The business world is being disrupted by the combined effects of growing emerging economies, shifts in global demographics, ubiquity of technology and accountability regulation. Infosys believes that to compete in the flat world, businesses must shift their operational priorities.

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June 25, 2008

You've gotta get it !

A modest stab at revisionism (with poetic license from Sir Paul)  

                                     You've gotta get it, mm-hmm
                                     You've gotta get it and you’ve gotta get it good
                                      .....
                                     And that's that,
                                     Unless the world is flat.

Thus sang Paul McCartney in his hit single Get it, released in 1982*. Sure enough, the world of the day was anything but flat. 

In fact, the concept of a flat world had been unthinkable, at least since the pre-Copernican Flat Earth notions had been firmly put to rest centuries earlier. The fall of the Berlin Wall and the forbidding Soviet socialist republic were a decade away. Deep in the throes of Cold War posturing, a hapless citizenry had come to distrust - even detest - technology. Perhaps most emblematic of technology in the popular mind of the time was each side in the Cold War boasting about how many nuclear-tipped missiles it had trained on the big cities of the other side.  The mere thought of such large-scale destruction was enough to break a cold sweat on the brow of the bravest among us. And it was deplorably wasteful that the best technology – whether hardware, software or brainpower - of the time should be devoted to war games that managed to be at once puerile and petrifying. 

Technology’s reputation was at its nadir. And so, it was hardly surprising that one of the big topics of public discourse during the year 1983 was George Orwell’s novel 1984, with its fictional tale of a totalitarian regime using technology to deny the populace the freedom of action or thought. It is a commentary on the mood of the times that people were almost convinced that those events would unfold the following year, and awaited the dawn of the year 1984 with great trepidation! 

Technology in the flat world: from pains to paeans
A quarter of a century later, technology - particularly information technology (IT) – has taken on much rosier hues. It has been both a cause and a beneficiary of the flattening world. To better appreciate just how technology has benefited everyday life, let us consider its impact on just one industry – in fact, Sir Paul’s own industry of musical entertainment.

Traditionally, music has been sold just like soap or toothpaste - neatly packaged, intended for consumption by the buyer. However, music has turned out to be rather unlike items of personal consumption - people want to share, swap and meld music into their larger social experience. Its distribution should clearly enable those needs.

The earliest form of music consumption was a fully social experience - the live concert. This was for centuries the only way that music could be enjoyed. The late-19th century invention of the gramophone record allowed people to "own" music, but few could afford these for individual or home use. The radio era, beginning in the 1920s, allowed music to be enjoyed as a social experience. However people still could not own the music, listen to it at will or share it. After World War II, the plummeting price of gramophone records and the availability of inexpensive playback equipment finally brought the ability to own and share music and listen to it at will. However, this was not quite musical nirvana. Tracks were still bundled into albums and it was not possible to own or share music at the level of a song. This constraint remained even as tapes and CDs were invented - only the format changed.

It was only the advent of IT that set music free at the single track level. Treasured songs could now be stored on servers or personal computers, and transferred...to be shared at will? Not so fast! With digital distribution came encumbrances. Commercial interests, backed by legitimate Intellectual Property concerns, frowned upon unfettered sharing of music tracks. The inaptly-named Digital Rights Management (DRM) severely curtailed the sharing and use of digital music tracks, thus denying people the full enjoyment of the music they owned.
 
However, in the last 18 months, the lustre of DRM** has faded considerably. Steve Jobs has openly denounced DRM in his now-famous memo, Thoughts on Music, saying that less than 3% of songs on the world’s most popular music player, the iPod, were DRM protected, and calling upon music companies to jettison this protection. It has also come to be widely accepted that DRM is easy to circumvent (half the music on mp3 players is unpaid for). By early 2008, all four of the world’s biggest music labels - Sony BMG, Warner, Vivendi’s Universal Music Group, and EMI – had dismantled DRM.

