Building a business culture

Culture matters in an organisation. While a positive culture doesn’t guarantee success, it does make it more likely a company will survive its founders.

“How can you create a great organisation of people and be that mean a person?” Asks funds manager Julian Robertson about Apple founder Steve Jobs.

Robertson, who based the decision to sell his Apple shares on the details in Walter Isaacson’s biography of Steve Jobs, was largely ridiculed for his decision but the veteran investor has a very good point.

A company’s culture develops from the top – if the senior management are paranoid, rogues or thieves then those attributes will eventually percolate through the company.

The Tyco Lesson

During the 1990s I had the unfortunate experience of working for Tyco International at the time it was led by Dennis Kozlowski, a man listed by Time Magazine as one of the ten most crooked CEOs of all time, senior management’s attitude of treating the company’s funds as their own piggy bank was copied throughout the organisation.

Tyco suffered badly during that period and subsequent management has had to work hard to undo the influence of Kozlowski and his cronies’ poor leadership.

One organisation I’ve watched closely over the last few years has been Australia’s NBNCo, the state owned company set up to build the nation’s National Broadband Network.

In under four years of operation the company has developed a dysfunctional management culture that saw the project miss its targets by over 70%.

For the NBN, a hands off attitude by senior management allowed bureaucratic silos to develop in a relatively small and young organisation. Those silos then started perpetuating bad habits as managers hired their friends and ignored good management processes. A lack of process and management accountability have been the main reasons the company has failed to meet its targets.

Apple’s challenge

In Apple’s case, Jobs created a culture of fear and secrecy with the company going as far as creating its own secret police designed to intimidate staff. The entire company was beholden to, and evolved around, one man’s vision, ego and quirks.

While Jobs was ahead of the game, all was good for Apple shareholders but the risk was always that Jobs would make a major mistake or leave the company. It turned out to be the latter when Jobs passed away.

As with any company built in the image of its founder, Apple now struggles to adapting to life without Steve Jobs and his successors have to reinvent the company’s culture around a more collegiate management structure than an often not-so-benign dictatorship.

Microsoft are facing a similar transition as Steve Ballmer leaves the company. Like Apple, Microsoft is an immensely profitable facing a changing market at the very time they are transitioning to a new generation of leaders.

Leaders such as Steve Cook at Apple and Ballmer’s successors at Microsoft have a massive task in changing their company’s culture as they try to undo a generation of management habits and this is why Robertson’s reasoning about selling his stake makes sense.

Culture matters in an organisation. While a positive culture doesn’t guarantee success, it does make it more likely a company will survive its founders.

The myth of celebrating failure

Embracing failure isn’t all it is cracked up to be

“We should celebrate failure!” One of my friends said over a beer. “If so, I have a lot to celebrate but don’t have a lot of money to dot it with.

Like many business mantras ‘celebrating failure’ is nice to say until you’ve actually experienced it.

Failure tastes pretty bitter and it isn’t pleasant when you encounter it. For some, it could kill their careers.

When you hear business gurus and snake oil merchants expounding the mantra of embracing failure it’s worth considering survivor bias when you hear the case studies

It’s also worth looking at the state of their suit and how desperately they are selling their box set of inspirational DVDx or books.

Valuing Twitter

How does Twitter compare to Facebook and Google when they were floated?

Now microblogging service Twitter has released documents ahead of a stock market float, it’s possible to start looking at the viability and stock market valuation of the company.

When Facebook’s float was first mooted in early 2011, we looked at how the social media service stacked up against Google a decade earlier. The question was ‘is Facebook worth $50 billion?’

The stockmarket answer was resounding ‘yes’ despite an initial fall that saw investors face a 50% loss in the early days of Facebook being a public company. Today the stock has a market valuation of $122 billion, with an eye popping price/earnings ratio of 122.

So how does Twitter stack up at the valuations being discussed? Quite well it appears when we put it against Google, Facebook and LinkedIn.

Company Google Facebook LinkedIn Twitter
Market Cap 288 123 27 13
P/E 25 288 901 29

For Twitter, the real challenge is making money from the service and their latest idea is marketing the service as an essential companion to watching TV.

The discussion over how Twitter makes money exposes another problem for the service in it has no obvious revenue stream which makes comparing the platform to Facebook or LinkedIn rather problematic.

Facebook has advertising while LinkedIn has premium subscriber services both of which are problematic.

Not having an obvious revenue model may not turn out to be a problem – as LinkedIn’s P/E shows – and Twitter’s founders are probably more likely than anyway to be the digital media industry’s David Sarnoff.

