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.
April 16, 2008
April 15, 2008
The Cancun conundrum….Are we there yet? - Part 1
Consider this…you want to vacation in the much talked about Cancun to explore those mysterious Mayan ruins that always fascinated you. Off you go to your friendly neighbourhood travel agent (err.. ok.. maybe… sidestep.com or travelzoo.com) to help you plan the whole trip. How would it be if the agent told you about the latest and greatest on Cancun, how the trip to Cancun is the soul's journey into the distant past that will transform you as an individual (all right..you get the point...)…but with one catch - he will not tell you nor does he know how to get you to Cancun from where you live today say, Boulder city, CO. He only knows how good Cancun is and why you should vacation there!
Continue reading "The Cancun conundrum….Are we there yet? - Part 1" »
March 14, 2008
Born in the Flat World: Bringing new products to life in a hyperconnected world
Or: If you build it, will they come?
As I've written earlier, in the lexicon of modern-day business, innovation and isolation are firm opposites. The most successful companies have embraced unplugged approaches to innovation, which seek to allow the judicious flow of information, ideas and insights across what would conventionally be watertight walls.
Unplugged approaches epitomize how innovation happens on our ever-flattening and increasingly hyperconnected planet. Innovative new companies such as Innocentive have even built a business model around helping such unplugged innovation thrive.
But let us pause to dwell upon the fate of the new products being birthed thus.
Across industries, the mortality of new products has traditionally been high (as high as 60%, or even higher depending on which source you consult). Clearly, new product innovation is fraught with risk. Can unplugged approaches to innovation help ameliorate this risk?
I believe they can – particularly those that emphasize blurring barriers with customers, such as Co-creation and User-centric innovation. These approaches to innovation posit that you should begin working with customers long before the new product is complete. They obviate the conventional need to have a complete product before coming to market, instead allowing the product to evolve in the direction of a more organic fit with customer needs.
In other words, rather than assume if you build it they will come, these approaches take the more pragmatic route of saying, if you invite them (customers) to help create the product, maybe they’ll use it!
Continue reading "Born in the Flat World: Bringing new products to life in a hyperconnected world" »
March 11, 2008
Flat World CIOs: Speeding Up In A Slowdown
So everybody from Ben Bernanke http://www.guardian.co.uk/feedarticle?id=7357595 to your neighborhood grocer is talking about a potential recession in the US Markets and its potential impact on the rest of the world. Consumer confidence and business confidence in the US have been the lowest in February. However, US export numbers are holding up and the trade deficit is narrowing. There are mixed signals from retailers as well. CFOs of decently performing companies are exercising caution as they go about planning the year’s budgets. It’s easy in such times to cut down on IT spending and capital investments in technology. Ever wonder in such times, what happens to our visionary dynamic Flat World CIO. With new IT budgets that are either flat for the year or have decreased marginally is it a good time for the CIO to lay low until things change…. or is it time to stand up and be counted?
Continue reading "Flat World CIOs: Speeding Up In A Slowdown" »
February 16, 2008
Innovating in the Interstices
A market here, a market there.... could there be a market in between?!
Looking at several new products that have emerged in recent years, a new innovation theme can be discerned. It is what I call innovating in the interstices. Let me explain this theme by means of a highly topical innovation that all of us have heard about recently: the unveiling of the Nano ultra-low-priced car from the house of Tata.What was the logic that drove the conception of this incredibly innovative product? In essence the logic was the following:
-the personal transportation needs of budget-conscious customers today are being met by 2-wheelers (scooters, motorcycles) and small cars.
- there is a large gap in between the 2-wheeler and the small-car markets, and in that gap a market may exist
-if we can create the right product, we may be able to serve that "in-between" market.
The above logic illustrates the general principle behind what I am calling innovating in the interstices. The principle is: pitch a new product in the interstice (gap) between two adjacent but distinct markets, on the premise that in that gap lies a market waiting to be served.
What distinguishes such "interstitial innovation" is the process of discovering a potential market segment that is unserved - looking at two adjacent markets and asking the question, could there be an untapped market in between?
A few illustrations and observations should help clarify what this innovation theme is about:
1. A company that "innovates in the interstices" is sometimes a company that is already serving one or both of these adjacent markets, but it does not have to be. Southwest Airlines* used precisely the above principle to discover a travel market "in between" driving and flying to one's destination. Southwest was not an existing airline but a completely new airline designed from the ground up to fit into this new market. Of course, most incumbent airlines entered this market segment as followers (much later, and in some cases too late).
February 04, 2008
Innovation is a Many-Splendored Thing...
..but it does have one big enemy: isolation
There can scarcely be any doubt that innovation is among the most top-of-mind issues facing the world of business today. The need to innovate manifests itself in manifold organizational activities, always with the goal of boosting some dimension of organizational performance.