If proof is needed that people are loving digital distribution of music, it is visible in the steady decline in music sales in physical formats over the past few years. In 2007, U.S. album sales declined 9.5 percent, with 500.5 million albums sold as CDs, cassettes, and LPs, while the sale of digital tracks rocketed by 45 percent.

And on April 3, 2008, with 4 Billion songs sold, the iTunes Music Store surpassed Wal-Mart to become the biggest music retailer in the US - the first time in history that a digital music retailer has bested all its physical counterparts.

Digital distribution clearly has, at last, helped people realise the full music experience, and people are voting with their hearts – and their wallets.

And so, here's a bit of tongue-in-cheek, revisionist flat world verse (Sir Paul, hope you will grant poetic licence....)

                                          You've gotta get IT, mm-hmm
                                          You've gotta get IT and you’ve gotta get IT good
                                          
                                          Changes wrought by IT in the music value chain
                                          Have been huge, albeit not without pain
                                          
                                          But those pains have brought mighty gains
                                          And so to digital we sing paeans
                                          
                                          DRM’s dead as a doormat, leaving just memories
                                          ‘Twas just an excuse for Digitally Restricting Melodies
                                          
                                          A million melodies unchained, echoing free
                                          Born in the flat world for you, me and everybody
                                          
                                          You've gotta get IT, mm-hmm
                                          You've gotta get IT and you’ve gotta get IT good

                                          And that’s that
                                          ‘Cos The World is Flat !

 

_________________________________________________________________
* This was Sir Paul in his solo, post-Beatles, post-Wings avatar

** Incidentally, DRM is a classic example of a levee in business.

June 17, 2008

Second Life - Staying connected

Amy, from your Dallas office, is running late.  You look around the boardroom, nodding at the collection of figures around the room.  India, the U.S., the U.K., Brazil, Mexico, all are represented.  Amy finally strolls in, apologizes for being late, and begins a discussion on next quarter's sales forecasts.  Smiling you tug on your pajamas, take a sip of tea and relax comfortably in your home office, letting your avatar wear your suit for you.

The above scene, or one similar to it, is happening around the world everyday.  You've probably heard of Second Life before, an on-line 3D virtual world which provides a new environment for people to interact in.  Until recently, most businesses focused their virtual world efforts on marketing.  Now, many are also using Second Life and other virtual programs to rehearse presentations, train employees, and recruit and initiate new hires.

For companies with geographically scattered work sites, I would expect technology like virtual worlds to help promote teamwork, camaraderie and even morale.  Think of the advantages of being able to work “face-to-face” with a co-worker on a sales pitch you are giving next week in London.  The only problem is, you are in New York and she is in Dubai.  Fine-tuning timing, spacing, and interactions is tough to do over the phone.  Virtual practice obviously isn't perfect, but it saves you the expense, and time, of a “real world” meeting.

Speaking of “real world”, it still amazes me how it is flattening before our very eyes.  Technology like Virtual Conferencing makes it more feasible for companies to have employees that are residents of far-flung places.  VC is just the tip of the iceberg, every year it gets easier to communicate with your co-workers around the globe.  The ubiquity of technology truly is helping to create a Flat World.

If you'd like to learn more about how companies around the world are using virtual meetings, check out Business Week's recent article on the subject.  I thought it was a great read, and gave me some ideas for ways to communicate with my fellow Infoscians.

June 12, 2008

The flat world rebound effect?

