Category: management

A tale of two business models

The performance of Apple and Microsoft in recent years show two very different management philosophies.

The stunning quarterly results of Apple announced yesterday compared to Microsoft’s indifferent performance illustrate how the fortunes of two different business cultures have changed.

Apple yesterday announced a spectacular result for its quarter finishing at the end of last year with  revenues up 30%, profits by 38% and Earnings Per Share just short of fifty percent.

The announcement was an emphatic vindication for Tim Cook and his management team who made some big bets on the larger form factor iPhone 6 which paid off spectacularly with shipments growing 46% to 74.5 million and revenue reaching $51.2 billion, over two thirds of the company’s total sales.

One notable aspect of Apple’s success is the difference with Microsoft’s and this shows how different business cultures come in and out of fashion.

The Triumph of the MBA

For two decades Microsoft’s licensing business model was dominant and this confirmed the MBA view that companies should do everything they can to move design, research, manufacturing and distribution out of their operations – the virtual corporation where there was no inventory, few costs and even fewer risks was the ultimate aim of the modern manager at the turn of the century.

Microsoft encapsulated this philosophy with its licensing model, while the company made massive sales with huge margins – as it still does – all the business risks in the computer market were carried by resellers and equipment manufacturers. For many years the markets loved this.

Apple tinkered with the licensing model under John Sculley in the mid 1990s during Steve Jobs’ exile but was never really serious about giving away its hardware capabilities and in 2001 moved into retail with the opening of the first Apple Store.

Coupled with the App Store, Apple have come to control the entire customer journey from marketing, design, purchase and ongoing revenue after the product is bought.

King of the new Millennium

While the 1980s and 90s were the time of triumph for the Microsoft model, the 2000s have been good to Apple as shown by the revenue and profit figures.

Apple and Microsoft Revenues 2000-2014
Apple and Microsoft Revenues 2000-2014
Apple and Microsoft Profits 2000-2014
Apple and Microsoft Profits 2000-2014

The key inflection point in these charts is, of course, the iPhone’s release in 2007. Apple caught the wave of change as computer use switched from personal computers to smartphones and is now the dominant vendor.

For Microsoft the success of Apple is bittersweet; the company had a smartphone operating system in Windows CE but it was too early to the market and the devices vendors went to market with were, at best, substandard.

Microsoft’s failure with the smartphone was also echoed with tablet computers and exposed the licensing model’s reliance on vendors to supply and support decent products, even today Microsoft’s hardware partners struggle to release decent tablet systems.

Cloudy on the web

Another problem that exposed Microsoft’s weaknesses was the rise of the web where hardware and operating systems really did matter so much any more. Along with pushing out personal computer lifecycles it also had the consequence of allowing other systems into the marketplace, notably Linux and Google Android.

With OS X, Android and Linux systems no longer hampered with the compatibility issues that irritated non-Windows users in the 1990s the market was open to adopting those systems. While the PC market has remained quite loyal to Windows, although the Apple Macs are showing serious growth as well, Microsoft’s system has barely any marketshare in other device segments except servers which are also declining as business increasingly move to cloud services.

Apple have shown in the computing and smartphone business that controlling the hardware products is as important as supplying the software, a lesson that Microsoft now acknowledges with its restructure into a ‘Devices and Services’ company under former CEO Steve Ballmer.

The problem for Microsoft is its margins for hardware are a fraction of its own licensing operations and weak compared to Apple’s returns. Microsoft makes 14% profit on its phone operations while the iPhone is estimated to deliver over 60%.

Under current CEO Satya Nadella Microsoft is focusing on cloud services which also aren’t as profitable as its legacy operations but see it competing with companies like Amazon and Google who don’t boast the profits from their online operations that Apple makes from its hardware.

Microsoft aside, the lesson Apple gives the technology is pertinent for its competitors in the smartphone space as well; companies like Samsung, LG and the army of Chinese handset vendors are going to find their markets tough unless they can take control of their software development and distribution channels – relying on Google for Android and telcos to get their phones to customers leaves them exposed in similar ways to Microsoft’s partners in the last decade.