There have been myriad approaches, prescriptions and mantras purporting to help organizations boost their innovative prowess. If you look at the most successful among these - Open Innovation, "Crowdsourcing", Co-creation, User-centric Innovation - you will find that they appear to have quite a lot in common with each other. And if you think about it a bit more, you will realize that this similarity is not a result of coincidence. It is because each has at its core the same idea: that of opening out, inviting fresh perspectives, admitting new participants, allowing new combinations - in short, dissolving conventional boundaries.
Thus, the success of the above approaches to innovation is hardly a matter of happenstance. They succeed precisely because they all hold forth a very solid prescription. This prescription is that the organization needs to blur its boundaries with the environment, allowing the judicious flow of information, ideas and insights across what would conventionally be watertight walls*. Of course, the above idea applies equally well to boundaries within the organization too.Why is blurring or dissolving boundaries in the above manner so effective in spurring innovation?
Continue reading "Innovation is a Many-Splendored Thing..." »
November 23, 2007
"Can lean principles help product development?"
by Ajai Vasudevan, Automotive Solutions Practice Leader
In response to my earlier post on automotive industry, a reader asked the above question.
I think, at a level of abstraction, the basic lean manufacturing principles of abolishing waste (muda) apply to Product Development as well. However manufacturing processes are largely unidirectional and recurring while Product Development processes are iterative and are to a certain extent unique for each new product. Hence the tools and methodologies for identifying waste and addressing it have to be different. Of late a number of good books have emerged on the topic of lean Product Development that illustrates some pertinent tools and methodologies. The Lean Enterprise Institute of MIT has also conducted copious research on the topic. So we can expect more excitement on this topic in the time to come.
On a related note, we are seeing the adoption of lean methodologies to software development emerge very quickly. Drawing a parallel between product development and software development, we can definitely see the trend increasing in the near future where components of lean will merge with existing development methodologies.
Another core area of merging of these principles is the adoption of agile methodologies to drive consistent improvement (Kaizen) and we believe all these streams will eventually merge in the near future.
November 09, 2007
Updates to Innovations in Consumer Lending...
I am not sure whether some of the regular visitors to this site recall my posts on innovations in consumer lending, back in March of this year. I had discussed the emerging model of peer-to-peer lending, pioneered by firms like Prosper.com.
In the final post of the series above, I had painted a potential scenario wherein peer-to-peer lending sites find a way to securitize and sell the loans transacted; I was happy to read a recent report in the American Banker (read here – subscription may be required) which mentioned that Prosper has filed a registration with the Securities and Exchange Commission in the US to develop a system enabling people to resell the loans originated through its website.
While I am personally happy that a trend I had predicted has been vindicated by actions in the market, this piece of news is probably very timely, given the credit-market crisis that is unraveling around us. It reinforces the fact that the Internet is constantly driving more innovative and efficient ways for markets to exploit newer transaction opportunities. It also signals the fact that Internet based business models can build resilience in traditional markets.
Prosper’s strategic move may have a limited impact in the short term, given that it currently caters to niche, high cost, individual loans; however, larger financial institutions focused on retail lending need to watch developments in this area very carefully!
November 05, 2007
The Next Big Innovation in the Automobile Industry...
I am not sure I need to contribute yet another piece on the 'greening' efforts of the Global Auto industry, but let me try!
We have read numerous news-articles on the efforts by the major manufacturers to launch hybrid cars over the past couple of years. I am aware of a few models from Toyota that have hit the roads and seem to have found a strong 'green' franchise. General Motors, the largest car manufacturer worldwide (yet, with Toyota nipping at its heels!), has announced grand plans to launch an 'unplug-and-drive' electric hybrid, aptly called the Volt.
Continue reading "The Next Big Innovation in the Automobile Industry..." »
September 27, 2007
Information (a)symmetries in new product introduction
by Kannan Amaresh
I was encouraged by the responses to my earlier post to share further views on the subject of new product introduction, especially those focused on individual consumers. It's about "information asymmetries".
In a flattening world, one of the aspects we talk about is how information asymmetries are going away. If as an enterprise you are clued in to this aspect, you will realize that even your prospective customers are watching your product launch, reviews and so on. Increasingly enterprises will find it difficult to take advantage with information asymmetries even though the product was marketed to a particular geographic or market segment.
We all know how that iPhone introduction was watched on the web by millions of prospective clients. Now with the price reduction done, perhaps without sufficient substantiation [you can read Apple's open letter and make your own conclusion], it looks like a perfect mis-reading of the market, by those who are already iPhone owners and the prospective ones.
Here is my thought – assume I want to buy an iPhone for $399. At what level of confidence will I be buying this, knowing the established precedence of a potential price reduction of another $100 in about 3 months?
