Category: conferences

The New Software Industry: John Zysman

John Zysman, a professor of Political Science at UC Berkeley, immediately followed Maglio with a related discussion on Services Transformation. The expectation was that Maglio and Zysman have diametrically opposed views and that their joint question period will degrade into fisticuffs — or at least a lively debate — but it turns out that they’re pretty closely aligned on many issues.

A generation ago, services (within a software product company) were seen as a sink hole of productivity, but are now considered to be sources of productivity. It’s not that the service sector has grown or has changed from agriculture to IT, it’s that the sector has been reorganized in significant ways. In order to navigate this, we need to understand three things: strategy and organization; tools; and rules and roles (social-political dynamics).

An example of this sort of transformation is what Zysman referred to as the “American Comeback”, driven by the new consumer electronics, with a shift from electro-mechanical to digital (think Walkman to iPod) as well as modularization and commoditization within the supply chain. He listed stages of service transformations, although I can’t do justice to an explanation of these:

  • Outsourcing
  • Changes in consumption patterns
  • Outsourcing household work
  • The algorithmic transformation: from revolution to delusion

Most of this transformation is based on a change in how services are performed and the application of technology to allow services to be performed in different ways and locations. I heard an interesting example of this last night while having dinner with some of the TIBCO people who I’ll be seeing at TUCON later this week: two of them were from the U.K., one of those two now living in the U.S., and we had a discussion about healthcare in the U.K., U.S. and Canada. One of them made the point that in the U.K., patients sit in the waiting room until the doctor comes out and calls them in, where as in both Canada and the U.S., multiple patients are taken simultaneously to separate examination rooms and prepped by medical assistants, then the doctor just goes from one room to another to do a more specialized part of the work. What’s really interesting is that U.K. and Canada both have socialized medicine, which would tend to favour the less efficient but total service U.K. model, except Canada has a shortage of doctors so has moved to the more efficient U.S. service model.

A couple of random ideas from his talk that I want to capture here for later thought:

  • Should we conceive a services stack?
  • Automating the codifiable parts of a process is the first step in the transformation.
  • By commoditizing a service, you may be “moving the whiteboards of innovation”, i.e., disabling the ability to have innovation in a service.

In discussing rules and roles, Zysman talked about how services are embedded social processes, and how we need to change the way that processes work. How did we end up talking about business process reengineering? I thought that I was taking a break from process today, but as it turns out, there is no escape.

The New Software Industry: Paul Maglio

Paul Maglio, a senior manager of service systems research at IBM’s Almaden Research Center, spoke to us on the science of service systems, looking at the services sector of the economy, including everything from high-end professional services to McJobs in the hospitality industry. The focus of much of his research is on high-value services that simply can’t be automated.

Harkening back to Cusumano’s talk, he showed where services generates 53% of IBM’s gross revenue, but only 35% of their pretax net income; because of that, they’re focussing on service innovation in order to be able to squeeze a bigger margin out of that services portion.

He showed a model of services as a system of relationships between a service provider, a service client and a service target (the reality to be transformed or operated on by the service provider for the sake of the service client). Service systems depend on value co-creation between the provider and the client. if the client wins to the detriment of the provider, it’s a loss leader; in the reverse situation, it’s coercion. If they both win, it’s co-creation.

Although there’s no equivalent to Moore’s Law for services, telling us where the efficiencies will be created in the future, there are some known factors that can be applied to make services more effective, both related to people (location, education) and technology.

In mapping profits against revenues, the steepest curve (biggest return) is information, then technology, then SaaS, then labour. However, most services are a combination of all of these things, so it’s considerably more complex to model.

The New Software Industry: Michael Cusumano

Michael Cusumano is with the MIT Sloan School of Management, and has written several books on the changing software industry; he spoke today about the changing business of software.

In general, there is a decline of new enterprise software product revenues, and growth in services and maintenance sales. There are a number of new business models, including SaaS and ad-supported software.

Software companies tend to move from being product companies to services or hybrid product/services companies (maintenance revenue is usually included in services). However, there’s a different evolution curve that shows where companies focus on product innovation, then on process innovation (e.g., making the product more efficiently), then on services innovation.

The number of publicly-owned software companies peaked in 1997 at around 400 companies. IT services firms peaked in 1999 at around 500 companies. Web companies, which can be launched with significantly less capital (due to distribution mechanisms and development tools/methodologies), had a peak in 1999 before dropping in the crash, but are now climbing to an even higher peak.