It may be Twitter makes its money from giving advertisers, marketers and others access to the massive stores of data the company is accumulating.

Whatever way it turns out, Twitter’s going to be the hot IPO news for the tech industry for the rest of the year. At current prices, the investors will be lining up to buy the stock.

Building tomorrow’s markets

As technology evolves, it gets harder to predict what customers will want in the future.

“If I’d asked my customers we’d have built a faster horse,” is a quotation often attributed, probably incorrectly, to Henry Ford.

The point of the quote is that asking today’s customers about tomorrow’s market is pretty pointless when new products change consumer behaviour.

Just as the farmer of 1906 had no inkling of how the motor car, truck and tractor would change their business, the cellphone user of 2006 had no idea of how the iPhone would change the way they used a phone and communicated with the world.

Which brings us to Nokia.

The Sami Consulting blog discusses how Nokia lost their lead in the cellphone business as the market migrated the Apple and later Android smartphones.

Nokia’s problem was they spoke to their customers about their existing mobile phone use rather than considered how the technology might evolve.

When the inventors of the touchscreen approached Nokia, the company carefully evaluated the technology, consulted their customers and decided it wouldn’t work for their products.

What does this story tell about foresight?  First, it shows that innovation creates futures that are fundamentally unpredictable. We do not have facts or data about things that do not exist yet.  When a mobile phone becomes an internet device with sensors, touch screens, and broadband access, it becomes a new thing.  If you ask your existing customers what they like, the answer will always be about incremental improvements.  When you ask about the future, the answer will always be about history.

In many ways Nokia were the beneficiaries of a transition effect, they took advantage of a brief period of technological change  and were caught flat footed when the technologies evolved further.

To be fair, it’s hard to see that change when you’re focused on incremental improvements.

The motor car turned out to define the Twentieth Century – even Henry Ford couldn’t have foreseen how the automobile would change society and the design of our communities.

Both the motor industry and smartphone industries are going through major change, particularly as the internet of everything sees the two technologies coming together.

One thing is for sure, how we use our phones and cars over the next fifty years will be very different to how we use them today.

Big Data needs big databases

Investors are making big bets on the databases that underpin Big Data

While the tech industry’s startup hype this week has been focused on the impending Twitter Initial Public Offering, a much more fascinating company quietly completed a major capital raising.

MongoDB provides an open-source, document database program and last week raised another $150 million from investors that values the company at $1.2 billion dollars.

Databases lie at the heart of Big Data and businesses need better computer programs to manage the overwhelming amount of information that’s pouring in every day.

As every business is unique, larger corporations find they spend huge amounts of money on their databases. The enterprise that buys an Oracle, IBM or SAP system usually spends tens, if not hundreds, of millions of dollars in adapting the system to work for them, often with less than spectacular results.

While implementing MongoDB or any other open source program doesn’t eliminate implementation costs, it is often easier to setup and maintain as most of the information about the system is shared and freely available rather than locked inside the vendor’s proprietary knowledgebases.

Probably most important of all, the data structures themselves are open so customers don’t find themselves locked into a relationship with one vendor because all their information is in a format that can only be read by one system.

Open source is where Big Data, social media and cloud computing intersect – without the data itself being open and accessible, most cloud computing and social media services will almost certainly fail.

So MongoDB and the other open source products are the quiet, back of house technologies that keep the internet as we know it ticking along.

Bloomberg Businessweek reports there’s some very serious investors in MongoDB.

The deal attracted new investors such as EMC Corp. (EMC:US) and Salesforce.com Inc. (CRM:US), along with previous backers Red Hat Inc. (RHT:US), Intel Corp. (INTC:US), New Enterprise Associates and Sequoia Capital, according to MongoDB.

Sequoia Capital are one of the longest lasting Silicon Valley venture capital firms whose greatest success was being one of the first investors in Apple Computers and New Enterprise Ventures have a similar pedigree with companies like 3Com, Juniper Networks and Vonage. Investment by industry leaders like Intel, Red Hat, Salesforce and EMC in the company also shows MongoDB isn’t the standard Silicon Valley Greater Fool play.

When there’s a gold rush, it’s those selling the shovels who make the big money and the investors in MongoDB and similar services are hoping they’ve found some of the modern day shovels.

That may well turn out to be the case and while the smart folk make more money from the technologies that drive social media and cloud computing services, the rest of us are distracted by the latest shiny thing.

Finding a role for Hong Kong in the China story

Hong Kong’s role in the China story as Shanghai rises is discussed by Brian Wong of Seacliff Partners.

