With Greece in the news and having lived in Spain during the worst years of the crisis, I wanted to ask publicly why the EU is trying so hard to reduce debt and deficit but is not at all focused on generating new wealth and jobs?
By focusing on reducing the deficit, lots of Spanish small and medium enterprises have gone bankrupt in the last years. The result was more unemployment and ricing deficit.
How to increase wealth, jobs and lower the deficit through higher tax incomes?
First of all it is incredibly painful to start and run a small business in Spain and likely in the South of Europe in general. Lots of red tape, useless processes, etc. Why? Why? Why?
Why not make it super easy to make a limited company via one website? Running a company and hiring less than 20 people should not take more than an afternoon every month. Just simplify tax laws, employment laws, paperwork, etc. Make it all digital and automated.
The next problem is that bad apples survive during a crisis and the good die. There were numerous small companies that ran out of money because their customers did not pay them while they paid their suppliers. What is needed is judges that in 2-4 weeks can decide if an invoice is valid, if the work has been done and as such if payment is not made force the customer to pay. This process can to a large extend be automated. This would oblige bad payers out of the economy.
Finally in Spain the local market imploded so export is very important. After many years of EU there has not been any effort put into simplifying cross-border transactions. There is no European VAT number. No common laws. No common easy conflict resolution. No easy way to open bank accounts in other countries. This should change urgently.
If the EU wants to succeed it should focus on wealth creation instead of subsidising farmers and being seen as bullying poor countries into paying an unrealistic debt. Greek’s public referendum results will be just the beginning if the Troika does not focus on wealth creation and only on debt reduction…
Large corporations have perfected six sigmas, quarterly budget management, product & roadmap management, off-shoring, evolutionary ROI-based innovation, etc. The best executives are those that can bring a business from $10M to $1B. Sales is king. Accountants and lawyers are lords. Business developers are tolerated. Developers and designers are peasants.
Unfortunately large businesses no longer are as successful as they used to be. Fortune and Forbes are kicking top companies ever faster of their lists.
Why do large companies stop being successful?
The big reason is because corporations can no longer take risks. Wallstreet in its efforts to maximise short-term profits has weakened corporations to the point that is has never been easier for startups to disrupt them. Telecom is slowly disappearing from the list of most valuable companies. Energy and financial services have weakened. In contrast technology has become more important with Apple, Google and Microsoft taking number 1, 2 and 5 respectively. Observant analysts will say that market valuation is different from revenue and profit generation but stocks normally reflect the future, not the present. Most of the top companies are in legally protected markets, e.g. energy, healthcare, telecom, etc. or are in industries that have high barriers of entry due to high capital requirements, e.g. mining, industrial, car manufacturers, etc. This means that they will take some time to be impacted. However telecom is a good example of a market where disruptive innovation is fast eliminating market value and shortly revenues/profits. Market value is now being created by companies that have unfair technology advantages. For the moment those technology advantages have been used to compete with one another. This is about to change. Take Google as an example. It is heavily investing in self-driven cars, networking infrastructure, etc. The result will be that logistics and telecom will be heavily impacted. Apple and Google are competing every day more with telecom operators. Apple, Google and Amazon are taking on the entertainment industry. Google, Tesla, etc. are disrupting car companies.
Why is this important?
The rules of competition are changing. Your worst competitor is no longer the factory next door but a disruptive innovator that makes your industry irrelevant.
How is management impacted?
Management can be experts in producing stamps that customers want and according to highly optimised processes however this is all irrelevant if a competitor makes email servers. Substitute stamps by SMS/calls, carbon-driven cars, DVDs/Blueray, etc.
Chief Disruption/Innovation Officer
What companies need is to focus both on growing their existing business as well as making it irrelevant. Sooner than later somebody will do it so it better be your team than a previously unknown competitor. Also instead of just looking to cannibalising your business, you should look for the next big thing. This is why you need a chief disruption or innovation officer who’s task it is to build scalable new businesses that go from zero to $10M. Most existing executives have never started a new business. They have no idea what it involves. Six sigma and roadmaps are irrelevant as long as you haven’t found a scalable business. The good news is that scaling a new business from $10m to $1b goes a lot faster now than it used to be. Google, Amazon, etc. don’t need a whole army of salespeople and lots of capital investment to double their revenue. Software scales and more and more software is redefining everything.
When you read this blog in five years from now: Vodafone, Microsoft, HP, Oracle, Facebook, Google, Apple, etc. will probably remember you of Nokia phones and Kodak cameras. Large corporations that during some of their life time were dominating a market and due to disruptive technology lost their dominance. It is very likely that many of the above mentioned companies will be mere shadows of what they are today. PCs will be sharply reduced. Mobile phones as well. Browsers as well. Social networking. Databases.
There will be a new set of technologies that will be hot. A new set of companies that will be temporarily or permanently overvalued.
So is this how it is going to be? Giants come and go? For many unfortunately yes. Others will reinvent themselves better. The most likely companies to win will actually be the conglomerates that don’t get associated with one product family. Either they reinvent their product portfolio, e.g. IBM, GE & Cisco, or they use different brands and milk old products while buying/building new once, e.g. EMC/VMWare/Pivotal. One brand with many competiting businesses seems to be the better strategy for now. However having a disruptive innovator brand like GE appliances ‘ FirstBuild is my bet for long term success. No longer can marketing define better what customers want then the actual customers. So why not let customers innovate together with you. The only thing that FirstBuild is missing is a share of success scheme. Why would I contribute to building a successful product for GE if I am not getting better of it. Ideally “community karma points” for helping to build the next success could result in a revenue share when successful. Sort of like getting stock options but instead of owning a piece of a company, you own part of a product future success. You should not have to work for the company to benefit from helping it. I am calling the idea Crowd pRoduct stOck optIons or CROI. You give the crowd a return on investing in your product innovation…
IoT is widening the chasm between the have and have-nots. No this is not about a privileged human social class but instead about the companies that get how disruptive some technology innovations can be and those who don’t.
