Dubai as Router for the World – Containers and Packets

It was probably a mistake for me to begin my last post talking about a bad case of the flu and then to go radio silent for three weeks.  A lot of people sent messages asking if I was OK. Not to worry, I’m fine, having finally beat the flu that would not leave.

In fact, I have just returned from another edge – Dubai.  Dubai represents a geographic edge, sitting near the intersection of Asia, Africa and Europe (OK, the latter is a stretch, but in this jet age it is close enough).  I want to blog more extensively about Dubai in a separate posting – my focus here is on the recent announcement that DP World concluded an agreement to acquire the venerable British company, Peninsular & Oriental Steam Navigation Co., created by a royal charter back in 1840, at a price exceeding $5 billion.

This news received a lot of play in the international business press, but barely received any comment in U.S. publications even though it marks a significant milestone in the restructuring of the global trading infrastructure.

It is significant on a number of levels.  First, it drives home the growing prominence of Dubai in world trade. With this acquisition, DP World, which is owned by Dubai’s Ports, Customs and Freezones Authority, catapults from the sixth largest port operator in the world to third in terms of capacity. It also significantly expands DP World’s presence in China and India. Earlier this year, DP World made another significant acquisition when it bought CSX World Terminals, the international terminals business owned by CSX, the U.S. railroad and shipping company.

The scale of Dubai Ports (the parent of DP World) is in part due to the size and growth of its Dubai operations.  In 2004, its Dubai operations ranked among the top 10 container ports in the world, surpassing Antwerp in throughput.  Dubai Ports has been growing its throughput at a rate exceeding 20% over the past several years at a time when most other ports were growing at less than half that rate. Its growth rate last year was exceeded only by the Shanghai Port and the Shenzhen Port in China.

But that is only part of the story.  DP World was formed as an international arm of Dubai Ports in 1999. It has been growing by leveraging the expertise acquired in operating Dubai’s own port operations to provide port management services to large container ports around the world.  It has in effect become a major outsourcing services provider in the container port business, offering a broad range of services including management of container terminals, free zones and related infrastructure. In the words of the company, DP World “can completely turn around the performance of ports, rather than just achieve small incremental improvements solely through better management practices.”

In effect, DP World has been capitalizing on an even more fundamental shift in world shipping that has played out over the past 50 years.  Back in 1955, an American entrepreneur, Malcolm McLean, came up with the ingenious idea that the efficiency of loading and unloading ships could be dramatically improved by modular design.  Rather than having shippers use any size container they wanted, McLean defined and tirelessly promoted adoption of a new shipping standard – the twenty foot container.  McLean formed Sea-Land, one of the most successful contemporary shipping companies, to pioneer container shipping techniques.  The fascinating story of the impact of this innovation is told by Stewart Taggart in a great article entitled “The 20-Ton Packet” that originally ran in Wired magazine back in October 1999.

Why did Taggart call the article “The 20-Ton Packet”?  Simple – he was making a compelling case that containerization did for the global shipping industry what packet switched networks did for global information flows decades later:

Just as the Net and deregulated telephony spelled the death of distance for telecommunications, containers spelled the death of distance for manufacturing.  By breaking down cargo into standard units, greater amounts  could be more efficiently pushed through a network.

While other factors were certainly at work, containerization played no small role in the dramatic growth in world merchandise trade over the past 50 years and has been instrumental in facilitating the offshore movement of manufacturing.  As Taggart reports,

From a small base of 6.3 million in 1972, the number of containers handled by the world’s ports had risen 26-fold, to 163.7 million, by 1997. As scale efficiencies grew, prices dropped.  Over the past 20 years, nominal unit-transport costs on the key Asia-US route have fallen by about one-third, or roughly two-thirds in inflation adjusted terms.

For those interested in a great techie build on the original Taggart article, please see the PowerPoint presentation by Nick Gall of the Meta Group on “TCP/IP and Shipping Containers: How to Architect Freedom” delivered to OSCON 2005.  This presentation was covered by both Daniel Steinberg and Phil Windley.  Gall draws attention to an even more techie piece by David Clark at MIT on “Interoperation, Open Interfaces and Protocol Architectures” which highlights the importance of “spanning layers” in achieving interoperability. The standards around container format represent just the kind of spanning layer that Clark is talking about.

Containerization has not only transformed the maritime shipping industry; it has led to a transformation of truck and rail transport as the need to unpack and repack goods disappeared with the spread of containers across all forms of transport.  Containerization has posed a challenge for older ports as they sought to re-tool for this new technology.  DP World has been riding this transition, offering world-class management techniques to take full advantage of the efficiencies created by containers.

But here’s a key lesson.  Modularization does not necessarily lead to fragmentation.  In fact both the container shipping business and the port operation business have been rapidly consolidating.  As containerized shipping becomes more pervasive, both sets of players are realizing significant economies of skill.

Both of these businesses are what I call infrastructure management businesses – businesses that focus on high-volume routine processing activities.  As the unbundling of the corporation proceeds, these businesses are getting carved out of traditional companies and, in the process, rapidly consolidating.  Modularized technology and management techniques are accelerating this consolidation on a global scale.

Modularization will intensify fragmentation for another kind of business – product innovation and commercialization businesses – but that’s another story for another time.

So why should business executives care about what is happening in the container port business in Dubai?  It provides insight into much more fundamental trends that are re-shaping our global economy at an awesome pace.  It shows that countries and companies on the edge have an opportunity to become significant global players by understanding and harnessing the forces at work.  It also drives home that our most well-known and well-established companies, even those granted royal charters in 1840, are vulnerable to these same changes and can succumb quickly to the initiatives of more aggressive competitors, even those just formed in 1999.