While technology offshoring and outsourcing become mainstream for innovative companies and firms continue to push the envelope on the "more for less" mantra, I can increasingly see the pattern of the rebound effect playing out in the world of technology services sourcing. The rebound effect in economics theory argues that demand or consumption typically increases when efficiency improves and unit costs go down.
The late 90s and early 2000 saw the firm trend of businesses embrace flatworld sourcing not only for the classic cost arbitrage opportunities but also more importantly it gave businesses an opportunity to tap into a geographically spread stretched supply chain to source talented human capital around technology services. With this kind of sourcing moving into a mature state operating model, global innovative companies have successfully reduced their technology unit costs for business transactions.
The paradox however is that demand on technology budgets from a CFOs perspective neither seems to drop nor in fact even seem to be flat. The only inference one could make is that demand patterns shows an upward trend reflecting true symptoms of a rebound effect. With no respite seen on the demand for technology, be it the consumer market or for automation of business processes, optimizing supply chains, driving customer experience etc.. combined with technology's inexorable march that support these needs, the demand pattern is no mystery.
So what next? Where is the fountainhead for the next wave of efficiency gains? Is it mainstream technology sourcing from China? Is it about outsourcing of entire business processing + technology infrastructure + services to a "on demand" elastic cloud provided by a third party whose time and space co-ordinates are irrelevant?
While I have no answers to these questions, one thing is for sure - the juggernaut of the flat world rolls on with ever greater might.....

June 11, 2008

Enterprise Risk Management- Where are we?

Few days back, I had the opportunity to attend one web-session on ERM where overall dialouge was based on the recent ERM - 2008 survey (click here for presentation). Organizations from different sectors had contributed to this survey. I was completely perplexed on some of the findings and could able to conclude why the corporate governace standards of many organizations are weak and fragile. If I look back at that one hour, there are three factors which seem to me the culprits behind the failure of ERM and subsequent governance debacle. I would call them as - Executive Block, Operational Block & Infrastructure Block.

1. Executive Block

In order to have a successful ERM lunch, sponsorship & accountability of board are the paramount factors. However, reality gives different story. Board / CXO level are yet to internalize the essence of good ERM practice and their accontability standard is abysmally low (refer slide 9). The apex body is yet to understand the business value a successful ERM program brings- that's sad and uncalled for. If this is how strategy maker digest ERM, then I can clearly see a governance standard san risk appetite- that's definitely alarming in a milieu when Governance-risk & Compliance (GRC) should go hand-in-hand. Therefore, 50 % responding firms could not see risk management reflecting in strategic planning process (slide 8).

2. Operational Block

CXO level decides the ERM starategy, however the onus lands in the lap of middle management, line managers and so called operational cops. Well, most of the firms lack the risk-based-compensation principle which is the driving baton for successful risk program implementation. This points to the aspect of risk culture (slide 13). Unless the operational structure is susceptible to the standards of risk-based value creation and the organizational culture not promulgating risk based reward program, ERM will loose its belt in the very first year. The layer which knows most about the impending risk is the busine line manager and if they back track on their commitment, ERM program will not stand its ground. To my surprise, more than 50 % organizations are not having proper risk reporting at organization level (refer slide 18) and more than 60% firms have difficulty aligning risk to organizational culture & behavior (refer slide 22). So, let's have these operational holes covered up.

3. Infrastructure Block

Another key factor behind successful ERM is the infrastructure which is supporting the processes. From risk identification, assessment, management till risk mitigation and reporting- all these processes in an organization need to be well coordinated and perversed to have successful implementation. But look at the reality - more than 50 to 60 % firms have yet to introduce technology to these processes (refer slide 10). We still have siloed structure to measure risk- that means not integrated and the ERM methodology & the technology infrastructure are not complementing each other, rather becoming road-block to each other. Infrastructure is even pathetic when getting an integrated view of organizational risk-called risk convergence (90% firms do not have infrastructure to get an integrated view-slide 10). So, even if we have siloed technology infra for individual process and nothing at integration level, then end goal of ERM gets subsided and enterprise will have a fractal measure of all risks (strategic/business, financial, operational & risk convergence) it's facing. That's not an acceptable scenario.

