Subba’s Serendipitous moments

July 16, 2010

It’s not what you think, but how you think that matters!

 

Clayton Christensen the celebrated Harvard Professor and the guru on innovation speaks to the HBS graduating class of 2010 on how to apply management lessons to personal lives. It is not just an inspiring read, but an instructive read for everyone.

After a preliminary introduction where he establishes with amazing conviction the 30 minute conversation that he had with Andy Grove which led to the development of Celeron, he gives 6 key lessons which should be applicable to all of us.

Create a strategy for your life:

“I promise my students that if they take the time to figure out their life purpose, they’ll look back on it as the most important thing they discovered at HBS. If they don’t figure it out, they will just sail off without a rudder and get buffeted in the very rough seas of life. Clarity about their purpose will trump knowledge of activity-based costing, balanced scorecards, core competence, disruptive innovation, the four Ps, and the five forces”. In my view, the pursuit of purpose surpasses all other pursuits. I learnt this quite late in life.

Allocate your resources:

“People who are driven to excel have this unconscious propensity to under invest in their families and overinvest in their careers—even though intimate and loving relationships with their families are the most powerful and enduring source of happiness.

If you study the root causes of business disasters, over and over you’ll find this predisposition toward endeavors that offer immediate gratification. If you look at personal lives through that lens, you’ll see the same stunning and sobering pattern: people allocating fewer and fewer resources to the things they would have once said mattered most”.

Create a culture:

Knowing what tools to wield to elicit the needed cooperation is a critical managerial skill.

Families have cultures, just as companies do. Those cultures can be built consciously or evolve inadvertently.

If you want your kids to have strong self-esteem and confidence that they can solve hard problems, those qualities won’t magically materialize in high school. You have to design them into your family’s culture—and you have to think about this very early on. Like employees, children build self-esteem by doing things that are hard and learning what works.

Avoid the “marginal costs mistake:

It’s easier to hold to your principles 100% of the time than it is to hold to them 98% of the time. If you give in to “just this once,” based on a marginal cost analysis, as some of my former classmates have done, you’ll regret where you end up. You’ve got to define for yourself what you stand for and draw the line in a safe place.

Remember the importance of humility:

If your attitude is that only smarter people have something to teach you, your learning opportunities will be very limited. But if you have a humble eagerness to learn something from everybody, your learning opportunities will be unlimited. Generally, you can be humble only if you feel really good about yourself—and you want to help those around you feel really good about themselves, too.

Choose the right yardstick:

Think about the metric by which your life will be judged, and make a resolution to live every day so that in the end, your life will be judged a success.

My own mid life realizations and some of the life lessons have been written here.

Well, I would strongly recommend that you read his entire lecture as he backs up the brilliant instructions with observations and decisions that he made in his personal life. The entire lecture can be found here.

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February 10, 2010

SAP faces the moment of truth

Filed under: Business,Competition,Leadership — Subbaraman Iyer @ 10:58 am
Tags: , , ,

 

In a surprise move, SAP announced the resignation of Leo Apothekar as CEO of SAP and instituted a co-CEO model. In retrospect, the problems at SAP has been in the making for a number of years.

SAP’s financials fell in 2009, like many others but it was in a recovery mode. In the full fiscal year 2009, total revenue was down 8% to €10.67 billion ($15 billion) and net income was down 5% to €1.83 billion (€2.57 billion). Q4 revenue was down 9% to €3.19 billion or $4.8 billion. Net income decreased 12% to €727 million ($1.02 billion) or €0.63 per share.

Software revenue in Q4 declined 15% y-o-y to €1.12 billion but doubled from €525 million last quarter. Software and software-related service revenues were down 4% to €2.57 billion but up from €1.94 billion last quarter. For the full year, software revenues declined 28% to €2.61 billion. Software and software-related service revenues were down 3% to €8.20 billion.

In the SME segment, SAP has just  73,000 customers globally despite making multiple product offerings like Business ByDesign, SAP Business One and SAP All-in-one.  SAP defines SME as business with 100-500 employees and revenue of less than $500 million. This was a clear under-perform given that Oracle managed to penetrate this segment.