Continue reading "Information (a)symmetries in new product introduction" »
August 13, 2007
Update on Innovations in Retail Banking and Consumer Lending
Subsequent to my earlier posts, there have been further developments in the areas of consumer payments and consumer lending that I thought I could share with you.
Amazon.com has announced its intentions to jump onto the ‘consumer payments’ bandwagon by offering payment services, like Google and Paypal, to its customers. Many online sources report that Jeff Barr, Amazon’s executive who heads their Web Services Group apparently wrote in a company blog last week, ‘Since we've been processing payments for over 10 years, we have a really good understanding of the cost and fee structures which are associated with each type of payment method.’
I reiterate what I had opined in my earlier post – that companies like Amazon, Paypal and Google will become the primary owners of the retail customer and quite literally, of the customer’s wallet! And my prediction is that Amazon will develop a robust web services platform for processing payments and establish that as a salient infrastructure foundation in the transaction processing arena - like it successfully institutionalized the virtual shopping mall concept for other Retailers to display products, ranging from apparel to electronics! Further, going by the theme of Sandeep Dadlani’s recent post, Amazon is fast evolving from being a B2C play to a true ‘B2X’ play! It will effectively leverage the best practices and its core experience of delighting customers like you and me, to offer cost effective transaction solutions for businesses – and lead the Web 2.0 revolution in the B2B space. Obviously, Amazon’s clout in the Retail consumer market has helped in offering better alternatives in the ‘wholesale’ payments area, currently dominated by MasterCard, Visa and the large Banks.On a related note, there have been a few comments to my earlier posts, decrying the excessive focus on innovation in service delivery as opposed to service creation. While I agree in some part to that point of view, I also believe that in a Flat World, execution excellence is what will differentiate the winners from the also-rans; and execution excellence is about delivering not-so-innovative concepts in a rapidly scalable and cost effective manner to the market. Paying for purchases is not necessarily an innovative area; but bringing in efficiencies to offer superior ‘one-click’ experience at better cost structures is something that has changed the way the world shops! And the capabilities to execute on such initiatives are not necessarily born out of 'legacy' retailing or banking experience, but from a better understanding of how customers behave and the ability to model their adoption of newer technologies.
The other update on innovations in consumer lending (Read my older posts here): Prosper.com announced last week that it will take its peer-to-peer lending model to Japan through a joint venture with a local financial services firm (I could not find the original press release on Prosper’s website, but here is a related report). This follows Zopa.com, another UK based peer-to-peer site, announcing its US foray and UK’s Virgin Group investing in an emerging US peer-to-peer lending site. In the context of the ongoing happenings in the global credit market, it is interesting to see that on the one hand, while Central Banks across countries are challenged to walk the delicate path of restoring order to the financial system, peer-to-peer lending sites are quietly expanding their reach! I am not attempting to strike a comparison, given the magnitude of the larger global crisis, yet, I strongly feel that peer-to-peer sites offer a lesson to those clamoring for safety-nets to irresponsible lending (and borrowing) behavior!
August 09, 2007
The B2X Consumer Experience
A lot has been said and written about Web 2.0 and uniquely defining the consumer experience on the web. Most of us have read and experienced Web 2.0 features at several consumer websites. The last two CIOs I met had unique challenges relating to Web 2.0 which I thought should be shared with this audience.
The first CIO belongs to a B2B distribution company. Corporate customers log on to a secure website and place orders for several items/services while this company delivers those items and servies through a fantastic distribution network across North America. The strength of this company traditionally has been its distribution network. Recently they launched a program to overhaul their B2B ordering site to make it more feature-rich. But as they tried to understand the features they needed, they encountered an identity crisis. They were selling to corporate customers, buyers stationed all over the globe who had the authority to purchase products for their corporation. Should this B2B company start using B2C features on their website? Should they put in cool Web 2.0 features, build social communities, blogs, product comment features,etc…the kind you see on popular sites like Amazon and others. Should they offer a free itunes download with each purchase? What are the implications? If they do offer these features, can they open up their business to retail consumers? Who should they really try to be?
The second CIO belongs to a successful retail company that also runs a good B2B distribution business with the same products. This company is also struggling to see how Web 2.0 features can improve both their retail business and their B2B business. They are figuring out how to use cool Web 2.0 features to help their business customers personalize and configure their product purchases on the web…and then use the same platform in the store for consumers that walk into their store. Cool functionalities being considered include drag-n-drop product configurators, virtual rooms, touch-screen kiosks for the stores with I-phone like finger-touch functionality. The interesting trend here is that the Web and specifically Web 2.0 is breaking old business models and challenging companies to rethink their identities, what they want to be and who they want to sell to. B2C and B2B consumer experiences are converging into a fairly consistent expectation of consumer experience. Internal organization structures are hence being challenged and broken down more rapidly than ever. The converged multi-channel B2X organization is soon arriving if it has not already arrived. The CIO is in the middle of this revolutionary storm and has to think of all the questions and most of the answers.
