Investile Dysfunction

Oracle's Enlightening Technobabble

The folks at the Wall Street Journal's Business Tech Blog find jargon and babble just as absurd as me, and so they had a great post yesterday about a recent Oracle press release.  It stands alone so I'll just copy the offending jargon/technobabble and the WSJ's comments below as written by Ben Worthen.  The 'quote' by Torleif Nesheim is classic...too funny.

"If you are looking for a "market offering designed to simplify the lifecycle management of complex IP-based services," we've got the product for you!

That description is straight from an Oracle Corp. news release that touts...well, we still aren't sure. The release is a string of bewildering tech terms and vague verbiage. It refers to whatever it is the company is selling as an "offering" in each of the first three sentences. Is that software, hardware or something you sacrifice to Quetzalcoatl?

Technology that businesses use is marginalized enough without buzz terms that humans can't understand. One reason many businesspeople avoid information technology is that talking to a techie requires mastering a whole new language.

The one person who seems to know what Oracle means, Torleif Nesheim, the chief information officer at Oslo, Norway-based BaneTele AS, says the "offerings are leading-edge service configuration assurance capabilities that will help us to rapidly deploy high-demand IP services, such as level 3 virtual private networks, multicast and quality of service over our IP/MPLS network." That is from the news release. Mr. Nesheim didn't respond to messages asking if he really talks like that.

We're guessing -- guessing, mind you -- that Oracle's "offering" is software that helps telecommunications companies track how well their networks are performing. That is a big deal, given the rise of online video, teleconferencing and other services that take up a lot of bandwidth. And a product that helps ensure everything is running the way it is supposed to is probably really important to businesses in this industry.

You would never know it from the release. And we may never find out: An Oracle spokeswoman declined to comment."

When will vendors learn that these types of "news" releases do nothing for them?

Please comment: The worst M&A deals of all time

For those who've read my blog before, heard me speak at conferences, read my book, etc, you know my feelings on M&A.  It invariably doesn't work, destroys value, and is hugely ego-driven by senior managers looking to build empires and do things that are visionary and transformational. 

In a word, M&A sucks. 

What is most appalling about M&A as a practice is that organizations can achieve the out-size returns they aim for by doing things which are more "mundane" such as focusing on optimizing resource allocation and growing organically.  This means acquiring new customers, retaining existing customers, selling more to existing customers and innovating.  And companies know this but still pursue M&A because of ego and the cadre of bankers and consultants who encourage such foolish behavior and know they'll earn a boatload of fees smashing the companies together and then pulling them apart a few laters to "unlock value".

And since it appears we will repeat the debacle that AOL-Time Warner was with the combo of Microsoft & Yahoo, I thought I'd ask folks out there what are the biggest & baddest (read: horribly bad) M&A transactions of all time.  (I know Microsoft & Yahoo is far from final but it appears Mr Softee is drunk enough to believe that getting Yahoo is key to their success online and so I expect the price will go up).  Here is the list of 5 colossally bad deals to get things started and get your juices flowing:

1. Mercedes Benz & Chrysler - Let's put a sweet German car maker together with a crappy, outdated US car manufacturer and see what happens.  The results?  Not ideal. 
2. Sprint & Nextel - When they merged, the combined entity was worth about $70B and now they're worth a combined ~$25B.  If success is determined by shedding value, this deal was wildly successful.  Bravo.
3. Sears & Kmart - Eddie Lampert was supposed to be the next Warren Buffett.  I wonder how many people have been compared to the Oracle.  What happened to that?  Again, Sears-Kmart is predicated on the idea that you mate 2 dogs and somehow get a pony.  Sorry.
4. AOL & Time Warner - Do I need to even say anything about how bad this deal was?  Mix dot com insanity with crappy dial-up biz model and dying print business and what do you get?  AOL-Time Warner of course.
5. Citibank & anything - How many times are we going to try this financial supermarket idea before we realize the cross-sell, relationship, cost and other ethereal "synergies" are concocted by a group of investment banking analysts just out of business school who don't really know that much?  Oh Citi, oh Citi - why do you treat me so bad?

So that should get the ball rolling.  Thoughts, wisdom, other deals to add? 