Cusumano showed a graph of three business model dimensions: revenue model, delivery model, and customers, with traditional software product vendors at the origin of the graph, and various other models scattered throughout the cube. He also asked the question, is the rise in services and new business models temporary or permanent? The “temporary” argument says that we’re in a transition phase between platform and business model innovations; the “permanent” argument (with which I agree) says that software is now commoditized and prices will fall to close to zero as we embrace SaaS and ad-supported models.

Being an MIT geek, Cusumano had slide after slide of data analysis about his research on software product companies. For example, average product company revenue crossed over in 2002 so that services revenue was larger than product revenue; also, firms at 24+ years of age have more services than product revenue. The age phenomena contributes to the date-based phenomena, since many of the large enterprise product vendors are reaching this level of age maturity now. There’s an interesting cycle where services are very attractive for revenue generation, but then reach a point (in terms of % of revenue) where they are performed relatively inefficiently and, due to lower profit margins, are not as profitable as product; eventually, as companies become better at providing services (e.g., reusability), it swings to a more positive contributor to profitability. Market cap follows a similar pattern, although the centre (when services are undesirable) portion of the graph is broader.

Similar things are happening with hardware companies: more than 50% of IBM’s revenue, for example, is from services.

He had some interesting comments on the way that software product companies should incorporate services into their business model: it should be planned and exploited as opposed to just happening by accident, as it does with many product companies.

He ended up with some key questions:

  • How to manage the mix of products, services and maintenance efforts and revenue within a product company.
  • How to “servitize” products, to make them less generic and more customizable.
  • How to productize services; a great point that he made here is that it’s best served by creating two professional services organizations with different mandates.

The New Software Industry: Ray Lane

I’m at the Microsoft campus in Mountain View attending the New Software Industry conference, put on by Carnegie Mellon West and the Haas School of Business. I interviewed a few of the people from CMU West a few months ago about the new Masters of Software Management program, and ended up being invited to attend here today. Since I’m down here for TUCON this week, it was just a matter of coming in a day early and fighting the traffic down from the city this morning (although I left San Francisco at 7:30 this morning, I still arrived late, around 9:15).

Unfortunately, I missed the brief opening address which, according to the program, featured Jim Morris, Dean of CMU West, and Tom Campbell, Dean of Haas, so my day started with Ray Lane of Kleiner Perkins (formerly of Oracle) talking about the personal enterprise, or what I would call Enterprise 2.0.

Lane started with a discussion about how the software industry is changing, including factors such as packaging (including SaaS) and vertical focus. I found it interesting, if not exactly surprising, that he has a very American-centric view of the industry, so that he’s really talking about the software industry in the U.S., not the global industry; he spoke about India and China gaining market share in software as some sort of external force as opposed to part of the industry.

He had some interesting points: a call to action, which including leveraging community power via mashups and other collaborative methods; and a look at how platforms are moving from monoliths to clouds (i.e., services exist in cloud and are called as required). He covered some basic about Web 2.0 and web-driven capabilities. Since I’ve been so immersed in this for such a long time, there wasn’t much new here for me, although he had some interesting examples, particularly about collaboration and user-driven content.

He talked about the “personal enterprise”, where consumer web applications inspire new enterprise applications, or what many of us have been talking about as Enterprise 2.0. He makes a great point that somehow, being at home allows us to just try something new online, whereas the act of going into the office makes us want to spend a year evaluating rather than just trying something, and how we need to change that notion.

He gave seven laws for Enterprise 2.0 applications:

  • serves individual needs
  • viral/organic adoption
  • contextual personalize information
  • no data entry or training required
  • delivers instantaneous value
  • utilizes community, social relationships
  • minimum IT footprint

I’d love to expand further on each of these, but I’m trying to get this conference blogging back to something like real-time, so that will have to wait for another post.

He finished up with some examples of personal enterprise applications, with some discussion about what each of them contributed to advancing software industry business models:

  • Services: Webex, Skype, RIM, Google
  • Applications: Salesforce.com, NetSuite, RightNow
  • Collaboration: SuiteTwo, Visible Path

Access to the Microsoft guest wifi is tightly guarded and requires an hour or so turnaround to get login credentials, so this first post is coming out late and the other will trickle along throughout the day. All of the posts for this conference are available here.

BrainStorm BPM Day 2: Dan Madison

Last session of the day for me: I’m headed off to the airport following this, although I realize that the probability of a flight in or out of Chicago being on time when it’s snowing is near zero. With some luck, I’ll make it home tonight. The only thing that I’m missing is some sessions where the vendors get to show off their products, and a final wrapup keynote.