The Chinese government’s declaration of a Shanghai Free Trade Zone recently made headlines with speculation the region might be exempt from the nation’s internet blocks.

For Hong Kong, the Chinese government’s move is another blow to the territory’s already declining position as the main gateway to the People’s Republic.

As part of the Decoding The New Economy series of interviews, I spoke to Brian Wong of Hong Kong’s Seacliffe Partners about the challenges facing the territory and the role the former British colony will play over the next few decades.

“Hong Kong, I think, is the perfect bridge between East and West, ” says Brian. “But I think Hong Kong has been in search since the change over in 1997 as to where it really wants to focus itself.

The territory is squeezed between Singapore that has established itself Asia’s leading financial hub and now is positioning itself as a creative centre and Shanghai which has become the new ‘Gateway to China’ with its domestic financial centre and deep water port.

Despite the challenges facing the Territory, Brian sees opportunities in the city’s cultural and business environments.

“One of the great things about Hong Kong still is its international community and its accessibility for creative types,” Brian says. “I think Hong Kong is starting to recognise this advantage.”

“You have a large base of Chinese based manufacturers looking to beyond just low cost OEM manufacturing, what they need is creative design and innovation. If Hong Kong can be one of the big suppliers of that then they have a really good opportunity.”

One area Brian sees Hong Kong has an advantage is in its developing a hardware hackers culture that fits in with the massive manufacturing hubs surrounding the territory along the southern Chinese coast.

“I went to a talk where there was a fellow from Mountain View, California who does a lot of product invention,” Brian tells. “He’s set up a lab in Hong Kong to do product innovation because although he recognises China has a low cost manufacturing base, he doesn’t want to live in Shenzhen.”

The challenge for Hong Kong is to encourage a more entrepreneurial mindset, Brian believes. He also sees Hong Kong having an opportunity in being a conduit for the Chinese diaspora looking at investing into the PRC.

Probably the biggest advantage Brian sees Hong Kong having are in its mature legal and capital markets that Shanghai and other Chinese centres lack – “these are world class,” he asserts.

Ultimately though it may be that Shanghai, Beijing, Taipei or Singapore aren’t threats to Hong Kong at all as each city becomes the centre of certain aspects of a diverse Chinese and East Asian economy.

“I think much like in the United States there is not just one financial centre – you’ve got Chicago, New York and you’ve got different roles for different cities, LA for media and San Francisco as the gateway into the United States.”

“There’s room for more than just one. The question is what does Hong Kong want to be and how does it want to be most valuable to the China story.”

On the internet, the Feds know what breed of dog you are

The downfall of Silk Road’s alleged founder is a lesson on how fragile our privacy and online security are

The arrest of alleged Silk Road founder Ross Ulbricht – also known as the Dread Pirate Roberts – has attracted plenty of media attention.

What’s particularly notable is the FBI is claiming Ulbricht made a basic mistake in posting to a website under his real name that gave his identity away.

If true, Ulbricht’s trivial mistake illustrates how easy it is for any determined investigator to find someone’s identity online from the trillion points of data we all create in the connected world.

Anyone who wants to be truly anonymous on the web has to work extremely hard to protect their identity. Most of us aren’t prepared to trade convenience for security, particularly given the massive effort required.

Even if we could protect our online habits, the use of credit cards, loyalty plans and even driving our cars still it almost impossible to escape the watch of a determined investigator.

In the early days of the web, it was said “on the internet, no-one knows you’re a dog.” Today the feds can figure out not only what breed of dog you are, but what your name is and your favourite brand of dog food.

The modern panopticon we live in is a very efficient machine and it’s difficult to hide from society’s gaze. It’s why we need to rethink privacy and information security.

Image of Presidio Modelo by Friman through Wikimedia.

Globalisation with Chinese Characteristics

What are the challenges facing Chinese businesses as they expand globally?

“eBay is a shark in ocean, Alibaba is a crocodile in the Yangtze” film maker Porter Erisman quotes the founder of Alibaba, Jack Ma, in comparing the two online trading sites.

In promoting his film Crocodile in the Yangtze, Porter spoke to Decoding the New Economy about the rise of the global Chinese internet giant.

A key part in Alibaba’s success is taking on eBay on it’s own turf, “if you’re David fighting Goliath you can’t play by the big guy’s rules,” Porter says.

This is exactly what the Chinese company did when eBay entered their market and today Alibaba and it’s subsidiary Taobao have sales exceeding eBay’s and Amazon’s.

“Back in about 2003 Jack Ma came to me and told me about a secret project to overtake eBay,” Porter says. “When we looked at them they looked like a Goliath, they’d never really been beaten in a market they’d entered first and they had a huge war chest with a $150 million committed to the China market.”

