An outsourcing tale

It is becoming increasingly apparent that outsourcing and offshoring are not as great and/or necessary as they might have seemed. In the autumn of 2004, JP Morgan Chase management, after 21 months of running, decided to undo its 7-year/$5 billion outsourcing contract with IBM, stating that it came to realize IT was a strategic function in the organization. Austin Adams, JP Morgan Chase CIO, commented that "We believe managing our own technology infrastructure is best for the long-term growth and success of our company ... to become more efficient."
In fact, Mr. Adams got to be in charge of an enlarged IT infrastructure after the merger of JP Morgan Chase with Bank One. The latter bank had built a repute for consolidating data centers and streamlining computer infrastructures and applications. Mr. Adams reached a point where he could entertain a switch from IBM to self-sufficiency and borrow from BankOne's cost-cutting know-how. The following table briefly shows a comparison among few data points of the corporate IT spending equation:

MEDIAN VALUES, 1999-2003

I.T. spending per employee

Compensation per employee

Return on shareholder equity

Bank of America,Citicorp, Wells Fargo, Wachovia




JP Morgan Chase




Obviously, JP Morgan Chase did not get the most out of its IT-expenditures. One may infer that IBM could not deliver the same efficiency as a well done in house job would. There could be a couple of reasons: 1) IBM used JP Morgan Chase's numbers as baseline and it improved on it marginally at most, and 2) IBM might have as well pocketed the difference, after all this is their business rationale.

For the time being, the problem not if/how companies like IBM could leverage scale and make it worthwhile for all involved. It is rather the moral of the story. If a company wants more than window-dressing for the sake of some quarterly numbers, hard choices ought to be considered. In the beginning/evaluation stage, outsourcing, and especially offshoring, my seem very attractive. Yet companies should not think that deferred costs and/or cheap labor can mask their process and organizational inefficiencies. In other words, improving a company's own business should come first and outsourcing/offshoring only later in the strategic roadmap of a company leadership.

For a more detailed analysis of the steps one should consider when business-process outsourcing is an option, see: Reaping the benefits of business-process outsourcing (Bloch & Spang / McKinsey)

Minimalist vs. Baroque Categories--work in progress

The distinction between minimalism and baroque should concern technology makers, not only the aesthete. Technologies have been around for too long, we've spent too much money on them--at home or in corporations, yet we've have come to expect so little of it unless ready to fork out premium $.

Makers of technology have always known that their lock on the customer is an elusive goal. Technology companies try several ways to hold on their customers, with various levels of success, as far as market share, and price vs. duration, are concerned. As well, commoditization makes its way through, and in the end most all technologies become "black boxes," functionally distinct units, assigned to specific tasks rather than general purpose, that are simple to operate and mask unwanted complexity; specialization is addressed in small batches only. Resisting commoditization, the point where straight feature-comparisons start driving down the price, is yet another trend companies try to avoid their technologies from following. Balancing the two imperatives, to hold on customers and resist commoditization, is a tough act to follow.

One of the ways companies hope to stay relevant for their customers is to increase switching costs. This is what happens when, for example, software companies don't publish API's so that complementary technologies cannot be developed.

Another way companies try to hold on their customers is to provide increased perceived value relative to the price. Balancing perceived value vs. price has been achieved in a couple of notable ways: a) by subsidizing the user's (access) price with revenue coming from the provider of a service, and b) by leveraging scale economies, relatively complicated technologies are offered at lower prices. Client-server technologies typify the former alternative in which, say, the browser is free but the server costs one an arm and a leg. Low perceived cost relative to the amount of features also occurs when one pays, say, under $x for a technology utilized at a much lower scale than its capacity.

It is the last type of alternative that, when technology companies adopt it, fuels what people in the industry call bloatware or, as used in the title here, baroque categories. Several of Microsoft's products and services such as MSN, Adobe Photoshop, the AOL service, are good examples of this. After a certain point in the process of feature agglutination, it becomes clear that it is not your typical customer's needs that are being addressed by such technologies and services, but the technology companies' need to stay in business--see the resistance to commoditization. A rationale behind bloatware is that you either deal with specialized customers who need rich feature sets (Photoshop,) address the largest segment of the customers who, by definition, are technology illiterates (MSN, AOL,) or simply add a lot of features to keep 'price vs. features' type of challengers away from your market (MS Office.) In fact, in most cases, companies do it to defend their market share and/or because they cannot see it any other way.

Deconstructing technology, from a customer-centered perspective, generates the following elements: infrastructure, presentation, and experience--the CHI Triad [pronounced: kee]. Well designed and implemented infrastructures should take care of aspects such as reliability, scalability, interoperability, security, ubiquity of access, scale economies, platform approach, etc. Presentation is by and large what we also call look and feel. Good presentation, usually, makes it so that one can use the technology right out of the box or very soon after installing it--i.e. ease of use. User experience should consider the quality of all relationships between user and the technology over the duration of these relationships. Network externalities, safety, pay, being able to get the job done, perception of value, effects on environment, social clustering, usefulness, etc. Good customer experience presupposes that the underlying technology resonates with the customer context. Obviously, the farther away one moves from the infrastructure portion of a technology the more are the goals achieved by UI-, marketing-, creative-types. Conversely, engineering becomes stronger as one gets closer to infrastructure.