In the battle between business models, Apple is the current winner and shows throwing all of your business operations over the fence to partners and licensees is a risky strategy. How those lessons are applied in other sectors will test the limits of both management philosophies.

Photo of Steve Jobs and Bill Gates by Joi Ito through Flickr

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Making Chief Transformation Officers work

Business and governments around the world are appointing Chief Transformation, Digital Officers. Do these positions work?

As the scale of technological change facing organisations becomes apparent, managements are appointing Chief Digital Officers to deal with the adjustment. Is this a good idea or just window dressing?

Last week the Australian Federal government became the latest  administration to announce they will appoint an executive to manage the process.

Communications Minister Malcolm Turnbull said the Digital Transformation Office will be charged to co-ordinate the adoption of online services across agencies and state governments.

“The DTO will comprise a small team of developers, designers, researchers and content specialists working across government to develop and coordinate the delivery of digital services,” the Minister’s announcement stated. “The DTO will operate more like a start-up than a traditional government agency, focussing on end-user needs in developing digital services. ”

Minister Turnbull hopes to emulate the UK Office of the Chief Technology Officer which was launched with the intention of delivering streamlined sign ons, simplified government websites and easier access to online services in Britain; although the experience has not been a great success so far.

What’s notable about the UK experience is the CTO came with high level support within cabinet, which gave the agency a mandate within the public service to drive change.

A job without a budget

That the Australian CTO has no budget – its UK equivalent has over £58 million this year – indicates it will not have a similar mandate and will struggle to be little more than a letterhead.

When Digital Officer do have the support of senior executives and ministers, it’s possible to achieve substantial returns. Vivek Kundra, former Chief Information Officer in the Obama administration described to me in an interview two years ago how his office had created a dashboard to monitor government IT projects.

Kundra learned this lesson from his time as the US Government’s CIO where he built an IT Dashboard that gave projects a green, yellow or red light depending upon their status.

Some of these government projects were ten years late and way over budget, the dashboard gave the Obama administration the information required to identify and cut over $3 billion worth of poorly performing contracts in six months.

This is low hanging fruit that a well resourced group with the support of senior management can drive.

Looking beyond end users

A concern though with these CIO positions is they are only looking at part of the problem with the UK, US and Australian teams all focusing on end-users.

While no-one should discount the need for easy to use online services for customers or government users; digital transformation has far greater effects on private and public sector organisations with all aspects of business being dramatically changed.

In Germany a survey last year by management consultants PwC found eighty percent of manufacturers expected their supply chains would be fully digitised by the end of the decade, almost every industry can expect a similar degree of change.

The risk for CTOs focused on how well websites work is they may find the digital transformation within their organisations turns out to be the greater challenge.

Indeed it may well be the whole concept of Chief Transformation, or Digital, Officers is flawed as digital transformation is pervasive; it affects all aspect of business through HR and procurement to management itself.

Passing the buck

The great risk for organisations appointing a CTO or CDO is that other c-level executives may then believe those individuals are responsible for the effects of digital transformation on their divisions.

While Chief Digital, or Transformation, Officers can have an important role in keeping an organisation’s board or a government aware of the opportunities and challenges in a rapidly changing world, they can’t assume the responsibilities of adapting diverse businesses or government agencies to a digital economy.

Done well with proper resources and management buy in, a good CTO could genuinely transform a business and be a catalyst for change.

Regardless of the responsibilities a CTO or CDO assumes within an organisation, for the role to be effective the position needs the full support of senior management and adequate resources.

If a company or government wants to pay more than lip service to digital transformation then a poorly resourced figurehead is needed to drive change.

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Stack ranking claims another victim in Marissa Mayer’s Yahoo

Stack ranking claims another corporate victim with Merissa Mayer at Yahoo!

One of the clumsiest management tools deployed by modern executives is stack ranking, the practice of putting staff members on a scale where the bottom 20% miss out on bonuses and, in bad times, are the first to be fired.

The process has terrible effects upon the morale of workplaces as it rewards political manoeuvring over effective performance; the worker who focuses on their task and the business tends to be overlooked compared to those who curry favour with the boss.