Drucker’s Gone

I am laid up with the flu so I am still having trouble processing the reality that Drucker’s gone.  Drucker was an iconoclast who lived on the edge throughout his life.   Prolific until the very end of a long life (he was 95 when he passed away last Friday), he always sought to move beyond established boundaries, believing that they limit the potential for insight and understanding.

It is hard (and unfair) to distil work of enormous insight that spans more than thirty books and thousands of articles but, for me, the key themes that pervaded all of Drucker’s work were people, processes, direction and simplicity.

People. Drucker insisted throughout his writing that enduring economic value creation depends ultimately on people – as he liked to say, "people are a resource, not a cost".  Finding ways to help people discover and develop their talents and then working to amplify the efforts of people – that is the real rationale for any firm and, indeed, any institution.  For Drucker, economizing on transaction costs was far too narrow and sterile a way to characterize the role of the firm. In many different forms, he kept reiterating that the role of all institutions is to make human strengths effective and human weaknesses irrelevant.

Processes. Drucker also took a process view of the world.  By process, I don’t mean the static boxes and lines that we tend to associate with business process maps.  Again, this was much too narrow for Drucker.  Drucker instead focused on the basic insight that our world continues to evolve through dynamic processes that continually re-shape the landscape we play on.

Static views of the world were anathema to Drucker.  He had little patience for most of the economic profession with its obsession with equilibria and closed systems.  He saw that real understanding came from focusing on dynamic processes shaped by new knowledge, technological progress, entrepreneurs, innovation and growth – exactly those areas that conventional economists have the most difficult time explaining with their “rigorous” mathematical models.

Perhaps this was why he had such affection for two fellow Austrian émigrés – Joseph Schumpeter who shifted attention to the gales of creative destruction that re-shape our economic landscape and Friedrich Hayek who championed a process view of economic activity and institutional development (although, ever the individualist, Drucker resisted efforts to group him with the Austrian school of economics).

Direction. Drucker also understood that the only way to harness these processes was to have a clear sense of direction – not only at the institutional level, but at the level of each individual.  He was not a big fan of adaptation as a business strategy.  Of course, he believed that firms had to be flexible and responsive to their environments but, in his view, that mattered little if the people in the enterprise did not have a shared sense of long-term direction and persistence in pursuing that direction.

Simplicity. Drucker was also a strong proponent of simplicity.  He believed that most of the problems that businesses (and indeed all institutions) run into stem from making things more complicated than they need to be. People and dynamic processes are complicated enough.  Simplicity was one of the reasons he emphasized the importance of a sense of direction.  Direction helps people to make choices and to prioritize their actions – it helps them to decide what not to do, as well as what to do. He applied this principle in his own writing – it was a model of simplicity, using rich metaphors wherever possible to communicate simple but powerful points.  As he observed, “my best ideas have only one moving part.”

Now, at one level, these are pretty basic and obvious themes.  But that was part of Drucker’s genius.  He took basic and obvious themes and relentlessly applied them to a broad range of business issues.  His great insights on concepts like “management by objectives” and “knowledge workers” all stemmed ultimately from his focus on these four basic pillars. By staying focused on the basic and obvious, Drucker managed not only to be relevant, but at the center of innovative management thinking throughout a career that spanned almost sixty years from the publication of his path-breaking Concept of the Corporation in 1946.  One small indicator of Drucker’s continuing relevance is that his name remained in the top 10 search items on Technorati for several days following his death – even the new generation of "technorati" seem to have an abiding interest in his perspectives.

The following excerpt on outsourcing from an interview almost ten years ago provides one example of how Drucker ties his core themes together while addressing new themes:

One of the things to understand about outsourcing is that the woman who works for the hospital, cleaning floors, is very bored by the job. But if she works for ServiceMaster, an outsourcing company, she’s very excited by it because people listen to her, people challenge her. She is expected to improve the job and gets paid for doing it — whereas before no one would listen. These days, her supervisor had a broom in her hands only five years ago. So the outsourcing people have a great strength in making what we might call a dead-end job much more challenging, because they take it seriously.

Although a participant in the academic world for most of his professional career, Drucker was always suspicious of his academic colleagues with their narrow focus on disciplinary boundaries.  His audience was business managers and he wrote for them, not for his academic colleagues. Tom Peters in the FT obituary on Drucker commented on the curious absence of Drucker’s writings from any of his graduate college courses:  “Drucker effectively by-passed the intellectual establishment. So it’s not surprising that they hated his guts.”

There’s a lot being written about Drucker on his death, but for my money, two of the best obituaries are the ones by Steve Forbes in the Wall Street Journal today and by Simon London in the Financial Times a few days ago (my colleague Christian Sarkar somehow has a more detailed version of the column than the one that is available on the FT web site). The Wikipedia entry on Peter Drucker has a pretty good bibliography and there’s also an interesting audio interview with Drucker done just a few months ago that is available from WBUR (hat tip to Christian Sarkar). There’s also a very good intellectual biography of Drucker – Shaping the Managerial Mind by John E. Flaherty.

Drucker’s gone and we will all be poorer for it. If there is one lesson we should take from his writing and his life, it is that living on the edge has its rewards in terms of insight and understanding.

Innovation and R&D

Michael Schrage wrote a great op ed piece for the Financial Times on November 8. Under the headline of “For innovation success, do not follow where the money goes”, Michael rips in to those who equate R&D spending with innovation in response to a recent UK Department of Trade and Industry report focusing on global R&D spending.

I urge you to read the whole piece; it is unrelenting in its attack.  Let me just quote some of the juicier pieces:

Any policymaker, chief executive or innovation champion who relies on R&D intensity and R&D budgets as a meaningful or usable metric to assess global competitiveness virtually guarantees shoddy analysis and distorted decisions.  Few things reveal less about a company’s ability to innovate cost-effectively than its R&D budget.  Just ask General Motors.  No company in the world has spent more on R&D over the past 25 years. Yet, somehow, GM’s market share has declined.