July 16, 2007
Innovations in Retail Banking – Part 2
I was quite overwhelmed by the comments to my earlier post, here as well as offline! Most readers agreed that digital alternatives to cash are becoming prevalent. Many also alluded to the so called ‘unbanked’ segment of society and what service providers are doing (or need to do) to enlist them into the mainstream. That thought is an interesting lead into what I wanted to post as a sequel!
According to a 2004 Federal Reserve Board study, nearly 10 percent of American households are unbanked! One would assume that a developed economy like the US, with Banks at every street corner, would not suffer from such a glaring deficiency! It is this underserved segment that is now becoming the focus for some of the large financial institutions.
June 19, 2007
Innovations in Retail Banking – Part 1
I have been having conversations with many Banking Industry executives on the Retail side of the business over the past couple of weeks. I was struck by two industry innovations, at either ends of the spectrum – one, impacting sophisticated and well heeled customers; the other, addressing the traditionally underserved segments of the market. I will talk about the first trend here today and cover the second one in a subsequent blog.
How you pay for your purchases - whether at the neighborhood grocery or at a restaurant for that fancy Saturday evening dinner or even online, buying your favorite pair of jeans - has profound implications on the entire transaction value chain. The ‘consumer payments’ area, which is industry jargon for what I just described, is ripe for change!
What we all know: Over the past decade, cash ceded its preeminent position to credit, particularly for large-ticket transactions – there have been varying adoption rates of credit cards across countries, but they are here to stay; in the past 5 years, debit cards have seized significant turf from credit cards and have penetrated what the industry calls the ‘micro-payments’ segment, which are in the nature of smaller, diurnal transactions we make for ‘convenience’ purchases!
June 14, 2007
Innovate...or Outsource?
The recent (June 2007) issue of the Harvard Business Review had two insightful articles on the topic of innovation – one titled ‘A Buyers Guide to the Innovation Bazar’ by Mohanbir Sawhney, Professor at North Western University's Kellogg School of Management and Satish Nambisan, Associate Professor at Rensselaer Polytechnic’s School of Management and Technology; the other titled ‘The Innovation Value Chain’ by Morten T Hansen, Professor at INSEAD and Julian Birkinshaw, Professor at the London Business School (Read the articles here – you may need a subscription).
What struck me from a detailed reading of both the articles is that innovation is no longer a loosely defined, ‘skunk-works’ activity confined to grubby R&D departments within Companies! There is a rigorous structure and discipline to harnessing innovation for tangible business benefits, especially among large and successful Global Corporations. There have been some blogs written about structured innovation on this site as well.
June 10, 2007
Making Money from the Green Revolution
I am writing this from the 2007 GMA (Grocery Manufacturer’s Association) Executive Conference at the Greenbrier resort in W.Virginia. The conference and the resort are both part of a 100 year tradition of the grocery and food industry event graced every year by the top CXOs of the industry.
One of the sessions today : Wal-Mart Leading the Way in Going Green, was presented by Linda Dillman, EVP handling sustainability for Wal-Mart. If you remember, Linda was the CIO of Wal-Mart until a year ago when she took on this new challenging initiative.
Much has been said and done on the issue of how modern-day businesses are going green but Linda’s speech was momentous as it argued and proved at the same time that going green was not just the right thing to do, it made massive business sense with scorecards measuring the exact ROI from these efforts. Trust Wal-Mart to do that
This methodical, cold-nosed approach to a sustainability initiative is what makes it more successful. For example, Wal-Mart is working with Unilever on their laundry product “All-Small & Mighty”. Compared to the regular bottle (100 oz.) of all detergent, all small & mighty requires only half the amount of plastic and corrugated cardboard to produce. Transporting all small & mighty requires only 1/3 the amount of diesel fuel it takes to transport the 100 oz. bottle of detergent. How does all small & mighty help keep our world clean every year? Every year, all small & mighty helps save: 862,000 gallons of diesel, 50MM square feet of cardboard, 6MM pounds of plastic. And the best part: the smaller packaging helps save Wal-Mart shelf space where it can stock more products and reduce out-of-stocks and lost sales. It makes fantastic business sense to do this. Wal-Mart has numerous other such examples of business initiatives with an internal rate of return of greater than 37% (planned) and producing tremendous far-reaching benefits to the environment.
My guess is that this initiative has gathered a lot of speed because an ex-CIO is leading it. The systematic, disciplined way by which new innovative and lucrative environment-friendly initiatives are being launched is phenomenal. In the new flat-world, as I have always advocated, the CIO will continue to be the innovation champion.