It turned out that eBay weren’t as powerful as they appeared, something other entrepreneurs have discovered when giants like Google have entered their markets.

The Chinese Leapfrog

Like many rapidly developing countries, China is leapfrogging various stages of development that Western economies went through with the retail industry and e-commerce being two examples.

“Some people say cellphones will leapfrog landlines, actually the same is due with entire systems,” says Porter. “In China coming from so many years of a command economy there wasn’t a very developed retail culture or even a consumer culture.”

“Taobao came along at a time when all of that was still in the early phases of development and the company basically leapfrogged that whole phase of building out shopfronts and building logistics.”

“E-commerce in China is revolutionary while in the US, or Australia, it is evolutionary.” Porter says.

Porter quotes Jack Ma as saying “e-commerce in the US would be a dessert, in China it is the main course.”

China’s Global Challenge

As companies like Lenovo computers, Hauwei telecommunications or Haier whitegoods have discovered, Chinese businesses face challenges when expanding overseas. Porter sees this as a matter of time and scale.

“Like Japan in the 1970s and 80s there’s a whole wave of companies that have started going global. China’s such a big market that there’s a lot of companies that get big and develop scale before going international.”

“I’d say the biggest challenge in the beginning is cultural,” states Porter. “China’s at a disadvantage because information and the media are so controlled that’s sometimes a rude awaking when a company goes global like a Hauwei and then faces a bunch of political issues it doesn’t understand.”

“One of the reasons I made the film,” Porter says. “I wanted entrepreneurs in China to see it and understand these are the issues Alibaba faced when they went global and hopefully you can learn from some of those successes and mistakes.”

Going to China

Porter’s advice to westerners going into China is to shut up, listen and learn, “don’t assume that just because things are done a certain way in the US or Australia that it’s superior.” The country’s culture and ways of doing business are different to those of North America, Europe or Australia.

“If you look at the way traffic moves in Shanghai it looks crazy. If you drove like that in Sydney it would be a disaster but there’s just different ways of through traffic, getting point A to B.”

“It’s better not to judge, but just step back.”

Regardless of our judgements, China’s move up the value chain means we will see more PRC founded companies going global.

Over the next decade we’re going to see the globalised economy start to take on some recognisably Chinese characteristics.

Does Bill Gates leaving Microsoft mark the end of the PC era?

Bill Gates is the last of the PC industry pioneers, does his retirement from Microsoft mark the end of the desktop era?

After Steve Ballmer’s announced retirement from Microsoft it was clear that the changing of guard was going to happen at Microsoft as Bill Gate’s last trusted lieutenant left a management position.

Now Reuters reports that some of Microsoft’s shareholders are lobbying for Gates himself to leave the board.

If that happens it would probably be the formal end of the PC era as Gates is the last of the pioneers of the desktop computer industry to still have a major role following Ballmer’s retirement and Steve Jobs’ passing.

Are industrial hubs a thing of the past?

Do services like Alibaba and oDesk mean industrial hubs are things of the past?

Since the beginning of civilisation, industry hubs have formed the basis of cities and regions, but is the internet removing the need for like minded businesses to group together?

Tomorrow I’m at a breakfast featuring Porter Erisman whose film Crocodile in the Yangtze tells of the rise of China’s Alibaba and the adventures of its founder, Jack Ma.

Jack Ma’s Alibaba is the eBay of manufacturing, connecting factories and buyers around the world. A visitor to the site can buy anything from childrens’ clothing to tractor gaskets, all cheaper by the container load.

The rise of Alibaba tracks the development of sites like oDesk which bring skilled workers together. It’s becoming easier for businesses of all sizes to tap global workforces and supply chains.

In the past, industrial hubs and cities have developed due to the proximity of workers, suppliers and materials. Today, it may well that with all the resources being a mouse click and a credit card away from an entrepreneur it’s no longer necessary for these hubs to develop.

Whether industrial hubs do develop in the future will depends on individual sector’s needs for natural resources, face to face contact and short supply chains, but it’s worthwhile thinking whether location remains important for modern economic development.

Crumbling cookies

Internet cookies are dying, what will replace them?

On the last ABC radio spot we looked at how our data is being tracked, in the following 702 Sydney program with Linda Mottram we looked at the role of Internet cookies and online privacy.

Cookies – tiny text files that store visitors’ details on websites – have long been the mainstay of online commerce as they track the behaviour of web surfers.