This session by Dan Madison is on Creating the “To Be” Process, something that I often do with customers, and I’m always looking to learn new tips and techniques from others who do the same thing. This session is part of the Organizational Performance symposium, the first of those that I’ve attended these two days.

He suggests a number of “lenses of analysis” to look at processes and derive the “to be” processes from the problems seen in that process.

First, create a customer report card, which for each ranked criteria, shows the current process performance (usually around quality and timeliness), what the best possible performance in that process would look like, and the two main competitors or outsourcers.

Second, look at the things that frustrate the people who are currently participating in the process, since there’s a high correlation between frustration and quality problems: frustration has the ability to act as a lens focussed on problem areas. Once frustrations are identified, the process participants tend to generate a ton of ideas on how to fix the problems, and there’s a huge amount of buy-in for changing the process from the grassroots level. I’ve definitely seen this with my customers. There was an audience question about how to keep this from becoming a bitch session, and Dan said that he uses some basic rules if things start to go that way: only process problems are discussed, not people problems; and each person can only bring forward their three main frustrations.

Third, look at the time required for each type of work in the process: processing, waiting, rework, moving, inspecting and setup. He finds that processing — the actual work — is typically only 2-20% of the time, which indicates that there’s a huge amount of inefficiency in the process. Of that small percentage, even all of that may not be time that adds value to the process. If you’ve automated your process with BPM, then you can gather this information with your system, but if your processes are still manual, then figuring out how your process breaks down will be manual, too.

Fourth, a cost lens such as activity-based costing; ABC calculates what it really costs to deliver a specific product or service by looking at the labour, overhead and material costs of each step in a process.

Fifth, a quality lens such as Six Sigma for measuring defect rates or some other relevant quality measure.

Last, take a look at benchmarks and best practices, by looking at your direct competitors and what they’re doing; and by looking at companies that have a process similar to your problem process and are considered to be world class, regardless of their industry.

He then moved on to design principles for the to-be process:

  • Design the process around value-adding activities.
  • Provide a single point of contact for customers and suppliers.
  • If the inputs coming in to the process naturally cluster, create a separate process for each cluster.
  • Ensure a continuous flow of the “main sequence.”
  • Bring downstream information needs upstream.
  • Involve as few people as possible in performing a process [our old adage of reducing handoffs lives!].
  • Ensure 100% quality at the beginning of the process.
  • Use co-located or networked teams for complex issues.
  • Redesign the process first, and then automate it.

Putting it all together, creating the to-be is the synthesis of:

  • Customer feedback
  • Worker frustrations
  • Time analysis
  • Cost analysis
  • Quality analysis
  • Benchmarking and best practices
  • Design principles
  • Information technology

Dan’s obviously experienced at this: he does it as a consultant, he teaches process mapping and improvement at the local university, and he has a couple of books that he’s written on it. I haven’t read his books, but I’ll be checking them out soon.

BrainStorm: Meeting my peeps in Chicago

I’m starting to see more and more familiar faces at these BPM conferences, and this one is no exception: I’ve met Gregg Rock and Tom Dwyer of BPMInstitute.org at a couple of conferences now, finally met Brett Champlin at the last Gartner conference, and Bruce Silver and I meet up so often that our spouses are starting to get suspicious. 🙂  There’s also the people who work for the vendors — I seem to see many of the same ones at every show, and these shows must be some small form of purgatory for them.

It’s also fun to meet people who I’ve only met online previously, and I’ve had a couple of those experiences here in Chicago. David Novick, who added a comment to my blog that turned into an email conversation, recognized me in one of the sessions — I guess that Rannie’s new headshot of me is paying off. At lunch, I happened to sit at the same table as Barbara Saxby from Ramco, who was on a webinar that I moderated last month. And Jean Campagna of Resolvit found me yesterday evening at the vendor showcase/drinks party to say that her colleague was sending me a hello: apparently her colleague back at the office has been reading my blog to Jean over the phone.

BrainStorm BPM Day 2: Ken Orr

For the first breakout session of the day, I attended Ken Orr’s talk on Business Process Driven Enterprise Architecture. He started out with some observations: improving business processes is essential for enterprises; business architecture is critical; modelling is critical; and business processes are hard to manage in the real world and especially in big organizations. Nothing earth-shattering here, but excellent points.