The rest of the event is even more promising and I promise to write further about it.
May 15, 2007
Web 2.0 and The Network Based Organization
My previous blog on Customer Relationship (CRM) and Customer Data Integration (CDI) generated some interesting comments. While many industry insiders did agree on the importance of CDI and “putting the cart before the (CRM) horse”, there was healthy skepticism around the effort and investments involved in a potential CDI implementation – is it again one of those big, hairy, audacious monsters which puts organizations at risk during implementation?
Well, to answer that question simply, no, it is not. But let me not get into a spiel on CDI implementation; instead, let us take a detour and touch upon technological developments in the flattening world around us, which if leveraged in an organizational context, can significantly bring down the implementation efforts, costs and risks for complex technology programs.
My long time friend and colleague, Sandeep Dadlani wrote a blog recently, right on these pages, extolling the virtues of 'Linked In' and how it can jump start networking and collaboration even within a large and rapidly growing organization. Think about it, networking and collaboration tools on the Internet have figured out the art and science of connecting and integrating public data across a mass of individuals. These tools seamlessly and silently update, in real time, any changes in people's professional or personal lives, based on individual preferences. And here, we struggle to link silos of customer, employee or any other business critical information, when everything is right under our noses, within the firewalls of the organization!
Continue reading "Web 2.0 and The Network Based Organization" »
April 30, 2007
Cars: "Some assembly required"?
by Ajai Vasudevan, Automotive Solutions Practice Leader
When we sat down for lunch that day, it wasn't exactly the initial topic of discussion. But given the pressures on the North America auto industry, it was only a matter of time before the topic came up.
"How do we enhance our product development capabilities while speeding time to market and reducing cost," asked the engineering director of a venerable Detroit based Automotive Tier-1 supplier. While this happened several days ago, the words are still ringing in my head.
This is obviously the holy grail of automotive product development.
Maybe a day will come when customers will design their own cars - like they today happily "assemble" IKEA furniture at home.
That will effectively take care of at least part of the problem. However till that day of product development nirvana comes, more mundane solutions need to be found. Mundane? Very well!
The Product Development process remains one of the most complex automotive business processes. It is everything that automotive manufacturing is not. It is iterative, it branches out and congregates, it runs over an extended period of time. In short, it is quite different and hence requires a different approach.
The rapidly flattening world is opening up new vistas to innovate the product development process. Take Toyota as an example. While common wisdom conveys that there is an outflow of engineering jobs from the US, Toyota is turning the logic upside down. Its Design center in Detroit is hiring locally and growing fast. Toyota and Honda are opening new plants in the US and recently Kia announced opening a new plant in the US as well. It is remarkable that organizations based in developed economies are opening an engineering center in another developed country. What’s attracting Toyota? Talent. Experienced engineers who have spent a lifetime in automotive product development.
Another route is to leverage the global talent pool. Thanks to availability of connectivity, workflow tools and product data management systems it is now possible for an extended global team to pretty much act as one. This opens up the route to tapping a lower cost talent pool, running an extra shift and allowing the core team to focus on innovation. And, in the process, if the team comes up with new product ideas for the global markets. Now that’s a way to the holy grail!
March 22, 2007
FlatWorld CIOs: Bringing Discipline to Innovation
Consider this: Apple is credited with one of the best product innovations: The IPOD. Apple has one of the lowest R&D spending as a % of sales. It prefers to keep $12 Billion in cash instead. Now consider this: several underperforming consumer product companies today directly blame their lack of performance to their lack of direct investments in R&D and Product Innovation. My friend and colleague Sanjay Saigal, ex-Unilever and Sr Principal in CPG Solutions says “It’s not about innovation, It’s about a process of disciplined and profitable innovation with a clear method of getting a healthy payback on the (total) investment”…..”Aha, I exclaim, I have met a few CIOs who have been doing this for ages!
The IT world has always struggled to articulate the value of its investments. CIOs have been beaten up by the CFO and forced to produce detailed business cases. “Why do you want to standardize the platforms? How much will that add to the bottom-line?“ – the CFO asks. At the same time, certain company CIOs have developed strong processes within the IT organization to justify investments in new business-technology ideas and gained the confidence of the CFO. These forward-looking CIOs, lets call them Flat-World CIOs, are defining a path of discipline in their own world of innovation. The business world, CEOs, COOs and CFOs should take a leaf out of our flat-world CIOs books on how to manage profitable innovation across the company.