SAP failed to execute the SME strategy effectively, something that I clearly foresaw about which I commented here.

The moment of truth was not just the revenue decline, but the impact of the lack of strategy both internally and externally.

This can be attributed to SAP’s lack of commitment to the SaaS strategy despite making public announcements about its willingness to offer the SaaS model. SAP’s strategy that Business ByDesign would essentially serve as an ‘on-ramp’ to its on-premise customers rather than be a distinct separate offering is a flawed one. This created huge confusion in the minds of the customers (something I had told them in 2007). Further it seems that this confusion spread amongst the internal staff who never understood how to position the SAP’s offerings in the market place. Hence I am not surprised that 50% of the internal staff didn’t express confidence in the executive board.

SAP’s decision to increase maintenance fees in the midst of the economic slowdown didn’t win any friends amongst the customers. It has shaken customer confidence about SAP’s customer orientation.

Is the co-CEO model the solution to the leadership challenge amidst such strategic and operational challenges? I am not so sure. SAP has had several leadership challenges in recent times as listed here.

Hasso Plattner was his usual candid self when he said “ But to be profitable, we will have to be a happy company and our customers have to be happy as well”. .

So expect Hasso Plattner to be not just visible but with his hands firmly on the wheel.

October 21, 2009

The Apple juggernaut rolls on

Filed under: Business,Competition,Leadership,Strategy — Subbaraman Iyer @ 1:23 pm
Tags: , , , , , , ,

Apple’s juggernaut continues unabated going by the latest results. Thanks to the iPhone’s game changing play that’s elaborated here. A blow out quarter.

Record shipments:Apple sold 7.4 million iPhones this quarter (ending Sept 2009)which is a 7% growth from last year. It sold 3.05 million Macs in this quarter up 17% a year ago. Both of these are milestones in Apple’s history. Sales of iPod touch were up 100% year over year. iTunes store is now in 23 countries and has become the world’s largest retailer.

Cash: Apple has $34 billion in cash this quarter compared to $31 billion last quarter. There’s a hint that there could be a share buyback soon. No debt. And to put this in context, this cash hoard is greater than that of Microsoft and more than the market cap of Dell.

Profit: A quarterly profit of $1.67 billion on revenues of $9.87 billion. It is the most profitable quarter ever in Apple’s history.

Future outlook: The future outlook seems still better with iPhone making an entry in on of the largest markets in the world — China, followed by Korea and a few other additional countries.

New accounting rules: Apple can recognize revenues from its subscription devices immediately rather than spreading it over a 2 year period.

Competition: Apple’s competition is actually languishing. Nokia the largest mobile device vendor reported a $834 million loss — the first in a decade due to falling mobile sales. Its smart phone sales saw a huge decline in market share as well. Sony Ericsson also suffered losses.

I am wondering whether Nokia or Sony Ericsson will make a bid to acquire Palm.

October 3, 2009

Salesforce.com into financial applications

Unit 4 Agresso has now teamed up Salesforce.com — the poster boy of SaaS to create FinancialForce.com that will produce SaaS based accounting, and financial management applications.

Well SaaS has been growing, but CFOs are mostly conservative and would not want to the data to be in the cloud. Hence the success of Financialforce.com will be keenly watched.

Now there are several interesting issues that come about with this joint venture.

For a start, it seems that Salesforce.com is a minority investor. Salesforce.com’s presence will undoubtedly create higher visibility for SaaS based financial applications. Hence other vendors will follow suit giving the SaaS proposition a greater momentum. Enterrpise software vendors who offer products in the mid market space like Oracle, Microsoft and SAP will have to respond quickly to this trend.

But with this association, Salesforce.com also seem to be sending mixed signals to its App Exchange partners who use the Salesforce.com’s Force.com platform to build new applications. Well, they could build an application only to realize that Salesforce.com might one day compete with them. Recent acquisitions by Salesforce.com in many of the App Exchange parnters’ businesses have not made Salesforce.com popular with many of the partners. Yet, there’s no compelling SaaS platform currently.

It looks like Salesforce.com needs to clearly clarify its positioning, strategic goals and its partnering model.

