I’ll bet they are trying to figure that out right now.  Sounds like a SOA discussion at the OS level….Or, alternatively, just stretch the upgrade cycle out, accept that it’s now too hard and not in  their best interest, and focus on the applications on top of the OS as money makers and introduce new ones (like SharePoint??). 

Now, add in that businesses have another tool in their tool belt – Virtualization – and you could see that the pressures (and options) for businesses to not touch legacy applications (or delay any significant upgrades) are increasing.  Does anyone remember IBM 7074 emulation under a 360, then 370, then PC?  Insurers who jumped into automation in the 50s kept that stuff alive well into the 80s, and in fact it was only Y2K that really made them drop the last of it....

So my bet is the 5 year cycle will extend to 8-10, but it is questionable just how much value the next turn of the crank will have. I bet MS will try hard to figure out a better way to make money with the OS and change the form factor for shorter delivery and payment cycles...or just take it for what it could be: an unending support-based cash flow (ala Computer Associates strategy).

Jack