The CIO of a large midwest-based retailer has instilled a rigorous discipline of business cases in every IT project that his large and extended IT organization undertakes… and I mean really elaborate business cases. Tremendous thought and brainstorming goes in with senior business and IT leaders in the same room in detailed debates on how to quantify benefits and costs of a particular initiative. So whats new?…it’s the rigor and discipline of filtering and managing Business-IT ideas. The sheer effort that goes into their projects is sometimes frustrating for the stakeholders involved (including us) but looking back at the projects undertaken there in the last 4 years, I can say that it works.“We have plenty of fantastic business ideas…our challenge is figuring out which ones to execute and how to execute” - the CIO of a large and successful CPG company explained. “So we can keep discussing these ideas but we have to put hard numbers against each and then quickly decide which ones to do and get them done…and forget about the rest of the ideas for the time. The funnel has to narrow down quickly as the clock is ticking”.
Another Retail CIO has instilled a fantastic portfolio management strategy (something that actually works) for new projects defining checkpoints or gates at key junctures which are important to figure out which projects are to be abandoned and which ones to be taken forward at every stage of the project..That does not mean all CIOs do is to make the process difficult and the ideas that survive the rigor make it through while others suffer. Some CIOs have developed an intuitive knack of evaluating new ideas...Almost like venture capitalists.
For example, some CIOs I met in the last 4 weeks have been excited by a joint solution offering from Infosys and MediaCart geared towards improving consumer connects and enhancing shopper experience. Essentially what we’re talking about is a smart shopping cart that knows where it is, where it’s been and what’s in it, and can interact with the shopper by means of a forward mounted LCD display and push button interface. By providing the ability to deliver context-relevant content when it matters most, and supply basic shopping assistance such as “find item” and expedited check-out to every shopper, the solution gives retailers and manufacturers the ability to do things for the consumer at the point of purchase that they have not been able to do before. It is a win-win business model for shoppers, CPG (manufacturers) and retail organizations alike.Given the power of this idea and the low cost of piloting it, this has received instant encouragement and pilot sponsorship from CIO’s…. faster than I would have initially imagined. No rigorous business-cases here since the benefits are clear.
All the above mentioned CIOs are raising the bar for the prioritization, filtering and focusing process for IT. There are failed projects once in a while, but the key is that the portfolio management and process management strategy helps ensure overall success. The companies above are known for their technology-led business innovation in their own industries. The rest of the corporate world should take a page or two out of the discipline and process that these flat-world CIOs have inculcated in their innovation eco-system.
March 16, 2007
The Future of Consumer Lending
by Balaji Yellavalli
My past couple of blogs on peer-to-peer lending and the innovations driven by that model seemed to have generated some interesting debates; some folks did agree that information is the currency of the new economy with e-bay like models becoming main stream. Another school of thought felt that such business models may not prove to be a significant threat to traditional Financial Services firms. Let me try to address the latter view here by broadening the landscape a little bit.
With the US mortgage market being what it is now and even unsecured “managed” loan portfolios across various hues of lenders – from Banks to Credit Card Issuers - under pressure, there are clear signs that the sub-prime borrower (borrowers who present higher credit risk) will no longer be courted by large lending institutions.
There are two consequences of this: One, the sub prime or marginal borrowers will still need money (more than 40% of loans disbursed over past one year have been in some kind of sub-prime category) and increasingly they will turn to peer-to-peer lending vehicles. So if I am a lender who has the appetite for risk, I will probably lend at a usurous rate to these marginal borrowers, live with the risk of defaults and may be even make a net recovery, post charge-offs, higher than traditional investment channels.
And the kicker is that I will pick my data elements, make my own informed decisions, demand more transparency and get it from companies like Prosper! (See previous post on this). As time progresses, I will settle into an equilibrium and may be even diversify to other channels. But the point is that I will go with a vehicle that provides me a frictionless, transparent platform to build my own risk-reward model!
The second consequence – having said that sub prime borrowers will be forced out of the organized market, there are still loads and loads of sub prime portfolios, which have been turned into mortgage backed securities by hungry investment backs, to feed an even hungrier beast called the hedge fund industry!
So what will happen to these as defaults start hitting the roof?
We are already seeing a domino effect of investment bankers trying to get these securities off their books or revoking purchase contracts with loan originators. But what if peer-to-peer sites find a way to securitize loans? Leaving aside regulatory implications, what would be the impact on the market? Hordes of “private” or individual investors would probably flock to such a portal to diversify their risks and, as transaction sizes increase, may be even larger hedge funds, who anyway do not want to invest in all that big, hairy IT infrastructure would jump on to the band wagon!
I was hence not surprised when the client CIO in charge of e-Commerce for a large Bank mentioned that peer-to-peer business models are the biggest threat to the traditional, organized financial services industry!
May be the day is not far when we will have Prosper and YouTube tying up to post videos of I-Bankers, Private Equity biggies and Hedge funds, pitching for selling or buying their portfolios – a truly Flat World scenario and what is more - they will stop circling the Earth in their private jets and may be contribute to a Greener World, not just a Flat World!