Michael makes clear that R&D spending is only an input:

The simple fact is that R&D spending – whether in euros, dollars or as a percentage of sales – is an input, not a measure of efficiency, effectiveness or productivity.  Ingenuity, invention and innovation are rarely functions of budgetary investment.

He also makes an important point about some of the most innovative companies in the world today:

While Wal-Mart, Texco and Dell have miniscule R&D budgets, their quality, procurement and growth requirements have probably done more to drive productive innovation investment than any five European Union funding initiatives.

Finally, Michael draws some important implications for public policy:

Growing market competition, not growing R&D spending, is what drives innovation.  A successful innovation policy is a competition policy where companies see innovation as a cost-effective investment to differentiate themselves profitably.

Right on!  In my consulting career, I have participated in many analyses seeking to draw a correlation between R&D spending and business performance in specific industries.  The conclusion: there is absolutely no correlation – what you get is a scatter diagram.

I only wish that Michael had gone a bit further and spent more time attacking a related fallacy: equating patents with innovation.  At least this approach focuses on outputs, rather than inputs, but it focuses too narrowly on only one kind of output.  In effect, it equates innovation with invention.  This immediately narrows the focus to product innovation and largely ignores process and business model innovation. The longer I work on innovation, the more convinced I have become that process innovation is far more powerful than product innovation – it has a multiplier effect that product innovation can rarely match.

Bottom line, the only effective measure of innovation activity is the rate of productivity improvement in an enterprise – the growth in value added generated per employee.  There are lots of ways to “game” productivity in the short-term – for example, by raising prices or by cutting staff and forcing the remaining people to work harder. But these can’t be sustained – over time, they generate diminishing returns or, in the extreme case, lead to productivity erosion. That’s why static productivity measures can be misleading. What really counts is the ability to sustain and amplify productivity improvements through innovative products, process improvements or new business models.

From a competitive viewpoint, what matters is the relative rate of productivity improvement. R&D spending and patent filings will matter little if they do not translate into faster productivity improvement – in fact, they can be a significant distraction.  Those who understand this will have a significant edge as competition intensifies in the global economy.

Bra Blowback

Regulation usually has unintended consequences.  This is a difficult lesson for those who turn to the government for protection from the pressures of the market.  Markets are extraordinarily robust formations. They usually find a way around regulation and often produce outcomes far less attractive from the viewpoint of those seeking regulation in the first place.

The Wall Street Journal ran a great story on November 9 driving this lesson home one more time.  Under the lead of “Chinese Textile Companies Aim to Build a Better Bra” , Mei Fong chronicles the response of Chinese bra makers to the trade agreements between China and both the U.S. and Europe to curb the growth of textile imports.  These trade agreements give preferential treatment to higher priced items – this makes sense if the goal is to protect Western manufacturers from lower priced apparel items.

So what has been the response of Chinese bra manufacturers?  The article focuses in particular on Top Form, Inc., a company that produces 61 million bras a year for such leading brands as Victoria’s Secret, Playtex and Maidenform. Top Form has set up a laboratory near Shenzhen to aggressively pursue research into bra technology.

Top Form has already made a lot of progress in rapidly improving its design and production processes.  Mei reports that

Top Form has evolved from primarily making cut-and-sew brassieres – simple designs easily put together by China’s nimble and low-cost seamstresses.  Now, its bra production is a process more akin to car assembly: fusing together the many components needed to make a bra, eliminating much of the need for hand-sewing, or using high temperatures to mold sheets or synthetic fibers into wafer-thin sheets. . . Productivity has improved since it takes about five minutes to make a seamless bra, compared with about 15 minutes for an average cut-and-sew bra . . .

These productivity improvements help companies like Top Form to generate significant growth in profits.  These profits in turn are being reinvested into research labs like the one established by Top Form to develop entirely new bra designs.  Top Form is morphing from a contract manufacturer into a source of innovative new designs. 

Not only are individual companies investing in bra-research centers, but the article reports that “bra towns” have emerged where the businesses all focus on various aspects of bra manufacture.  Hong Kong’s Polytechnic University has even established a degree course in bra studies.

What is the result of all this activity?  The article quotes one expert as follows:

David Morris, a university professor who teaches brassiere studies at United Kingdom’s De Montfort University, says it is clear that China’s bra makers aren’t just relying on cost advantages anymore.  Some of these Chinese bra makers are “the top end of seamless constructions – we couldn’t duplicate it.”

Now, this rapid incremental improvement probably would have been pursued in any event.  It is a pattern that JSB and I discuss at length in a variety of industries in China and India in The Only Sustainable Edge. Nevertheless, the article makes clear that the trade regulations have played a major role in accelerating these investments in capability building.  US apparel manufacturers who were worried about competition at the low end of the apparel business from Chinese manufacturers now find that competition is intensifying at the higher end of the apparel business. This is just one more form of innovation blowback that Western companies are experiencing as they seek to cope with the challenges and opportunities created by emerging economies like China and India.

Of course, this kind of regulatory dynamic plays out in many industries.  But the temptation to turn to regulation is especially pronounced on the edge – whether it is the edge of industries, regional economies, cultures or technologies.  It is on the edge that established practices confront new threats (as well as new opportunities).  Rather than confronting the threats head-on and embracing the new opportunities, there is a strong temptation to hide behind the walls of regulation.  These walls create complacency for those inside and increase urgency for those outside.  The results are rarely what those inside the walls intended.