Then what should organization do to improve its ERM program? Very simple, analyze the above three blocks and alleviate their loopholes. That means-

  • Bring the board sponsorship and accountability to ERM. Risk identification, ERM methodology formulations are the sole responsibilities land on executives. They should also ensure ERM program encompasses all risks organization is facing. Also, board needs to promulgate risk-based-reward program and sound risk culture within each organizational entities.
  • Operational layer will have the responsiblity to manifest all risks identified to actionable tasks- from assessment till mitigation and reporting.
  • Technology has to be pervasive at all levels of ERM to ensure greater coordination, collaboration and fantastic analytics. Please remember the choice of ERM methodology and the technology should be done in tandem, not in siloed sphere. That definitely brings us to the discussion of ERM, governance and technology co-existence & inter-dependency.
  • Ultimate goal would be to understand all risks organization faces, bring them all to single infrastructure, measure, mitigate and report. The essence would be to canvas ERM in consonance with various business lines.
  • With above points in place, board will have better visibility to risk and the risk inputs can be utilized in strategic planning and greater value realization.

 

June 4, 2008

Governance, Risk & Compliance +

Burgeoning write offs due to subprime crisis, which has taken toll of US $380 billion across globe as of May 2008 (citation), has weakened the financial services sector sentiment in multi-fold. It has questioned the resilience of US economy against all odds, has butchered the rating agency pricing model and above all, has put forward many questions to executives in financia services sector, especially on their tenacity to handle enterprise risk management. Post-mortem, analysis, tug-of-war between various entities are inevitable at such loss, but the biggest question is - how to resurrect from this financial catastrophy. That's a tough question. In this near recession environment, it's not just the governance revitalization or risk & compliance (GRC) that matters, but to me a holistic and integrated approach to several organizational processes are mandated to make sure all strategic decisions at this stage have been evaluated on necessary inputs.To me there are four areas, which stand out, are to be analyzed in a coordinated manner- Customer Service, Technology effectiveness, GRC and product/service innovation. It is the effective integrated analysis of these processes which will decide the fate of strategic decisioning in this turbulent market. I would like to elaborate more on the above point since there are so called contemporary academia who will question my revolutionary thoughts and turn back and ask me "Why".

 

 

The answer is within those four processes. Let's look at GRC- this signifies the processes which upholds the intenal management of the organization, finacial integrity, disclosure and investor management. Now the point is - can GRC strategy be stand alone without the backing of other strategic areas like customer relation, product/service innovation and the technology infrastructure. Market expects organization to have a strategy which is fool-proof and will work under current dismissive undercurrent of recession. We can clearly see the headache of executive while taking any strategic decision at this stage- "What can be done to improve the firm performance? Which are the areas need reinforced approach? How to get a winning strategy and where to keep our eye on?" This is where the significance of mentioned four processes comes. Excellent customer relation is the prime target area, so also the smartness of the firm to understand client better and innovate better products/services and apart from these, there has to have technology infrastructure which will help automate the processes for better client satisfaction and organizational efficiency. There you go the answer. I am the decision maker and my industry is in deep soup due to uncalled for market situation, what is the option before me. I should make sure the governance structure is client centric, has an environment which never buckles to convert client expectation to new product /service and above all, has the amunition which helps promulgating process automation and better efficiency. That's what I want. So, where we landed up then. We came back to very conjecture that these four processes have tremendous inter-relationship, synergy and they are of strategic importance and need be examined in integration.

GRC- The process which will ensure effective governance, risk culture and stakeholder relation.

Customer Service- the most important parameter in organizational growth and market performance.

Product/Service Innovation- This linked to customer expectation

Technology effectiveness- This is the backbone to ensure above three work in tandem and effectively;most impotantly, technology use is no more tactical, it has strategic significance.It's just not the use of technology, but the effective use is what matters most. 

So, what we need is the proper analysis of above four processes and their data analytics.These analytics are what acts like strategic inputs in executive decisioning. This topic is very close to me and I had the privilege to debate this with many industry experts and academia. Initial reaction always was "why should they", but when you elaborate further, they nod their head in affirmative. Under above background, I also like to reiterate my article recently published in DMReview on similar background, please visit here. Going forward, I would like to discuss more about the challenges ploughing back this thought process to action.