March 14, 2007
Innovations in Consumer Lending
by Balaji Yellavalli
After my previous blog, many people asked me why I think “peer to peer” lending models are the harbinger of the Flat World in consumer Finance and Investing.
Well for one, this is financial democracy and micro-credit at its best, where borrowers and lenders share information free of cost rather than pay for it! Relevant borrower information content is “pushed” by the borrower herself (albeit vetted by an intermediary, but they do not charge the lender or borrower, instead make money off the completed transaction) to the lender and the lender, in turn, gets to pick and choose the jig-saw of data elements relevant to her risk profile.
While disintermediation was brought to us by the internet, business models like peer-to-peer lending have broken down traditional barriers to entry into lending and investing, flattened hierarchies of decision making by simplifying the rules of the game through intelligent configuration and eliminated knowledge and information asymmetries (In the US, another prominent Insurance Company has popularized such e-simplification through its “Even a caveman can do it” series of ads!).
I do not have to be a qualified banker or a credit analyst at a credit card issuer to make a decision on whether I want to lend money or not, sitting right in my living room! Sure, I am risking my money, but I am risking that at my terms! One could also call this web 2.0 for a Flat World – more about that in a later blog.
Secondly, this is all about building loyalty through innovation as opposed to the traditional “stick-with-us-because-we-offer-superior-service compared to the competitor round the block.” Business model innovation is attracting a distinct category of borrowers and investors, who keep returning, based on their positive experience. I talked about the borrower who wants money to re-invest in Prosper – that to my mind is a great example of loyalty harnessed through innovation!
Bank of America conceived a unique “Keep the change” program , based on matching the spend from a checking account upto a certain limit in the first year and adding that to the customers balance – a cool way to pay back the customer and promote new checking accounts rather than offering “free checking” or “free ATM access” which its competitors do. ING Direct is another example of harnessing Flat World innovation to grab market share in a lugubrious market for Time-Deposits.
And finally, peer-to-peer lending is a Flat World story, because it offers a great way to race ahead of competition when the industry is down, essentially enabling the Financial Institution to win while its competition copes with industry downturns.
Peer-to-Peer Lending in a Flat World
by Balaji Yellavalli, AVP and Head of Solutions, Banking and Capital Markets Business Unit
Recently I visited a website called prosper.com, a site that calls itself “The online marketplace for people to people lending”. Simply put, it is the e-Bay equivalent of consumer finance wherein people who want money post their need on the site and willing lenders then bid to finance all or a portion of that debt. But the simplicity should not be mistaken for the sophistication that lies under the covers.
The prospective borrower lists his or her credit rating (determined by the company, based on past repayment behavior of the person, credit reporting agency evaluation, etc.), debt to income ratio and the interest rate he or she is willing to pay and the purpose of the loan or where the funds are expected to be deployed.
Add to this, other bells and whistles, like the ability to build a portfolio of “units” of debt across categories of borrowers (I believe the minimum unit is $50), or lenders’ ability to pick a combination of risk (e.g., pick only homeowners AND those with verified bank accounts). The company makes money from commissions or transaction fees, akin to e-Bay. Right now, it is a site open only to US Residents. I have heard of another site called zopa.com which serves the UK market.
I think this model offers a glimpse into the future of consumer lending in a Flattening World! I would go so far as to say that this is the emerging model of “peer-to-peer” investing in the Flat World– apparently, some companies are using prosper.com rates of return for certain risk categories to benchmark returns from other classes of investments, including mutual funds, hedge funds, ETFs etc!
Peer-to-peer lending may not be a big force today in terms of transaction size, volume or market share. With loan sizes on Prosper’s site ranging from $5000-$15,000 and a most recently reported annual revenue figure of less than $2 million, it is at best a micro-player. But the fact of the matter is that it is creating a non-traditional and sustainable channel for marginal borrowers or borrowers whose end uses may not be justifiable for a traditional unsecured lender like a credit card issuer. One borrower wants to repair frozen pipes in his home, the other wants to consolidate high cost credit card debt…and hold your breath, a third wants to reinvest in the company, borrowing others’ money!
Peer-to-peer lending is attracting a distinct category of borrowers and investors, who keep returning, based on their positive experience. It offers a compelling model with the potential to challenge established players in the so-called “sub-prime” lending space. No wonder that a client of mine, the CIO in charge of e-Commerce for a large Bank, recently mentioned that business models like peer-to-peer lending are the biggest threat to traditional, organized financial services industry!
Customer Experience, not merely Customer Service
I have been discussing the topic of innovation with different executives in Infosys this week. And one thing that comes across strongly in these discussions is that companies need to focus more on improving customer experience. Many are improving call center service levels, others are enhancing product attributes, but very few are actually looking at what customers want and designing their offerings with that as the primary objective.