Another debilitating effect is it destroys teams as it has the perverse effect of discouraging people joining teams with high flying colleagues as it increases one’s chances of receiving a poor rating.

Stack ranking has previously damaged Microsoft and HP and now it appears Marissa Mayer has made the same mistake at Yahoo!.

That Mayer has made the same mistakes at Yahoo! is a disappointment; there were so many high hopes for her in reinvigorating the troubled company. Indeed carrying out the stack ranking process every quarter seems particularly debilitating and management intensive, it’s hard to think of a more effective way of destroying morale and distracting management.

In some situations Stack Ranking can be effective but the way companies like Yahoo!, HP and Microsoft have implemented the method, it’s proven to be the wrong tool for the job of managing high skilled workforces.

When implementing clumsy management tools like stack ranking, it’s worthwhile considering whether it’s the right tool for the job.

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Uber and the management dilemma

Is Uber profoundly changing the economy or are even bigger forces at work that will challenge managers?

“Uber-mania reflects a profound turn in the way the global economy is organized,” writes Fortune Magazine’s editor Alan Murray.

That’s a bit of stretch as Uber’s simply an application of the technologies that are changing business and the economy;  those technologies are having a more profound effect on the role of managers in the modern workplace.

Along with services like AirBnB and Task Rabbit, are the result of the new breed of cloud, mobile and big data tools that make it easier to deploy new business models which in  themselves threaten traditional industries and their executives.

Uber’s success is in finding an industry that in much of the world has been ripe for disruption for decades; in most Western cities cab services have been regulated to protect plate holders’ incomes and often to protect corrupt local cartels.

What Uber’s disruption shows is how those tools can be deployed against cosy incumbents.

Probably the cosiest group of incumbents of all have been corporate managers; over the last thirty years businesses have been downsized, workers have become more productive and many functions have been outsourced or offshored.

Management however has largely remained untouched as the need to supervise business functions has remained.

Now those tools – particularly the smart algorithms that run companies like Google, Facebook and Uber – are coming for managers in many industries. Added to the manager’s dilemma are improved collaboration tools that allow workers and machines to communicate and make decision autonomously without the need for supervision.

Possibly the greatest change in business over the next decade will be the disappearance of the manager as software takes over.

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Uber’s ride into the future

In the wake of a billion dollar fund raising, Uber CEO Travis Kalanick promises to change the company’s culture.

Having just raised $1.2 billion in funding, Uber’s CEO Travis Kalanick has written of the company’s next steps.

Kalanick flags the Asia Pacific as being the focus for the company with the latest fund raising which values the business as currently being worth over forty billion dollars.

That valuation is a massive achievement for a five year old business, with the growth pains involved being one highlighted in Kalanick’s post.

This kind of growth has also come with significant growing pains. The events of the recent weeks have shown us that we also need to invest in internal growth and change. Acknowledging mistakes and learning from them are the first steps. 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.

One of the big challenges for a high growth business is managing that growth; systems that work well for a ten person organisation with a few hundred clients fall over when you have a hundred staff, thousands of contractors and millions of customers.

Probably the biggest challenge for businesses like Uber is privacy; what’s clear is the ‘God View’ that allowed the company’s staff to monitor customers and drivers has been abused and is too easily accessed by employees. Tightening data security is going to be one of the major tasks for business.

Fortunately, taking swift action is where Uber shines, and we will be making changes in the months ahead. Done right, it will lead to a smarter and more humble company that sets new standards in data privacy, gives back more to the cities we serve and defines and refines our company culture effectively.

‘Giving more back to cities’ flags what could be a new strategy for growth in places where regulators and governments have been hostile to Uber. One of the reasons for Uber’s success in Sydney for example has been the utter disgust the general population and business community has for the local taxi companies, showing Uber as a good corporate citizen could help in more hostile European markets.

While Kalanick identifies the Asia Pacific as being the big growth market he doesn’t identify in what fields; it’s hard not to think Uber’s software has more potential in logistics than hire car dispatch and this is an area where the company could find more  opportunities to expand the company’s services.

Regardless of the direction Kalanick decides to take Uber, the company is cashed up and ready to expand. As long as management keeps the confidence of investors, the business’ fate is in it’s own hands.