Symposium on Social Architecture

I hate red-eye airline flights, but I am going to be taking one so that I can participate in Corante’s Symposium on Social Architecture in Boston next Tuesday.  The topic and the people coming together are just too good to pass up. Billed as an “un-conference”, the gathering is going to focus on: the overarching themes and underlying technologies that are driving the massive uptake of people-centered, user-driven, individual-connecting applications, communities, content, and services.

The organizers (or is it “un-organizers”?) are promising a series of highly interactive sessions with strong audience participation. The sessions will be covering the following topics:

• Is Business Ready for Social Software?
• Engines of Meaning: How Will We Scale Our Understanding?
• Is Social Software A Mirror Or a Lens?
• How Will The Social Web Change Media?
• A Case Study in Web-Based Civics: Katrina and Recovery 2.0.

Stowe Boyd and David Weinberger are key ringleaders of this event, but some of the featured participants include Seth Goldstein, Kaliya Hamlin, Mary Hodder, J.D. Lasica, Liz Lawley, Kevin Marks, Chris Nolan, Andrew Rasiej and Thomas Vander Wal.

I am going because I am convinced that social software will play a central role in driving the next wave of value creation for the enterprise.  For the past couple of decades, the primary focus of IT investment in the enterprise has been to standardize and automate business processes.  Over the next couple of decades, the real opportunity will be to amplify practices by supporting collaboration on demand – helping people both within and across enterprises to connect more flexibly and richly with each other around real business needs.

I am looking forward to being at the symposium, but I am going to need some strong coffee when I arrive – did I tell you I hate red-eyes?

Return on Attention and Infomediaries

Attention is getting a lot of attention. Most recently, Robert Scoble from Microsoft blogged about an epiphany he had earlier this week during a visit to Silicon Valley.  He is beginning to see the importance of attention and how it will shape value creation on the Internet.

Attention is hugely important.  It is the asset that will determine who creates value and who destroys value in the years ahead. Among other things, it will transform the nature and power of brands, as I discussed recently here, here and here. It is also reshaping the media business as I hinted in a posting on Martha Stewart a few years ago.

But I worry that we are confusing attention with attention profiles – the historical record of where we have allocated our attention in the past. In the process, we may lose sight of what is really valuable and how to harness that value.

Attention refers to the choice we each make regarding where we will focus at any point in time. It is also highly dynamic – each moment we have an opportunity to re-visit our choice and make a different choice. Attention is ultimately what counts – attention profiles have value only because our attention has so much value. I remain indebted to Michael Goldhaber for his seminal article on this topic – "The Attention Economy and the Net".

Why is our attention so valuable? Because it is so scarce or, more accurately, because its relative scarcity has been rapidly increasing.  Attention is a constant resource for each of us – we only have 24 hours in the day. It is up to us how we use those 24 hours.  What’s changed is that we have more and more options competing for our attention. We face increasing abundance both in the production and distribution of goods and information about those goods. Some people think this is a curse.  I happen to believe it is a blessing for many reasons.

But it does pose a challenge.  Each of us feels more pressure to increase our return on attention – given more and more options competing for our attention, we run significant risk of fragmenting our attention and diverting our attention to lower value options.  Anything or anyone who can help us increase our return on attention will likely get more of our attention over time, especially if they can further increase our return on attention over a broader scope of activities. A powerful increasing returns dynamic  can be unleashed if the game is played right.

Attention profiles have the potential (but only the potential – there are serious challenges in harnessing this potential) to increase our return on attention. They can make filters and finders much more effective in connecting us with the people and resources that are most relevant. Given new technologies, we are finally acquiring the tools required to capture and store our own attention profiles and to make these profiles selectively available to others who offer the promise of further enhancing our return on attention.

In a nutshell, this is the infomediary opportunity that I originally outlined with Jeffrey Rayport in a Harvard Business Review article (purchase required) back in 1997 and developed in much greater detail in Net Worth: Shaping Markets When Customers Make the Rules (co-authored with Marc Singer), published 6 years ago in 1999. It is also, as I understand it, the basic proposition driving the recent formation of AttentionTrust.org by Steve Gillmor, Hank Barry and Seth Goldstein, among others.

Unfortunately, the web site and the founders do themselves a disservice and muddy the waters in the way they frame the undertaking. The home page of AttentionTrust.org is framed entirely in terms of rights, concluding with the call to action: “Assert your right to you!”  This theme is further developed in a blog posting by Seth Goldstein entitled “AttentionTrust.org: A Declaration of Gestural Independence”.

Having spent a lot of time in this field, I am skeptical whether an appeal to rights or independence is going to be sufficient to get mass adoption.  What matters to most people is whether they are going to get greater return on their attention – it is a much more pragmatic concern.

In a posting on March 28th earlier this year, Steve Gilmor presented part of an IM exchange with Kevin Werbach where he responded to Kevin’s question about the significance of attention.xml (a standard being developed by AttentionTrust.org).  Steve’s response is interesting – it does a great job of explaining how this new standard can help Kevin deal more effectively with a flood of information by connecting with the information that is most relevant.  Not once does Steve talk about rights to attention or attention profiles – it is a very pragmatic and compelling pitch based on increasing return on attention.

In reflecting on the disappointing experience of the first wave of infomediaries, I draw two key lessons.  First, many of these businesses led with the proposition of privacy protection, but most people most of the time are not that concerned about protection of privacy – they will readily trade information about themselves for something of perceived value.  Witness the frequent fliers who will not board a plane until they know the airline has captured detailed information about their itinerary. 

Second, these businesses also emphasized the monetary value of attention profiles and offered subscribers the opportunity to receive money in return for information about themselves. The problem with this approach is that the cash value of attention profiles is actually quite limited from the viewpoint of an individual consumer.