Cloud is lowering operating costs, speeding time to market and in some cases generating new revenues. Big Data is giving unique insights into previously unseen trends in an ocean of data. However both are dwarfed by the power of acting upon these cost, time-to-market and knowledge advantages. IoT is substituting slow human-driven processes by fully automated processes. The end result is that companies can do in minutes what traditionally would be done in months. Let’s look at some examples:
Retail and in-store studies
Supermarkets know what you buy but they don’t know what you almost bought. Neither do they know if you spend quite some time in a specific isle and ruched through another. The traditional way is to survey a subset of shoppers during weeks, often months, and extrapolate. Via IoT you just embed tracking technology in shopping carts and use computer vision to analyse in-store cameras. Real-time information is available. What if you would put wheels under the racks and displays? You could restructure the store every day to see what the ultimate layout is.
Home Insurance as a Service
Take a normal home insurance contract and you see a list of standard questions: Do you have a fire alarm? Any valuable content? Etc. Questions take months to fine-tune and change.
What if you could adapt home insurance costs based on how you use and maintain your house? You don’t only check if a house has a fire alarm but you can increase the monthly premium if you don’t replace you fire detector’s batteries immediately. You can even check if you always put on the burglar alarm when you leave or only from time to time. Your insurance premium can be lowered if you hardly cook but increment if you always eat out. Intelligent doors and security cameras can do more than signal a potential breach. Via face recognition known burglars can be spotted as soon as they enter the premise and even before they reach the front door. Insurance can take risky behaviour into consideration as well as reward the opposite. So families that leave the cooker unattended or use a lot of candles would pay a higher premium.
Cargo transport and logistics
What about self-driven lorries or container ships? Gamification of parcel delivery services in which fast delivery makes you gain points but driving recklessly looses points. Uber for small delivery vans. Crowd-sourcing container cargo and using uber style collection and distribution services. High-frequency trading based on container ships or trucks delivering late.
This is only the beginning
“TheFacebook.com” and “Angry Bird” IoT apps have not been invented yet. The world is waiting for disruptive companies to create unfair competitive advantages because they understand the new capabilities IoT brings. Who would you rather work for, the disruptor or the disrupted?
The energy markets in Spain, Belgium, the UK, etc. are using government money to deploy smart metres in peoples homes. Ridiculous amounts of up to a thousand Euros are budgeted for smart metres and their installation at people’s home. The worst part is that most suggested smart metres are incredibly dumb. Tax payers will have to pay billions either via taxes or spread over the next years in their energy bills, to have smart metres put in place that are already outdated before they get unboxed. Non of the proposed smart metres I have seen is impressive in specification, has an app store, can be software defined, etc. Doubts arise about proprietary solutions being as secure as they are promised to be.
An alternative approach?
Why don’t energy companies organise a competition in which anybody can design a smart metre. Energy companies should set out a budget for a good smart metre. However via a crowd funding campaign among their customers, you and me would be able to select which of the designs we want in our home and if we want to pay extra to get a more advanced model. Smart metre protocols aren’t nuclear science so anybody coming with an argument of standardisation is going to loose out against the alternative of competition lowering prices and increasing innovation. Smart metres ideally have a removable compute and storage part because what now seems advanced will be stone age in 5 years. App and app stores will allow households to redefine what smart means for them and create a new economy for entrepreneurs searching for the “smartest” angry bird app for an electricity metre.
The truth is that very few telecom operators have ever put a modem or set top box in people’s home that has impressed their customers. The problem now is that energy companies think they can do a better job and will keep tax payers hostage for 10 years. Remember nobody remembers the price of a bargain when the thing is not doing what it promised on the box and most smart metres are not what you and I would call smart…
Bloomberg and Gartner finally are seeing what the rest of the IT industry already knew for some years, Oracle software is no longer attractive for new businesses. There is no amount of cloud washing that Oracle can do to hide the fact that open source is good enough now and often better than costly Oracle solutions. Smart companies have realized that Oracle databases are very complex to use and maintain and that they are not build for the webscale and horizontal cloud scale-out era. What is Oracle going to do next? It is going to do what it does best in those cases. When it sees that customers no longer buy its products, it’s buys its competitors. Expect Oracle to buy Datastax, Cloudera and/or Databricks. Afterwards it will do some more IoT washing until that does not work any longer and a competitor needs to be bought. The IT industry tends to become repetitive after some time…
Hardware is a volume business in which only a few can make real money. Either through royalties, e.g. ARM, or market dominance, e.g. Intel PCs. Samsung, HP, Dell, Lenovo, Huawei, Xiaomi, Asus, Acer, etc. ‘s hardware businesses are all in a very dangerous position. Their products no longer are differentiated through hardware features. Price reductions have become a race to the bottom in which there will be no winners. Google controls their key money maker.
IoT presents a new beginning in which hardware, software, services, cloud, data, etc. can become the secret ingredients that will make new billions for some. However I have had access to the IoT strategies of several and although I can not publicly share them, several big names are not doing great. In IoT you can do two things, you can try to become the new Apple or become a magnet for others to make money on top of your solution. Too many think they have Apple qualities but the truth is they don’t. If you are a senior executive at a big hardware empire that is starting to cripple, why don’t you reach out and discuss potential alternative strategies.