Uber is probably the most fascinating and complex of this generation of tech startups, Kalanick’s post shows it’s story has a long way to play out.

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A question of ethics

Uber’s missteps remind us that ethics matter in business

At this week’s Australian Gartner Symposium ethics was one of the key issues flagged for CIOs and IT workers; as technology becomes more pervasive and instrusive, managers are going to have to deal with a myriad of questions about what is the moral course of action.

So far the news isn’t good for the tech industry with many businesses failing to deal with the masses of data they are accumulating on users, suppliers and competitors.

A failure of transparency

One case in point is that of online ride service, Uber. One of Uber’s supposed strengths is its accountability and transparancy; the service can track passengers and drivers through their journey which should, in theory, make the trip safer for everybody.

In reality the tracking doesn’t do a great job of protecting riders and drivers, mainly because Uber has Silicon Valley’s Soviet attitude to customer service. That tracking also creates an ethical issue for the company’s management and one that isn’t being dealt with well.

Compounding Uber’s ethical problem is the attitude of its managers, when a Senior Vice President suggests smearing a journalist who writes critical stories then its clear the company has a problem and the question for users has to be ‘can we trust these people with our personal data?’

With Uber we may be seeing the first company where data management and misuse results in senior management, and possibly the founder, falling on their sword.

Journalists’ ethics

Another aspect of the latest Uber story is the question of journalistic ethics; indeed the apologists for Uber counter that because some journalists are corrupt that justifies underhand tactics from companies subject to critical articles.

That argument is deeply flawed with little merit and tells us more about the people making it than any journalist’s ethical compass, however there is a discussion to be had about the behaviour of many reporters.

As someone who regularly receives corporate largess — I attended the Gartner Symposium as a guest of BlackBerry and will be going to an Acer event tomorrow night — this is something I regularly grapple with; my answer (or rationalisation) is that I disclose that largess and let the reader make up their own mind.

However one thing is clear at these events; everything is on the record unless explicitly stated by the other party. This makes Michael Wolff’s criticism of Ben Smith’s original Uber story in Buzz Feed pretty hollow and gives us many pointers on Wolff’s own moral compass as he invites other writers to ‘privileged’ dinners where the default attitude is that everything is off the record.

Playing an insider game

Ultimately we’re seeing an insider game being played, where journalists like Wolff put their own egos above their job of telling their audience what is happening; Jay Rosen highlighted this problem with political coverage but in many respects it’s worse in tech, business and startup journalism.

It’s not surprising when a game is being played by insiders that they take offense at outsiders criticizing them.

Once the customers become outsiders though, the game is drawing to an end. That’s the fate Uber, and much of the tech industry, desperately want to avoid.

Uber in particular has many powerful enemies around the world and clumsy management mis-steps only play into the hands of those who see the company as a threat to their cosy cartels. It would be a shame if Uber’s disruption of the many dysfunctional taxi markets was derailed due to the company’s paranoia and arrogance.

Eventually ethics matter. It’s something that both the insular tech industry and those who write on it should remind themselves.

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On being a digital anthropologist — brian solis on technology disrupting buiness

Innovating within a business can be hard work says Brian Solis

“Technology is part of the solution, but it’s also part of the problem,” says Brian Solis, the

Brian Solis describes himself as a digital anthropologist who looks for how businesses are being disrupted. We talk about digital darwinism, how businesses can approach change and the role of individual changemakers within organisations.

“My primary responsibility is to study disruptive technology and its impacts on business,” says Solis. “I look at emerging technology and try to determine which one is going to become disruptive.”

To identify what technologies are likely to disrupt businesses it’s necessary to understand the human factors, Solis believes.

One of the problems Solis sees is the magnitude of change required within organisations and particularly the load this puts on individuals, citing the story of one pharmaceutical worker who tried to change her employer.

“Her mistake was thinking this was a short race, she thought everyone could see the opportunity inherent in innovation and change when in fact it was a marathon. She burned herself out”

“What that means is to bring about change you really have to dig yourself in because you’re ready to do your part. You can’t do it alone, you have to do change in small portions and win over the right people.”

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