He made a great analogy by talking about IT levees — fragile yet critical applications and systems where you know that they’re a weak point but just never find the time or money to fix them — and understanding when they’re going to break. Apparently, a year before Hurricane Katrina, there was an exercise that modelled exactly what would happen if a force 4 or 5 hurricane hit New Orleans, but nothing was done; when Katrina hit, the levees failed exactly as modelled. Orr talked about mission critical spreadsheets as being one class of IT levees that are all set up to fail at the wrong time.

He talked about how enterprise architecture is like city planning, where your deliverables are things like a city plan, a zoning plan, a building code and an approved building-materials list. Sticking with the disaster analogies, he talked about how building codes are the result of disasters, and the obvious analogy with software and system disasters is pretty clear.

He covered off their enterprise architecture framework briefly, but used it mostly to discuss how the different layers in a framework interact: in short, technology changes enable business changes, and business changes drive the need for technology changes. He also talked about determining what type of business that you’re in, that is, what business processes are you really doing, so that you can figure out whether or not you should be in those businesses as well as how to improve them. Funnily enough, he really answered part of the question that I asked in the panel in the previous session with respect to getting an end-to-end business process view, but that’s sort of expected from an enterprise architecture person since EA can be a key tool in doing just that. In his terminology, what I’m talking about is a value stream, defined by James Martin in The Great Transition as “…an end-to-end set of activities which collectively create value for a customer.”

Update: I forgot to add “Orr’s rules of modelling”, which he gave after I had shut down my laptop, so were just scribbled on a piece of paper:

  1. It’s more important to be clear than correct. If you’re clearly wrong, someone will correct you. If you’re obscurely correct, you may never know.
  2. It’s not important that your first model is correct, only that your last model is correct.

BrainStorm BPM Day 2: Transforming to a Process-Driven Enterprise

Following our morning break in the beautiful but sadly lacking in hot water (for tea) vendor showcase area is a panel moderated by Tom Dwyer on Transforming to a Process-Driven Enterprise, featuring speakers from Adobe (Ashish Agrawal) and BEA (John Lauck, former president of Fuego before it was acquired by Fuego) as well as the last session’s speaker, Jeremy Alexis. Surprisingly, the speaker from Adobe didn’t show up until 13 minutes after the panel was supposed to start, but many of us think that Adobe is pretty late to the BPM space anyway.

I’ve been tagged by Tom to ask a question early on in order to get things rolling, which means that I’m paying more attention than usual. 🙂 Panels are difficult to blog about because they’re so unstructured and there’s no visual aids, but there’s often some conversational gems that pop up.

The first question was about the business-IT divide, which resulted in a completely expected reply: if you don’t get the business and IT people together, then BPM initiatives will almost certainly fail. Lauck just referred to “SOA” derisively as a buzzword, which was a bit unexpected and did make me laugh — wonder what his current bosses think about that — and then took a swipe at BPEL.

I then popped up and asked how organizations can move from being functionally-focussed to having an end-to-end view of their processes that will move from local optimization to global optimization. Unfortunately, the two vendors appear to have thought that I asked the question “how can I sell more software to my customers”, because they both spoke about how you start with small projects, then roll out other projects across the enterprise and possibly find some efficiencies via shared services. In fact, Lauck said that if you have “grandiose plans” (his words) like modelling your end-to-end processes, then you’ll just be modelling forever. Okay guys, but you’re not answering my question: everyone’s talking about moving from functional silos to process-centric views, but how do you actually do it? Shared services is not equivalent to finding a global optimum. Tom must have known that I wasn’t satisfied, because he came back to me and asked if I wanted to clarify. By then, I was itching to have the microphone back, and said explicitly that I hadn’t asked them how they could sell more software, but that’s the question that they answered, and said that I was interested in Alexis’ view on this since it is really a question about how companies innovate. He responded that leadership is key, which is a sort of motherhood and apple pie statement, and talked about the importance of change management. Okay, that’s closer, but still doesn’t answer the initial question.

A third question came up about how transitioning to a process-driven organization creates winners and losers, and how companies deal with losing people who just don’t fit into the new world order. I think that the question was really about people who can’t adapt to the new way of thinking, which is essentially a change management issue.

BrainStorm BPM Day 2: Jeremy Alexis

As an engineer, I love to hear about design, and I really liked Jeremy Alexis’ talk on a Framework for Making Better Decisions during Product Definition. He teaches at the local Institute of Design (and has a blog about one of his design courses) and acts as a design consultant, and started out by talking about the problem with McDonalds’ ketchup packages — love it, even if it has nothing to do with BPM.