Cloud Computing: The Death of Hardware but What About Corporate IT Organizations

Like the terms social network and before it B2B and B2C, the new 'it' word in IT/technology circles seems to be all about cloud computing.  Nicholas Carr just wrote about it so you know it must be the buzz. 

In essence, the thought is that small companies looking to do lots of computing in a hurry won't buy hardware but instead, they will rent it from players like Amazon that already have "vast networks of cheap computers" (Forbes, February 11 - The Death of Hardware).  This network is the "cloud".

And as the Forbes article suggests, "The spreading of this cloud darkens the outlook for traditional hardware makers such as Dell, HP and Sun, which have already been buffeted by fears of a US recession."

So this is small business today because the kinks are still being worked out, but this is the type of disruptive innovation which will eventually take hold.  And so for the hardware makers, it will be necessary to either get on board or get trampled (although this may take a while).  EMC purchased online storage service Mozy in an effort to get on board it seems.

The more interesting question is how will corporate IT groups embrace the "cloud"?  While the "cloud" is not ready for prime-time with large institutions, it will get there and at that point, a lot of the maintenance work tech staffs do will become obsolete.  It will also mean that IT organizations can run a lot cheaper as the pricing that vendors will likely be able to offer as a result of their massive server/processing scale will be more attractive than what can be done in-house.  What do those of you out there think?  Will IT embrace this change or will they fight it to protect turf, people, organizational dynasties, etc?  Outside of the most progressive IT organizations, my bet is that they will fight this.  Some of the fighting maybe warranted in the beginning before the concept is fully vetted, but my gut tells me IT will aim to hold onto the "old school" ways even after the concept is validated.

Thoughts?

Forrester Sure is Smart

Monday, February 11th's Financial Times had an article entitled "IT Spending Forecasts Cut on Recession Fears" which discussed Forrester Research's estimate the IT spending will grow just 6% over last year.  What is most impressive is that Forrester not only predicts IT spending, but also has cracked the code on so many other pressing economic issues as evidenced by this quote by Andrew Bartels, author of the report:

"Historically, there has always been a strong correlation between the economy and technology spending.  Our forecast is premised on a mild recession in the US economy in the first two or three quarters of 2008, caused by a shrinking housing sector and tapped out consumers reining in their purchases due to higher interest rates, energy costs and consumer debt services."

Wow!  These guys at Forrester are good.  Not only do they predict IT spending but they predict recessions (type: mild) and their length & timing (2 or 3 quarters in 2008).  I am impressed that their multi-variable model is robust enough to spit out all these prognostications.

Of course, Forrester had 2 months ago predicted growth would be at 9%.  Last week, Cisco Systems said it saw "a rapid slowdown in orders in January."

To this, Bartels commented,

"The Cisco announcement was coincidental to the revision in our forecasts..."

Coincidental, eh?  Right right.

I remember reports from Forrester and their brethren in 1999-2001 which predicted B2B marketplaces and e-commerce would be the end of traditional methods of commerce.  These predictions were also accompanied with stylized reports and lots of impressive analysis and survey results.  You know what?  If I had a nickel for everytime these guys were right, I'd be pretty broke. 

As I always say, be wary of the experts. 

Jargon Word of Early 2008: Headwind

Yesterday's Wall Street Journal had a great cover story piece about the increasing use of the term "Headwind".  As the Journal points out, "To hear executives tell it, headwinds are to blame for the weak sales of cars, tires, paint and books.  Just what are these headwinds?  Everything from high-fuel prices to slow foot traffic in handbag stores to rising newsprint costs."

And everyone is getting into the headwind act sprinkling the term in their addresses to analysts, shareholders, etc.  Users include Rick Wagoner, CEO of GM, Jerry Yang, CEO of Yahoo, G. Kennedy Thompson, CEO Wachovia amongst others.

The term itself is not very interesting.  It's sort of intuitive in its meaning.  What is interesting however is how organizations talk about these headwinds as a way to seemingly absolve themselves of accountability.  GM has been doing mediocre while some of their foreign competitors are holding up ok, right?  Are they not facing the same "headwinds" or perhaps their headwinds are weaker because they execute and innovate better.  What about Google as compared to Yahoo? 