October 2, 2009

Cisco’s brilliant acquisition of Tandberg

Recent acquisitions by Dell and Xerox have something in common. Both acquired companies which are far away from their core competencies in an effort to find stable growth. They acquired predominantly U.S. centric IT services firms. I explained my disappointment with Dell’s acquisition of Perot Systems here. Xerox recent acquisition of ACS also evoked a similar thinking in me. It is very difficult for a pure play product / technology organization to blend well with a pure play services organization. The organizational DNA are too different, growth trajectories are quite different, organizational processes lend itself to little synergy. In short, I am not very high on such acquisition moves.

Cisco is different.

Cisco announced an all- cash offer to acquire Tandberg for $ 3 billion. Tandberg — a Norwegian company sells smaller and less priced video conferencing systems. This is a perfect fit for Cisco’s more expensive TelePresence systems which has been a great success. I think this is a brilliant acquisition since Tandberg’s gross margins is 66% and has clients in US and Europe. This acquisition would enable Cisco to sell the Tandberg products to companies which cannot afford the TelePresence. With this acquisition, Cisco would dominate the video conferencing systems for some time. More importantly the acquisition came in quite cheap since Cisco just paid 11% premium over Tandberg’s closing price.

Cisco has always acquired companies that in some way or the other generated more Internet traffic creating in turn demand for its core business — the networking hardware business. The way it is going to unleash its Unified Computing strategy will of course be interesting and one has to wait and see how it provides the synergy to the networking hardware business. Cisco’s ability to shake off entrenched players in fairly established market segments will also be evident in a couple of years.

Over the last 5 years Cisco has acquired 40 companies — both big and small and they have helped Cisco plug the gaps in the technology and product roadmaps admirably well. They also have had little problems integrating them into the Cisco model.

Cisco has $35 billion in cash which means further acquisitions are on the way. I only hope they don’t go with the flavor of the month and acquire another U.S. based IT services firms !

September 30, 2009

Vodafone takes the battle to the mobile phone vendors

A few months back one of analyst friends asked me whether it is possible for the mobile service provider to create their own App Stores and be successful. My opinion to him was they can do it or rather they should do it, else they have not even joined the battle for customer loyalty. The talk turned to Singtel which is one of the largest operator based out of Singapore and it has a global presence due to its joint ventures and acquisitions in many countries. I remember telling him that it should be one of the large operators who will have the reason to do it.

Now Vodafone has done it. Vodafone 360 is a mobile web service that provides music downloads, integration with Facebook and Twitter, and supports several handsets. In a way it is competing with Apple’s App Store, Nokia’s Ovi and other App Stores created by the mobile phone vendors.

Now Vodafone’s Telco 2.0 model (called efficient pipes) is nothing new. A lot of mobile service providers thought about that but shied away from taking the plunge. Now Vodaphone which has over 300 million consumers in over 30 countries has taken the challenge.

As Apple and Nokia increase their emphasis on the App Store and have made a success of it (Apple’s App Store’s success is chronicled here), the mobile service providers can’t afford to be silent spectators.

But whether the service providers with their current competencies would have the ability to build an App store and an application eco-system is a big question.

BlackBerry’s opportunity is now.

I was taken aback when I saw the RIM’s stock suddenly drop 17% last week. By all accounts, it had a strong Q2 results: Q2 revenue was up 37% y-o-y and 2% q-o-q to $3.53 billion on shipment of 8.3 million units. Net income was $475.6 million or $0.83 per share versus $495.5 million, or $0.86 per share last year and $643.0 million, or $1.12 per share in the prior quarter. Gross margin improved to 44.1% from 43.6% last quarter due to reductions in raw material costs and shifts in the product mix. The company ended the quarter with $2.5 billion in cash, up by $78.5 million over last quarter.

It gave a conservative forecast for the quarter ahead. I think the analysts were expecting bigger revenue growth. And this explains why the stock got beaten.

Looking beyond the immediate quarters, RIM faces several strategic challenges and threats — iPhone getting entrenched within the corporate enterprise which was RIM’s sweet spot, imminent price wars with Apple and Palm and the emerging Android phones likely to hit the market anytime.