To return to bloatware, it can occur in each on of the chi triad's elements. Moreover, according to some companies, bloatware is the only way to show their worth. And, lacking alternatives, the frustrated customers march along. This course had seemed without alternatives, at least until Apple and Google launched their products and services. Minimalist approaches to technology, not exclusively in the presentation and experience areas, have brought customers products and service a renewed sense of hope for technology as a means to customer satisfaction. Minimalism should not be restrained to presentation and experience alone since Google and Amazon are powered by a myriad of Linux servers. An example of a successful product where minimalism rules over its user experience and presentation is Picasa, Google's image handling application. For most people, this is all one needs in a world with ever proliferating images of all types and standards: few simple options, plenty of affordances, enough built in interoperability with other complementary applications, ready to be used, and the list can go on. Apparently, Picasa is missing one feature alone: a free standing business case by which its thirtysome-dollar price is explicitly made up elsewhere in the Google's ecosystem. Unless Google decided to stay minimalist all the way!

A word of caution is necessary. Minimalism cannot be imposed as the new orthodoxy but rather as guiding principle, along each direction of the CHI Triad. When business considerations ask for a deviation from minimalism, striking a balance between minimalist and baroque approaches is required as good business practice. On a whole different level, minimalism also requires that a synthesis of users' representations be possible. Such synthesis becomes possible when a good set of the users' shared experiences accumulates.

For those asking : 'When StarOffice offers for free a great deal of MS Office's functionality, why is it that people still don't switch?' I have to confess that I don't have an answer. Maybe it has to do with some bio-evolutionary mechanism that also leads us into driving big trucks from home to the soccer field, only 10 minutes away. Psychologists, please help!

Takeaways: Minimalism vs Baroque Categories, Affordances, CHI Triad, Network Externalities, Scale Economies, Interoperability, Scalability.

Nota Bene: The CHI Triad is a tool developed and used by the author.

The new message is the (collaboration) medium

For those pondering what the next platform in personal computing is the answer may be in the recent acquisition of Groove Networks by Microsoft.

Facts: Grove, a 200 people company, makes a collaboration software, Virtual Office. The stated intent of the purchase is to augment both the upcoming versions of the OS (Longhorn) and MS-Office suite. Capabilities in Groove's Virtual Office overlap with SharePoint, the already existing collaboration software at Microsoft.

Putting all these pieces together, makes for an interesting hypothesis: The next platform in personal computing (SOHO and corporate) is collaboration. Collaboration is either the conduit or the destination of most our work with the computer.

Scenarios: The OS becomes an abstract file system and scheduler to which we add extensive communications and search capabilities. One would never face again .dll's or MIME type extensions. The OS would only enable one/one's applications to communicate with another('s), and will allow one to find out a piece of information by looking it up by any number of its attributes. The MS-Office Suite becomes this multi-party productivity tool by which work is being done alone or in groups, and always meant to be shared. Versioning control and real time control and access management could be its perceived features at (multi-)user level.

So, in a time when some are still looking to control the OS as platform, the next platform might have already been made into a collaboration play. The new medium, i.e. collaboration, is the message!

Another (insider) perspective on HP

Addendum to previous postings on HP.

This is a link to the story told by an ex-HP research scientist who left the Company in 2003 due to the wind of change brought about by Ms. Fiorina. It becomes apparent, when reading the story, the modest opinion folks at HP's have about marketing types. However, in the end, it is the task of the CEO to understand where the strengths of a company lie and act accordingly. Yes, Lou Gerstner made research at IBM more profitable, but that did not come at such an expense for the scientists themselves. Moreover, Lou understood what proved to be initially not so obvious strengths and weaknesses in the IBM portfolio--mainframes, and services, respectively. I am only left to wonder, who cashed in the check for the post-merger integration of HP and Compaq...

P.S. Go Carly, word has it, world hunger is next in line for you!

Corporate move(s)

Michael Sievert, formerly with ATT Wireless, has just been hired at Microsoft as corporate vice president for Windows product management.

This move raises the following question: is this an opportunity hire due to Cingular's buying ATT Wireless or is this an implicit acknowledgment that something may be a Denmark in need of fixes in Longhorn?

Longhorn has been postponed, and trimmed from several important features, several times already. For those who recall the painful and strenuous path of integrating the MS Office Suite of products, this is not news. It took then, as it may be the case now, outside managerial expertise to augment an engineering-centered culture that promoted from within code mavens. Alas, the multiple pieces of the Suite existed as independent entities in all but name.

When the 'platform' business at Microsoft is under attack from several directions, the measure of its relevancy in the shopping-list of the customers is given by the quantity and quality of integration among the Company's disparate pieces of technology. Even when the platform as we anticipate it now, Longhorn, is out, the meaningful business-, and technology-integration of Great Plains and Navision, will still belong to the future. So, there is a lot waiting to happen.

Good luck Mike, and shake it well!