At the same time, when the market or economy is doing well, how many of these CEOs will speak about a tailwind helping them out?  When things are good, it is generally a cocktail of genius, innovation, our people, products and "customer-centricity" which drive this.  It's not the fact that the market is growing at 5% or 10% and we're just rising with the tide.  And even though we may know that is the case, we'd rather take credit and attribute the successes to our management prowess.

I'm undecided.  Are these headwinds or just hot air?

Nike Micro-Innovates: Maybe You Should Just Do This Also

I've been impressed with Nike for some time.  As a runner, I've never really liked their running shoes to be honest, but I've always been impressed with their ability to build a great brand, several sub-brands around specific sport and consistently innovate.

After reading an article in the Feb 11, 2008 issue of Forbes entitled, "On the Run", my appreciation for how Nike innovates increased.  When most companies think about innovation, one of the first dimensions they'll think about is "size of the the opportunity" and this does make sense, but not always.  What size of the opportunity filter fails to do is include those initiatives which may not be big today, but which could, even tangentially, give you an entree into a larger market tomorrow.  We are talking about optionality here and options have value.  And I call what Nike does micro-innovation.

They micro-innovate on products.  "Nike has revenues of $16 billion a year. Roughly three-fifths comes from footwear, most of the rest from apparel, but it slices its markets very thin. There is one shoe aimed only at Native American athletes, another for cricket players in India, yet another for folks who play lacrosse. The count of different sneaker and apparel styles has reached 13,000 a quarter. On this extravagantly diverse product line Nike will probably net $1.6 billion in the fiscal year that ends in May."

A lot of companies would say that this many products is confusing and they should prune the offerings, and in the case of a P&G where one detergent is really not that different from the next one they have, this may make sense.  But in the case of Nike, they're working with consumers who play sports and who are governed by styles, cultures, etc that are different. 

Most organizations would say, "Why focus on Native Americans or Lacrosse?"  And what ultimately ends up happening is some upstart will see the demand there and build a product for them and then over time, they'll go upstream and start to encroach on your turf.  In the case of Nike, Under Armour is the example of this.  They started with their sweat-wicking clothes and unveiled their footwear line at the SuperBowl.  A Nike misstep may have enabled them to do this.

Beyond their micro-innovation from a product perspective, the company also is willing to micro-innovate on the marketing front.  They spend $2B per annum (that B as in billion) on marketing but spend little on mass-market television ($60 million in the first 9 months of 2007).  Instead, CEO Mark G. Parker, would rather spend money on events or on the Web (for example, the LeBron James Showroom in Shanghai or a web video of Brazilian soccer star Ronaldhino which got 35 million hits).  Again, these are not marketing vehicles guaranteed to get the most viewers or eyeballs like TV and are arguably less "safe" than TV, but Nike is willing to push their thinking on marketing to also go after micro-channels.

For a large company like Nike, this type of nimbleness is commendable.  It seems that their ability to segment the market thinly and serve those needs will continue to allow them to dominate footwear and sports apparel.

A Sure Sign of Problems for America: $600 Cashmere Sweaters for 6 year Olds

In Time Magazine's Feb 18, 2008 issue, there is an article titled "Downsizing Style" by Kate Betts which as as you are reading it gives you the sensation of those Sour Patch Kid candies - it is both unpleasant and pleasant at the same time.  The article discusses how many high-end European and American Designers a la Marc Jacobs, Dolce & Gabbana, Missoni, etc are offering $300 cashmere sweaters and $150 jeans to new 6-year old fashionistas. 

The Pleasant - I applaud the designers for seeing a market opportunity and innovating in a way to fill this market need.  This is capitalism at its best.

The Unpleasant - Why do 6 year olds need $300 cashmere sweaters?  (Maybe the question is why anyone, but let's focus on the kids for now)  My blog is not usually filled with social commentary, but this does scare me especially when folks say things like "Kids are more sophisticated about fashion now.  Fashion is a major part of how they express themselves.  It's a huge part of their culture, and boomer moms definitely want the very best for their kids."  (quote by Gela Nash-Taylor, who along with Pamela Skaist-Levy launched Juicy Couture kids).  I live in NYC and maybe this is only a big city thing (I hope), but sophisticated 6 year-olds? C'mon now...

