This recovery may not be capitalized

01 Mar This recovery may not be capitalized

Editor’s Note— Peter Coffee, director of platform research at Salesforce.com, will be a featured speaker at the Fusion 2009 CE0 – CIO Symposium, March 4 – 5 at the Fluno Center in Madison. For more information and complete list of speakers see www.fusion2009.com. Registration is about to close and only a few seats remain.

En route to the grid computing conference I’m attending on Monday, before I come to Madison for Fusion 2009, I saw this worried observation in a Washington Post story on the economic troubles: “The revised data showed that three of the four engines of economic growth — consumer spending, business investment and exports — slowed sharply last quarter… Business investment in equipment and software sank at an annualized rate of 28.8 percent, compared with a decrease of 7.5 percent in the previous quarter.”
I found myself thinking, “What if capital spending isn’t the leading indicator of economic health that it used to be?” OK, the business sector is spending less on computers and on long-term software license fees – but does that mean that people are planning for things to stay slow? I think not.
Throughout the economy, we see increasing freedom to rent rather than own. You don’t need to own a car if you live in a place that’s served by Zipcar. You don’t need to own a collection of recording media artifacts if you’re just as happy with unlimited music on demand, for a fixed subscription fee, at Napster. And you don’t need to buy, or even lease, a supercomputer to run complex models when you can buy capacity by the minute from Amazon.
If you want to build a business around any of these ideas, that used to mean buying servers and software licenses and hiring people to put it all together. Increasingly, this too is a rental rather than ownership proposition: a business can subscribe to email and productivity tools from Google, and subscribe to high-function business applications – or build their own, on an application-oriented cloud computing platform like salesforce.com’s Force.com. A sizable business could be taking shape, right now, and yet be completely invisible to conventional measures such as capital investment.
This is just the scenario that I offer to business leaders who are still feeling tentative about service-based IT. “I guarantee you,” I say, “that right now, three youngsters with no obligations are sitting at a table in a college cafeteria talking about how they can take away your business. Three years from now, they’ll have spent their nights and weekends developing their ideas, living on credit cards and sleeping at their desks. They won’t have to spend a single dime of their venture capital on servers or software licenses – but when they come to market, if their idea takes off, they’ll be able to add capacity as quickly as they please. That won’t be a good time for you to start your first cloud computing project: by that point, you’d better be past the stage of pilot projects, and be ready to use the same high-efficiency techniques at enterprise scale.”
And even if the startup’s product requires physical assembly, not just service delivery, that’s no longer as much of a protection as it used to be for established players: there’s always a Flextronics, a PharmaFlow, or any number of other factories for hire that also provide abundant expertise in getting a product to market. The only thing that’s missing is the thrill of your own groundbreaking ceremony, along with all the delays of having to build your own production line – and there’s no capital required.
In that case, one might reasonably ask, what does it still make sense to own? If we’re going to thrive on the chaos, to use the phrase of Tom Peters, then we need to understand which assets actually represent ongoing value. Otherwise, to borrow a phrase from another author (Neal Stephenson), we’re just sitting here waiting to struggle in a world where “the Invisible Hand has taken…historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity.”
For one thing, you own your identity: your brand, your trade marks, and the reputations that go with them. You should be using social tools to maximize the leverage you get from those assets, and to make sure that you’re part of any conversation that might damage them if it goes in wild directions. Don’t wait to be put into damage-control mode by a Web site like “[Your Name Here?] Sucks”; get out ahead of potential criticism with an active customer community engagement like “My Starbucks Idea”.
You also own your relationships – with customers, with suppliers, with business partners. There are “favor banks” of assistance sought or given, and there are histories of credibility and competence that serve as barriers to entry into your market by some hot new startup. Those relationships are almost worthless, though, if they only exist in the head or on the PDA of a single account representative. It’s just as bad to let a company’s relationships become employees’ personal property as it would be for the company’s financial assets to be held in employees’ checking accounts.
Finally, you own your process expertise. Translations vary, but in my copy of the commentaries on Sun Tzu’s The Art of War is my favorite statement on sustainable competitive advantage: “Everyone sees the form by which I succeed; no one sees the form by which I assure success.” Your products and your services are out there in the world where anyone can see them, examine them, and try to imitate them; your internal processes of hiring, training, retaining, motivating, and inspiring people to innovate, to achieve, and to attend to critical detail are not exposed to others’ analysis.
John Chambers at Cisco Systems said something quite similar at a conference that we both attended last month in Mumbai: “You can only move with speed, at scale, if you have a reproducible process.” That adds an important qualification to what Sun Tzu said: it’s not enough to know, you also have to be able to do – and do, and do again. This likewise calls for the creation of strategic systems that capture and automate your distinctive competence.
Finally, note that none of these three classes of asset – your good name, your key relationships, and your expertise in doing what you do – are tangible, physical assets that you can buy, or whose acquisition shows up in the economic statistics. In many ways, the next generation of enterprise leadership is a revolution that will not be capitalized.