As I emphasized in Net Worth, the real value of the infomediary comes from using attention profiles to reduce interaction costs and increase return on attention. The infomediary can help customers to sort through all the options competing for their attention and to connect rapidly and conveniently with the resources that matter the most to them – not only through search but, increasingly, through recommendation services based on deeper understanding of their interests and preferences.

Unfortunately, this is a much more challenging proposition to deliver on than either blocking access to attention profiles or selling attention profiles to the highest bidder. But it is also a compelling proposition that creates interesting opportunities for increasing returns dynamics. AttentionTrust.org ought to lead with this proposition and focus on developing the technology standards that will help individuals and their infomediary agents to increase return on attention.

For Robert Scoble, the question is whether Microsoft will take a customer or provider lens when thinking about the technologies required to increase return on attention.  If Microsoft plays this game right and approaches this from the viewpoint of the customer, it has an opportunity to leapfrog past Google and Yahoo and carve out a leadership position in the consumer arena.  Scoble might want to ask around about Microsoft’s acquisition of Firefly back in 1998.  The company has taken some initiatives in this direction in the past but without much success.  The game is still open.

Ambient Findability

Information architecture – the words themselves are enough to cause the eyes of most executives to glaze over.  It’s abstract, likely to be complicated and expensive and unlikely to produce near-term revenue, much less profit, impact.  “Ambient Findability” – these words won’t help the average executive much either. Even my Microsoft Word application doesn’t like findability – it keeps suggesting that I change it to fundability (there’s a certain perverse logic here because, as I will suggest below, findability will lead to fundability).

So I hesitate to say it – Ambient Findability is a great new book about an increasingly important aspect of information architecture.  Wait! Stop! Before executives tune me out, hear me out.

Companies today realize that push approaches to marketing are less and less effective. As I have written about elsewhere, we are entering the era of reverse markets.  Ask business executives to define a market and they will likely say that it is a place where vendors can find customers and sell them more and more stuff.  Instead, we need to view markets through the reverse lens of customers who are trying to find appropriate vendors at relevant times and get the most value they can out of the their vendor. Powerful forces are re-shaping markets to make this reverse market lens much more helpful in determining how to create value.

If businesses are going to succeed in the future, they need to master pull approaches to marketing – how do you get potential customers to seek you out and how do you pull complementary resources together to become ever more helpful to customers? These pull approaches hinge upon the ability to improve findability. So, what does that mean? Peter Morville, the author of Ambient Findability (and, incidentally, one of the founding fathers of the discipline of information architecture), helps the reader with a dictionary-style definition:

Find-a-bil-i-ty n

a. The quality of being locatable or navigable

b. The degree to which a particular object is easy to discover or locate

c. The degree to which a system or environment supports navigation and retrieval

For those who are interested, Morville posted a fascinating blog entry  preceding his book by a few years where he explores the relationship between findability and information architecture.

Later in the book, Morville sums up why executives need to pay attention: “. . . . findability will be a key source of competitive advantage. Finders, keepers; losers, weepers.” Blunt, but accurate.  In a world of increasing choice, findability becomes an essential dimension of competition.  Of course, it’s always been important – it’s the wisdom behind the maxim in retailing that there are only three things that matter: location, location, and location.

But now the traffic is not just flowing down well-defined city streets – it is working its way through the global web from link to link in highly idiosyncratic ways. And it’s not just the local retailers that are competing for the customer’s attention and wallet – it is every vendor and information producer around the world.  In this environment, becoming findable makes the difference between life and death.

Morville believes that push and pull will continue to co-exist, but he suggests that

. . . in today’s attention economy, fitness requires a new balance between push and pull.  The playing field has shifted, and yet few companies understand the new rules. In their bias towards push, marketing is missing opportunities to make products more findable.

Morville comments that a lot of businesses worry about usability of their products or their web sites, but they fail to recognize that “findability precedes usability.”  If a potential customer can’t find you, usability doesn’t really matter.

Findability is not just about new design or marketing techniques.  Morville observes that “findability is at the center of a quiet revolution in how we define authority, allocate trust, and make decisions.”  Its implications are profound not just for those who want to be found, but for those who are doing the finding.  As the dust jacket of the book maintains, “what we find changes who we become.” This is a thoughtful meditation on the implications for both finder and findee in a world where finding becomes increasingly important and challenging.

Morville provides us with a very well-written, even eloquent, book, drawing much needed attention to a key dimension of competition going forward. Business executives of all types will profit from reading this provocative book.  At the very least, it will put squarely on the table some key questions:

• How findable are your products and services?
• How findable is your business?
• How findable are you personally?
• What can you do to improve your findability for those who matter?

For those who want to find Morville, he has begun a blog findability.org

From Push to Pull

JSB and I just published a new article in the McKinsey Quarterly – “Push to Pull – The Next Frontier of Innovation.”   I’ve also posted on my web site a longer working paper that I wrote with JSB on “From Push to Pull – Emerging Models for Mobilizing Resources” for those who want a more detailed perspective.

This material is the opening salvo in our research for a new book. Yes, I know, we’ve just barely published our previous one, but we’re already starting to work on a new book. As we were writing The Only Sustainable Edge we became convinced that there is a much bigger story yet to be told. Since we are still at the earliest stages of this research and writing, I would welcome any input or suggestions to make the story sharper and more compelling.

“Push to Pull” is only one slice of this bigger story – it is not the whole story, but it is an important slice.  It describes a fundamental shift in the way we mobilize resources.  Organizational success depends upon effective mobilization of resources.  Getting the right resources to the right place at the right time makes the difference between desired impact and catastrophe – something we learned in graphic detail from Hurricane Katrina and New Orleans.

The distinction between push and pull

Over the past century, institutions have been perfecting highly efficient approaches to mobilizing resources.  These approaches may vary in their details, but they share a common foundation.  They are all designed to “push” resources in advance to areas of highest anticipated need.