Ram Charan Says: Keep Investing in Your Business and Don't Cut Expenses Haphazardly. Makes Sense. Now If Only Organizations Would Listen.

Fortune's Feb 18, 2008 issue has an article written by management guru, Ram Charan, which offers some useful advice as we enter uncertain economic times (possible recession).  While he covers a few key principles around people and customers, I found two of his points most salient and wise.

1. Keep Building - Charan argues that typically organizations go after discretionary spending when the top and bottom line look uncertain.  And he says this is the absolute wrong thing to do.  Product development, innovaton and brand building are not optional he insists.  And he is 100% right.  These investments are ways to ensure that you come out flying when the downturn invariably ends.  In essence, you are not selling your children as Charan puts it "for a slightly more comfortable present." 
2. No across-the-board cuts - Related to his keep building credo, Charan argues that cuts should have logic behind them, not just equal opportunity cuts across the organization.  "Don't be fair about it" he comments.  What should happen is that you cut those less useful expenses and reinvest those areas to build future growth avenues, capacity, etc.

Despite the wisdom of this advice, I'm sure that if the economy persists in slowing, we will be reading about wide-scale layoffs and reductions in spending for many organizations.  Those organizations willing to be a bit contrarian in this environment are likely to do very well when the cycle turns.

The Problem: Everyone Thinks Their IT Needs are Sooo Special

The Business Technology section of Feb 5th's Wall Street Journal had an article about software as a service (SaaS) entitled "Online Software: Buzz vs Business" (login req'd to read article) which discussed online software and their inability to do what a company needs it to do which ultimately is leading to decreased adoption.

SaaS is supposed to make business computing cheaper, faster from an implementation perspective and easier, but it is running into several hurdles including not being able to handle customized requirements of organizations and fears around the data being off-site. 

At present, SaaS accounts for 6% of software sales of $5.1 billion according to Gartner.  They expect it to become 15-18% of the market in the next few years. 

Some thoughts:

1. The security concerns will have to be resolved, but this seems entirely achievable.  Proper safeguards can be put into place to get customers comfortable on this front (at least over time)
2. The flexibility hurdle is a bigger one for SaaS vendors because unfortunately, it seems every company thinks its requirements are unique and that the software must be customized to reflect their reality.  Hopefully, companies that want the benefits of SaaS will take a deeper look at their own methods and see that the customizations they were requesting are really not that required or material (wishful thinking perhaps).  At the same time, I'm sure SaaS vendors will develop means to be more flexible/customizable.  I hope the two groups can then meet in the middle as SaaS seems to have significant upside potential.

What do others think about the prospects for SaaS?  What are the hurdles to SaaS adoption?  Do you have any good stories or nightmares about SaaS you can share?

Try Deprivation Research at Your Company to Get Rid of Stupid, Inane Practices

Deprivation research is a market research technique where marketers measure how loyal consumers are to a brand, product or service by taking it away from them.  Yesterday's Wall Street Journal talked about the use of deprivation research at Burger King.  You've probably seen the ads where real customers are told the Whopper had been taken off the menu and they then express their outrage.  Great ads which show customers' loyalty to the Whopper. 

I was thinking about this deprivation technique and thought that corporations should apply this to their own processes and practices (with a little twist).  Let's take the wonderful budgeting process.  Get rid of it and then see how many people actually complain.  Sure, there will be some folks who will miss the tedium of the budgeting process, but overall, people driving the business will probably not care as the process is generally of such little value.

Of course, I am exaggerating here (but only slightly).  There are lots of internal practices & processes which result in low value and significant unproductive complexity in most organizations.  And oftentimes, these have been passed down from generation to generation with little scrutiny to the value they provide.  And quite honestly nobody really cares about many of these.  Whether it is budgeting, internal transfer pricing, recurring and repetitive management meetings, strategic planning exercises,  etc., there is lots of value to be derived from "depriving" the organization of these practices.  You'll then get firsthand perspective into how "necessary" many of these practices and processes really are.  I think you'll see that many people won't express much loyalty or miss the things you deprive them of.