For example in telecom, how can service providers transform my experience as a customer with their service? How can they add personalized service so that I no longer think of them as dial-tone providers but service providers? When I travel from Bangalore to San Francisco, my service provider already knows that I am in SF based on my cell signal. Why not automatically turn off the ringer at night for all calls except for emergency calls from family, so that I am not woken up by people who didn’t know that I am in a different time zone? Or, why not have a recorded message saying that it is 3am my time and ask whether the caller really wants to wake me up for the call? Or, from a corporate perspective, why not use location information for corporate asset tracking (leaving aside privacy issues for the moment), since most devices have wireless chips these days?
Services such as these would dramatically enhance my experience with the service provider, making me a more loyal customer, well, at least until other companies start offering the same. At that point, my service provider would need to think of even better ways of improving my experience.
Same applies in the financial services space – companies that see beyond current models and innovate the entire customer experience are gaining traction. According to Balaji Yellavalli, AVP in our Banking and Capital Markets business unit, the consumer lending industry is seeing new players that are going beyond the previous generation of innovation which digitized some parts of the lending experience (e.g. Lending Tree). Now we are seeing more sophisticated new models – ones that allow simple peer-to-peer lending, among other things.
I’ve asked him to share his thoughts on this topic. Balaji has 15 years of experience spanning business consulting, IT strategy and strategic sourcing. He has been with Infosys for 6 years, prior to which he was with KPMG-AFF India and Feedback Ventures. At Infosys, he leads the solutions consulting group for our financial services unit.
Stay tuned for his blog…
February 22, 2007
Satellite radio: Waiting for innovation
The announced merger of the two US satellite radio services, Sirius and XM, has resulted in much ink about the likelihood (or not) of US FCC approval of the merger and the merger's impact on service prices for consumers.
Much of this coverage misses the point: In an era where many businesses are succeeding in what would previously be considered niche or unprofitable markets, why has the emerging satellite radio industry remained, well, still emerging?
To recover the high cost of customer acquisition, companies must retain customers for some time. And to retain these customers, they must offer something new of value. Customers who signed up for these services may have originally done so out of curiousity and 'cool' technology factor. However, at some point, unless the companies offer newer services that are better than the original, they risk losing customers to substitutes such as MP3 players and radio.
I've considered subscribing to a satellite radio service in India to be able to listen to, say, NPR or a good jazz station. But what I would really like is to have a single platform on which I can listen to music or programming from a selection sources, perhaps 3-4 radio stations from the US, 3-4 radio stations from Bangalore, combined with what's on my iPod. And, I want to be able to listen to this whether I am in Bangalore, San Francisco, or London. Whether I'm in my home or in the car.
Now, that, would a service I wouldn't mind paying for and keeping: a combination of device and service that makes my personal favorites available to me whereve I am. Sort of a 'radio-berry' for my personal broadcast and owned music.
Unless the satellite radio (and digital music-player) industry innovates to offer new better services, customers are bound to figure out that all they are paying for is yet another silo-ed cool technology. That may have been enough a few years ago. But not in today's flattening world.
January 20, 2007
Can Innovation be "Offshored"?
Yes, says Mohan Babu of Infosys on his blog:
"One gentleman was curious about how 'innovation' could be offshored. We started debating on the 'processes' involved in innovation and how most of it is an evolutionary process-of-improvement rather than a revolutionary 'eureka' moment. The research that leads to innovations in processes and adopting new tools and techniques involves scanning the landscape analysing published research, benchmarking other best-practices..."
Read full blog.
January 19, 2007
Cisco's flat world moves
Cisco's Chief Globalization Officer Wim Elfrink says that Cisco plans to have at least 20% of its top executives working in India in the next three to five years.
Why? According to Business Week:
"One reason lies in the size of India's market. While Internet penetration in India stands at a mere 4.5%, the online market there is one of the fastest growing in the world and the Indian cellular market is white hot.
"The other issue is cost. Huawei can compete against Cisco on price because of its cheap talent pool. Facing those pressures, Cisco will find it hard to maintain its high margins unless it develops its own vast force of low-cost engineering talent.
"Cisco also wants to acquire the best Indian operations in its field to accelerate growth. As part of its ambitious investment plan, Cisco has set aside $100 million in a venture capital fund to buy out Indian companies. It has invested in a couple of outfits such as gaming destination Indiagames.com. (Cisco acquired Linksys, a home networking company, in 2003.)"
January 07, 2007
Latest features for $40
Motorola has recently launched its Motofone in India for Rs. 1700 (approx. US$40). What's amazing about this phone is not only its price, but that it is not a "stripped down" version. The phone comes fully loaded with features that people anywhere in the world would want: durability, extra long battery life, screens desgined to be sharp in daylight combined with stylish design.
This is innovation.
Watch out, Nokia!