In the past decade, we have seen early signs of a new model for mobilizing resources.  Rather than “push”, this new approach focuses on “pull” – creating platforms that help people to reach out, find and access appropriate resources when the need arises.

Now, when JSB and I talk about pull platforms, many executives immediately think of the lean manufacturing techniques pioneered by companies like Toyota back in the 1950’s. In fact, lean manufacturing represents a hybrid between push and pull models – it still contains significant elements of push. We are talking about something even more profoundly rooted in the principles of pull.

Pull and push approaches differ significantly in terms of how they organize and manage resources.  Push approaches typically use “programs” – tightly scripted specifications of activities designed to be invoked by known parties in pre-determined contexts.  Of course, all push approaches are not software programs – this is a broader metaphor to describe one way of organizing activities and resources.  Think of thick process manuals in most enterprises or standardized curricula in most primary and secondary educational institutions, not to mention the programming of network television, and you will see that institutions heavily rely on programs of many types to deliver resources in pre-determined contexts.

Pull approaches, in contrast, tend to be implemented on “platforms” designed to flexibly accommodate diverse providers and consumers of resources.  These platforms are much more open-ended and designed to evolve based on the learning and changing needs of the participants. Rather than seeking to dictate the actions that people must take, pull models seek to provide people on the periphery with the tools and resources (including connections to other people) required to take initiative and creatively address opportunities as they arise. Pull platforms are designed from the outset to handle exceptions, while push programs treat exceptions as indications of failure.

Push models treat people as passive consumers (even when they are producers like workers on an assembly line) whose needs can be anticipated and shaped by centralized decision-makers.  Pull models treat people as networked creators (even when they are customers purchasing goods and services) who are uniquely positioned to transform uncertainty from a problem into an opportunity.

Once again, we’re not using platforms in the literal sense of a tangible foundation, but in a broader, metaphorical sense to describe frameworks for orchestrating a set of resources that can be configured quickly and easily to serve a broad range of needs. Think of Expedia’s travel service or the emergency ward of a hospital and you will see the contrast with hard-wired push programs.

The value of pull models

Why are pull platforms emerging and spreading? Many organizations adopt pull platforms as a way to create more flexibility and cope with greater uncertainty. But early adopters are realizing that there is another more compelling value.  Pull platforms are particularly powerful in fostering innovation, learning and capability building.  In fact, pull platforms are creation platforms.  You can’t anticipate if you are going to innovate, so push programs are not useful in innovation environments.

Here’s the irony.  Push models were originally designed to promote efficiency, yet even here they are failing to deliver.  Advocates of these models acknowledged that these approaches might limit flexibility and constrain creativity, but they argued that was a small price to pay for the opportunity to cut costs.  Yet, as uncertainty increases and competition intensifies, it turns out that push models are less and less able to deliver efficiency.

Push models assume that demand can be predicted reliably enough to define the procedures required to deliver resources to pre-specified locations before the demand actually materializes.  Push models therefore require accurate forecasts to function effectively.  Uncertainty undermines the ability to forecast. This in turn undermines the ability to push resources to the right place at the right time. So, even if efficiency is the primary goal, push approaches are becoming less useful. Pull platforms become extraordinarily efficient in uncertain markets.

Pull platforms are highly scalable as well as flexible because they embed specialized capabilities into distinct layers that can evolve independently.  The lower layers of pull platforms, including such activities as communication and logistics networks tend to focus on high tech capabilities. Upper layers, concentrating on mobilizing individuals and communities to innovate and create new value, tend to focus on high touch capabilities.

Early arenas for pull platforms

These new pull platforms are emerging in very diverse arenas:

• Pull platforms are helping to transform the production and distribution of digital media in areas like blogging and music remixing. But it would be a mistake to view pull platforms as limited to digital “fringes”.
• Global process networks built upon pull platforms are reshaping the global operations of such different and demanding industries as apparel, motorcycles and consumer electronics.
• Learning institutions as diverse as the University of Phoenix and Brown University are deploying pull platforms.

These are not just isolated examples – powerful forces are shaping the need for an alternative approach to mobilizing resources. These forces ensure that this new model will spread to all arenas of human activity.

Forces shaping pull platforms

Five broad forces are shaping the emergence and evolution of pull platforms:

• Increasing uncertainty
• Growing abundance
• Intensifying competition
• Growing power of customers
• Greater emphasis on learning and improvisation

In environments shaped by these forces, push models are breaking under the strain and pull models are beginning to fill in the gaps.

The push to pull spectrum

Of course, pull platforms and push programs are not mutually exclusive.  In fact, pull platforms often contain push programs that can be accessed through their platforms. For example, Amazon or eBay provide robust pull capability for consumers to access on demand an extraordinary abundance of products like books and CD’s. These products were originally made using traditional push manufacturing programs. On the other hand, reflect on the opportunities to further build upon these pull distribution systems by reconfiguring production processes to deliver publishing on demand.

More broadly, however, the forces outlined earlier make it more and more attractive to deploy pull models rather than push models.  At the same time, broader deployment of more flexible technologies, tools and infrastructures makes it more viable to design and manage pull models. As a result, pull models will increasingly displace or marginalize push models in broader arenas of human activity.

Look to the edge for pull platforms

Like many of the most profound business changes, this architectural shift is beginning at the edge:

• It is starting at the edge of enterprises, rather than deep inside of the enterprise, because it is here that the greatest uncertainty exists. It is also here that push models, with their assumption of centralized control, are less viable (unless a company has enormous market power like Wal-Mart).
• Pull platforms are also beginning to take hold in emerging economies like China and India because these platforms are particularly powerful in supporting bootstrapping activity.
• Finally, pull platforms are emerging at the demographic edge – younger generations more comfortable with the technologies and tools emerging on electronic networks are pioneering both the creation and use of pull platforms to create businesses that grow extremely fast with relatively modest investment.