He moved on to some interesting graphs of patterns of good decision quality, and some fatal flaws in decision making:

  • Overconfidence
  • The endowment effect, where the owner of something feels that it is worth much more than it actually is (all Web 2.0 companies should pay attention to this)
  • Loss aversion, such as fear of losing market share if a product is changed
  • Horizontal flight/vertical flight: in areas of uncertainty, we tend to ignore what’s important and focus on what we feel more comfortable with
  • Groupthink, where not enough outside ideas are introduced and a small group believes that what they have developed is the right thing

He presented some ideas about decision making at the “fuzzy front end” of product definition, that is, during discovery and scoping, where there are few good tools for making decisions, unlike during later points in product definition (business case, develop, validate and launch) where there are a number of robust tools for decision making. He had some great findings from research on decision making at these early stages, such as its ad hoc and unstructured nature and its internal focus, and how these can make things go terribly wrong. Since there are a lot more ideas in the pipeline at the front end, it’s pretty necessary to determine the winners and losers as early as possible.

Alexis showed us a high-level generalization of what really happens during the front-end discovery and scoping parts of product definition, which tends to just create more of the same rather than actually drive innovation. He then discussed a new approach — create an innovation strategy, triage concepts as they are created, and use a consistent approach to evaluate triaged ideas — and drove into detail on each of these steps. He brought together a number of interesting concepts, such as the 10 different types of innovation plotted against a company’s “ambition level” to see which types of innovation that organizations at different levels of innovation ambition should attempt.

He ended up by stating what we in the technology industry already know: that the ultimate goal of most startup companies creating an innovative product is to be acquired rather than taking their company public, and that many large companies are counting on acquiring their innovation rather than developing it themselves.

BrainStorm BPM Day 2: Andrew Spanyi keynote

I didn’t come to Chicago specifically for the snow, but it didn’t disappoint me nonetheless: big wet snow dripping down, just enough to get me wet crossing the road from my hotel to the Drake.

We started the day with a keynote by Andrew Spanyi, who I didn’t give a great review earlier this year for his talk at ProcessWorld, and it seems to be a very similar talk that he gave there about business process governance although he’s promising some new research data. Also, this time it’s at the beginning of the day rather than the end, so I likely have a better attention span. Besides, he’s a fellow Canadian (although transplanted to the US), so he knows how to pronounce “process” 🙂

He starts out with his 2003 and current definitions of BPM, the latter of which adds (no surprise) the words “management practice”, before putting in a plug for his two books.

The study that he did through Babson College was a “mindset” study, which explored the role of executive mindsets in enabling a BPM focus, with the hypotheses that if a firm has embraced business process thinking, then they’d have an enterprise-level business process relationship map, they’d measure things from a customer’s point of view, they’d have assigned process owners with accountability for cross-functional processes, and they’d have a plan for business processes within the organization.

Only a third of the 18 respondents (five, by the sounds of it), however, reported that they actually had all of these things (I have a question as to whether 18 data points is a statistically sufficient sample size, but then I never was all that good at stats). There were some common characteristics in these five companies: a supportive and vocal CEO, passion about performing for their customers, some sort of competitive or environmental threat, and a receptive culture within the organization.

The companies often used a framework to help them bootstrap their efforts, which allowed them to develop their process management models and plan in a relatively short period of time, and they were enjoyed a fair degree of success as corporations.

He went back to a subset of the original sample set for a follow-up survey — nine companies, four of which were in that earlier “leaders” category — and found that they still identified the same challenges. Some lessons learned emerged from this:

  • Change management is key and takes longer than you think.
  • IT enablement is critical to make all this happen, often by taking away the old tools and replacing them with newer tools.
  • Build an organization-agnostic view of the process.

The outcome from all of this is that the organizations are seeing more cross-departmental collaboration (and less finger-pointing) due to the end-to-end view of the business processes, and that there’s a much bigger focus on the processes rather than departments — ultimately, this process-centric view is what’s going to drive success.

In the Q&A, he made the statement that BPM and BI must converge, and that companies that he talked to in the survey said that they wouldn’t buy software unless it had both — and intriguing statement that I would have loved to hear more about.

I still found that Spanyi covers too much ground in a short period of time, and flips through his slides too quickly to absorb a lot of the information: there was one five-point slide with some pretty critical summary information, maybe 20 words in total on the slide, and I could only jot down the first three points before he flipped to a rather meaningless graphic where he stayed for two minutes. However, he’s obviously knowledgeable about this stuff and I liked his talk this time around.