Unlike Apple, RIM hasn’t made much strides with the App Store. Apple’s success is highlighted here. RIM’s App Store was launched only in April and has seen about 20 million downloads compared to Apple’s 2 billion downloads. It needs some serious work here and may be a cutting edge application. It also needs to pay serious attention to building an application eco system for business applications.

I think their deal with Verizon will be watched with interest as Verizon already has deals with Palm and Motorola’s Android. RIM is apparently coming up with several new models, but the competition is hotting up.

I think the next 2 quarters would be key for RIM to regain the momentum it seems to have lost. The opportunity is now.

Nokia’s decline — indicative of a bigger upheaval?

Just as Apple announced stellar results, Nokia the leading player is showing signs of decline. It has the company of another marquee player in Sony Ericcson. I already described the impact that Apple and RIM are having on other players here. The latest market data just reinforces the view.

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The Western Europe market in Nokia’s backyard and hence the trends here are important. The reason for the significant drop is Nokia doesn’t have the zing of the iPhone or the Blackberry and doesn’t have a great smartphone yet.

Now while the overall market has declined by 6% the smartphone sales were up 25% and about 1.7 millions were shipped. Of the 1.7 million, Apple sold 1.4 million and RIM sold 1.3. phones.

Now to add to Nokia’s troubles, it doesn’t have a significant presence in the U.S. though it has a strong presence in Asia , especially in the large markets like China and India. But with iPhone’s imminent launch in China and RIM’s increased efforts, Nokia has some tough challenges ahead.

The mobile device market is clearly headed for a major upheaval. With Andriod based phones to hit the market (18 models) and several service providers launching their own App Store, we will see interesting things happen.

Disclosure: I am a Nokia user and have admired their management style. One of my early blog posts was about Nokia’s amazing success in India here.

Apple’s App Store reinvents the mobile phone

Here are the impressive statistics on the Apple’s App Store based on Apple’s recent announcement:

Number of applications available: 85,000

Number of countries from where App Store is accessible : 77

Number of participants on the App Store : 125,000

Number of downloads : 2 billion.

“App Store has reinvented what you can do with a mobile handheld device, and our users are clearly loving it.” says Steve Jobs.

I talked about the game changing nature of the iPhone and the App Store here.

What is incredible is the rate of growth. From just 500 applications in July 2008, it surged to 15,000 apps downloaded half a million times in 6 months. 3 months later it had its billionth download and 35,000 apps. A further 5 months later both the downloads and the apps have doubled.

Well, I wonder what would be the growth trajectory of the App Store once iPhone is launched in China?

Now that every cell phone vendor has his own App Store the mobile operator is just left to be a dumb pipe.

September 23, 2009

Netflix’s “crowdsourcing” approach is a success

I have been following Netflix unique experiment to improve its Web site’s movie recommendation system. This week Netflix announced the winner of a three year contest with the winner BellKore comprising of statisticians, computer scientists, data mining experts netting a cool million dollars.

The rules of the competition was fairly straightforward. The qualification for the prize was that the winning team has to improve by at least 10% the prediction of what movies customers would like as measured against the actual ratings. The teams were grappling with a huge data set of more than 100 million movie ratings.

Over the past three years there have been 44,014 entries from 5,169 teams in 186 countries vying for the top prize

I think with this experiment and with Google’s experiment with crowdsourcing described here, there will be a significant shift towards innovation management. The fact that there exists more intelligence and wisdom and the collective effort outside the company’s eco-system has gained credibility. I expect many such organizations embarking on the contest mode to solve intractable problems.

There are a number of lessons that this contest brings about.

First, it indicates that there can be a marketplace for innovation where companies could post their product development challenges and for an interesting contest, the best brains are willing to compete. It sharpens their own abilities.

Second as the BellKore team and other teams demonstrated there is a willingness for disparate people to actively collaborate. While cooperation and collaboration within many organizations has been challenging, I wonder how such disparate people could come together and collaborate easily for a bigger goal.

Third, for people who believed in having an inhouse R&D and saw that as a competitive advantage, this experiment seeks to blow that myth away.

Note: Netflix Prize 2 would challenge competitors to recommend movies based on demographic and behavioral data.

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