Pull platforms require very different mindsets and management techniques.  At this point, they represent an opportunity for all institutions to embrace.  Over time, however, they will represent a significant competitive challenge for those who remain wedded to push programs. While pull platforms are emerging first on the edge, we all know that the edge eventually becomes the core.

Delphi, Detroit and Dead-Ends

Delphi, the largest supplier to the automotive industry, filed for bankruptcy last Saturday.  This is not an isolated event – it is only the latest filing in a series of bankruptcies among American automobile suppliers. Their American customers, the large automotive manufacturers, are hardly doing much better.  Both GM and Ford have achieved junk bond status as investors worry about mounting pressure on their businesses.

The business press coverage of this story has been disappointing.  Almost without exception, the story has been reported as part of a broader effort within the American automotive industry to realign its cost structure. In particular, the news reports focus on the challenge of dealing with the inflated wages that American automotive workers enjoy relative to their counterparts in other countries and the legacy costs burdening American auto companies. So, if one takes these reports at face value, the problem is labor costs and the greed of workers who won’t face up to reality.

Look, there is no question that wage rates of American automotive workers are too high and painful readjustments will be required.  But is that the whole story?

The Delphi story is a rich one that can be read on many levels.  It provides significant insight into the mindset of a lot of American executives across many industries – not just the automotive industry – and drives home in stark form the consequences of that mindset.

At one level, this story provides insight into spin-offs. Delphi is a spin-off from General Motors.  When the spin-off occurred in 1999, it was heralded as a bold move to provide more focus and flexibility for both entities.  In fact, an article on "Spin-Offs That Won’t Go Away" (registration required) in Business Week almost a month ago cast the spin-off (along with a similar spin-off of Visteon from Ford a year later) in a very different light:

The two parts makers remain GM’s and Ford’s largest suppliers, but there’s a bigger reason why the auto makers are still on the hook for these offspring: Except for their stock, they never completely cut all ties to make them independent companies. . . . Indeed, Delphi and Visteon . . . may have been destined to fail.  GM and Ford lumbered them with huge labor costs while extracting promises from them to cut their prices.

Visteon, while it has avoided bankruptcy court so far, has lost $3.2 billion since its spin-off and survives only through subsidies received from Ford.

In retrospect, these spin-offs are much better understood as financial engineering – get under-performing assets off the books while still preserving effective control of the assets through tight business relationships. Competitive pressures are forcing an unbundling of large enterprises, but too often executives pull back at the thought of losing control and strive instead to create the illusion of independence. In some respects, the Enron debacle stemmed from exactly this inability to let go.

At a second level, the Delphi story illustrates the destructive impact of supply chain relationships in large parts of American industry.  Over the past couple of decades, we have seen a pronounced trend towards consolidation of supply chain relationships by American business.  Only last month, both GM and Ford announced another round of thinning the ranks of their suppliers.  Why is this being done?  The Wall Street Journal headlines of the stories covering these announcements cuts to the chase: “GM Unveils Cost-Cut Program to Press Suppliers, Halt Losses” and “Ford Seeks Big Savings by Overhauling Supply Systems”.

If you dig deep into the stories, you may find an occasional reference to new technology and innovation, but the headline and bottom line are clear: these are simply the next wave of efforts to squeeze suppliers.  By reducing the number of suppliers, the automotive companies tighten their control over the remaining suppliers and gain more bargaining power in negotiating even deeper price concessions. In this environment, trust is in short supply and relationships become adversarial rather than collaborative.

This leads to a third level of the Delphi story. Executives in the automotive industry are reaping the consequence of decades of focusing heavily on cost cutting as the primary approach to driving profitability.  Under the best of circumstances, cost cutting yields diminishing returns. But it has an even more insidious effect: it creates a zero-sum game among participants.  There’s a fixed set of economic resources available and I win only if you lose.  It pits suppliers against customers and labor against management. Dysfunctional friction ripples throughout the business and, in focusing on keeping what they have, people pay less and less attention to what new value they might be able to create together.

Delphi’s story can also be read as a cautionary tale regarding consolidation.  Major auto companies in the US and Europe (both suppliers and assemblers) have been pursuing aggressive M&A programs in a defensive effort to bulk up and achieve further cost savings through economies of scale.  If Delphi, as the largest automobile supply company with revenues of $27 billion and 185,000 employees, could not avoid bankruptcy, we might want to question how much economies of scale really help.

Delphi’s bankruptcy should be a wake-up call.  Cost-cutting is absolutely necessary, but it is not sufficient – pursued in isolation, it rapidly approaches a dead-end.  Economies of scale may be important, but mergers can be a distraction. The only way to succeed as competition intensifies is to find ways to create more value with less effort.  Productivity determines success and innovation is required to drive productivity advances.  Innovation requires people to come together, often across institutional boundaries, and discover new ways of operating.  The dysfunctional friction that pervades the American automobile industry must be converted into productive friction if these companies are to survive.

Accomplishing this will require a fundamental shift in executive mindsets. We can blame the troubles on greedy workers, but that will only harden the battle lines that hamper forward movement.  The only way out of this box starts in the executive boardroom. Senior management needs to challenge itself to find ways to get better faster by working with others.  If senior management teams can tap into this potential for innovation, they will have a much more compelling case to make to their workers and their suppliers.