For media companies, Cookies have become a key way of identifying and understanding their readers making these web tracking tools an essential part of an already revenue challenged online news model.

Cookies also present security and privacy risks as, like all Big Data, the information held within them can be cross-referenced with other sources to create a picture of and often identify an internet users.

These online data crumbs often follow us around the web as advertising platforms and other services, particularly social media sites, monitor our behaviour and the European Union’s Directive on Privacy and Electronic Communications is the first step by regulators to crack down on the use of cookies.

Similar moves are afoot in the US as regulators start to formulate rules around the use of Cookies, in an Australian context, the National Privacy Principles apply however they are of limited protection as most cookies are not considered to be ‘identifiable data’, the same get out used by US government agencies to monitor citizens’ communications.

Generally these rules promise to be so cumbersome for online services Google is looking at getting rid of cookies altogether .

Ditching cookies gives Google a great deal of power with its existing ways of tracking users and ties into Eric Scmidt’s stated aim of making the company’s Google Plus service an identity service that verifies we are who we say we are online.

Whether Google does succeed in becoming the web’s definitive identity service remains to be seen, we are though in a time where the questions of what is acceptable in tracking our online behaviour are being examined.

For the media companies and advertising, putting the control of online analytics in the hands of one or two companies may also add another level of middle man in a market where margins are already thin if not non-existent.

It may well be that we look back on the time when we were worried about  internet cookies tracking us as being a more innocent time.

A difference in expectations

While the focus is on the work ethic, expectations and careers of GenY workers, could it be the group set up for the most disappointment are the baby boomers as they reach their retirement years?

Could it be the age group set up for the most disappointment in today’s economy are the baby boomers rather than GenYs?

The Wait But Why? blog has a provocative post on why Generation Y Yuppies are unhappy. It hasn’t gone down well with some prominent Gen Y writers.

Part of the reason the article offended Gen Ys like Adam Weinstein is its focus on the younger generation having an entitlement mentality and feeling ‘special’.

Were I a GenY I’d be pretty irritated at those views, particularly – as Weinstein points out – when younger folk are saddled with much greater debts and far less work security than baby boomers. Interestingly, Weinstein’s rebuttal makes almost the same points the Wait But Why blog from the opposite perspective.

A mismatch of expectations

Despite some of the provocative statements, the Wait But Why post makes a very good point about the expectations of different generations and the mismatch between what different age groups expect and the reality they encounter.

The economic boomers – the group born from 1935 to 1955 – had the good fortune to spend most of their working lives during the post World War II period that saw the Western world experience the greatest economic boom mankind has seen.

During their working lives, all but the lowest paid economic boomers became healthier, better fed and had more access to creature comforts than even royalty had a generation earlier. The average Westerner today is rich beyond the belief of our great grandparents a hundred years ago.

As the Wait But Why blog contends, the result is the boomers are the happiest, most fulfilled generation we’ve ever seen.

In contrast, GenYs are facing a far less fulfilling future in a lower growth economy that is far tougher and a society more focused on ‘user pays’, ‘cost recovery’ and outsourcing labour to the lowest cost provider than the greater good of the community.

Can boomers continue to be lucky?

While this is true of both Boomers and GenY, it’s worth questioning whether the Boomers’ happiness of exceeded expectations will continue.

Today governments are cash strapped, almost pension scheme is underfunded and the demographic time bomb of an aging population has started to be felt across the developed world.

Worse for the baby boomers is their retirement plans require their assets – primarily their homes, investment properties and small businesses – need to be sold at prices beyond what GenX and GenY buyers can afford.

A reversion to the mean in asset prices for economic boomers means a lot of them will be going back to work.

Recently I spoke to one economic boomer who had lost heavily after the global financial crisis. “No worries,” he said. “If need be I’ll get one of my old jobs back, I can still use a set square and drawing board.”

Sadly, he didn’t understand that being good at using a set square and drawing board in a modern engineering office are as useful as making horseshoes or operating an electric telegraph. Those skills, while noble, are no longer necessary.

While GenY will get on with adapting to the realities of their economic situation – they have little choice but to do so – the big challenge will be for their parents to deal with the modern economy.

A new ‘Greatest Generation’?

Perversely it’s likely the GenYs will turn out more like their grandparents who had to deal with a great depression and a massive World War.

While hopefully the GenYs won’t have to deal with either of those, they are faced with a much different economy than the one which nurtured their parents.

So the real ‘happiness deficit’ could turn out among the baby boomers in retirement at the very time in their lives they are least able to deal with it.

Hopefully the GenY workers will be compassionate on their asset rich but cash poor parents and grandparents.