The automobile industry is on the cusp of profound transformations, as highlighted in two recent books: The Second Century by Matthias Holweg and Frits K. Pil and Time for a Model Change by Graeme P. Maxton and John Wormald. For an interesting account of the growing importance of modularity in the auto industry, see Mari Sato’s essay on "Modularity and Outsourcing: The Nature of Co-Evolution of Product Architecture and Organization Architecture in the Global Automotive Industry" in The Business of Systems Integration by Andrea Prencipe, Andrew Davies and Michael Hobday. The potential for innovation, both in the cars themselves and the methods used to design, produce and sell these cars, has never been greater.

The World Is Spiky

Two writers that I admire greatly – Tom Friedman and Richard Florida – appear to clash with each other.  Tom in his best-selling new book says “The World Is Flat” and Richard in a new article in the October 2005 issue of Atlantic Monthly asserts “The World Is Spiky".Richard’s article is a great read (supported by highly visual maps) and I highly recommend it. Tom and Richard are both right, but they both risk missing the real point.

Richard focuses on one particular quote from Tom’s book: “In a flat world you can innovate without having to emigrate.”  Richard responds that location still matters and that, by a variety of measures, the world is extremely spiky – meaning that activity is very concentrated in a relatively few locations.  Richard looks at

• population concentration in urban areas
• light emissions (as an interesting proxy for economic activity)
• patent filings
• citations to scientists in leading fields to demonstrate this spikiness.

Using topographical metaphors, Richard divides the world into

• peaks – the cities that generate innovations
• hills – “the industrial and service centers that produce mature products and support innovation centers”
• valleys – “places with little connection to the global economy and few immediate prospects”

Focusing on the peaks definitely highlights the spikiness of the world.  For example,

When it comes to actual economic output, the ten largest US metropolitan areas combined are behind only the United States as a whole and Japan.  New York’s economy alone is about the size of Russia’s or Brazil’s . . .  Together New York, Los Angeles, Chicago, and Boston have a bigger economy than all of China.  If US metropolitan areas were countries, they’d make up forty-seven of the biggest 100 economies in the world.

But what does all of this mean?  Flat or spiky? Who is right – Tom or Richard? Here is my take on it – framing the debate in these terms is misleading.  It obscures what is really important.

Flat or spiky – these are metaphors of space.  More importantly, they are static metaphors – they describe a point in time.  The world is either flat or spiky.  What is missing is any sense of trajectories or relative pace of change. Instead of studying snapshots, we need to study movies showing change over time.

Richard’s article offers relatively little in terms of dynamics – with the notable exception of population movements.  Here the evidence from the article is clear – the world is becoming much spikier.  In 1950, only 30% of the world’s population lived in urban areas – today, it is more like 50%. More and more of the world’s population are clustering into cities in search of economic opportunities. Cities are, as they have always been, the flywheel of innovation, talent development, productivity improvement and economic growth.

To the extent that Tom believes that cities will become less important as centers of economic growth, I would disagree with him.  So I would amend his observation and say that, if you want to innovate and you are not in a major urban area, you might want to emigrate to one of these areas, even in a flattening world.  Even though you can participate in innovation from more remote locations, if you want to develop your talent more rapidly than others, you are more likely to be able to do that in a major urban area.

Richard makes an important point: 

Because globalization has increased the returns to innovation, by allowing innovative products and services to quickly reach consumers worldwide, it has strengthened the lure that innovation centers hold for our planet’s best and brightest, reinforcing the spikiness of wealth and economic production.

So, here is where we see the beginning of a paradox – some of the forces that Tom Friedman eloquently describes as flattening the world are at the same time helping to reinforce spikiness.

But then the question becomes, which urban areas will become the most fertile ground for innovation and talent development?  Richard has written extensively and eloquently on this topic in The Rise of the Creative Class and The Flight of the Creative Class. In these writings, he makes clear that creative talent seeks out environments that encourage and reward innovation.  He also makes it clear that talent will migrate to urban areas that provide more promising environments for creativity and innovation.

This is one of the missing elements in Richard’s article. In its focus on describing the spikes that exist today, the article loses the dynamic element of competition among spikes and the speed with which new spikes can emerge – themes that are front and center in his books. Because the world is flattening in terms of connectivity, it is easier for new agglomerations of creative talent to come together and connect into the global economy, whether they are in Shenzhen or Bangalore.

Now, by Richard’s topography, Shenzhen and Bangalore don’t count – they are mere “hills”, not spikes, because they focus on manufacturing and support services.  This distinction reveals another limitation of Richard’s article – he defines innovation much too narrowly as either product innovation (things that can get patented) or more fundamental scientific innovation (citations to scientists).  Shenzhen and Bangalore are extraordinarily innovative as well, but their focus so far has been on rapid incremental process innovation, something that is not so easily measured by Richard’s indices. It is this form of innovation that accounts for extraordinary economic growth in a very short period of time.

By leaving this rapid incremental process innovation out of the picture, Richard misses some of the key dynamics that are already reshaping the spikiness of the global map. Companies in some of the rapidly growing urban areas like Shenzhen and Bangalore are pursuing a powerful form of innovation bootstrapping that starts with relatively modest incremental innovations pursued in rapid iterations and amplified by rich interactions with dense local business ecosystems. This bootstrapping is powerful because it accelerates learning and capability building and ultimately bridges into more fundamental product and technology innovation, as is already happening in areas like wireless technology in both China and India. With aggressive use of bootstrapping, even the most modest hills have the opportunity to become formidable peaks.

In this world, patents and scientific journal citations may be lagging indicators.  What we need to find are the leading indicators that will help us to understand and anticipate the dynamics reshaping the global economy. 

Most of all, we need to move beyond the snapshots – instead, we have to make and study the movies.  This is where real wealth creation will occur. Tom and Richard both understand this, but let’s not frame the debate in terms of flat versus spiky. The greatest insight will come from understanding the paradox that the flattening of the world is creating opportunities for even greater spikiness.