Derfor har disrupsjonens alder gjort R&I viktigere enn noensinne

I Norge som i resten av verden er R&I fortsatt et avgjørende element i kampen om kundene og fortjeneste. De som glemmer det kan fort miste bunnlinjen i regnskapet.

Hele min karriere har jeg jobbet for teknologiselskaper. Jeg har sett hvordan produkter som inkorporerer specs som kunden er villig til å betale ekstra for har erobret markedet på få år og sikret en preferert posisjonering i mange år.

Det er derfor merkelig for meg når stadig flere ledere og innovatører ignorerer verdien av teknologi med variasjoner av setningen: «teknologien fikser man bare».

Siden finanskrisen og den ultra-ekspansive pengepolitikken fra FED – og alle de andre sentralbankene – har vi vært vitne til en økende trend i denne trivialiseringen av rollen som teknologi spiller i verdiskapning. Silicon Valley og andre har oversvømt oss med historier om selskaper som fra starten av bruker standard teknologi (off the shelf) og som har erobret verden på kort tid. Twitter, Uber, Box, Spotify, Xiaomi, Snapchat… Listen er lang.

Likevel har ingen av disse selskapene tjent penger ennå til tross for mye glam og gloss. De fleste blant dem vet ikke engang hvordan de skal tjene penger i fremtiden heller. Deres strategi basert på å bruke standard teknologi som motor i deres operasjoner har gjort deres forretningsmodeller til en grotesk vits. Det vi har vitnet siden finanskrisen er simpelthen en massiv feilallokering av kapital.

Snapchat er sannsynligvis arketypen av denne tankegangen. «The camera company» skal snart børsnoteres. Det er fortsatt et så gigantisk pengesluk at CEO og medgründer Evan Spiegel advarer svart på hvitt i prospektet til investorene at «selskapet kanskje aldri vil tjene penger».  Verdien av selskapet som Mr. Spiegel likevel sikter mot etter børsnoteringen? Tjue milliarder dollar, for et selskap som aldri har tjent penger og kanskje aldri vil gjøre det ifølge gründeren selv. Go figure.

Disse selskapenes strategi basert på å bruke standard teknologi som motor i deres kjerneoperasjoner har gjort deres forretningsmodeller til en grotesk vits

Realiteten er at å utvikle egen overlegen teknologi rettet mot parametrene som kunden prioriterer er fortsatt en av de beste måtene å øke verdien for aksjonærene på sikt. Fra Google til Samsung og Nvidia, de virkelige heltene av internettøkonomien  er som regel de som behersker og kontrollerer teknologien som kundene ikke kan leve uten. Disse klarer kunsten av å både vokse å være profitable.

Fenomenet gjelder i Norge også.

For noen måneder fikk jeg som oppdrag å utførte en analyse av hva som karakteriserer de produksjonsselskapene i Norge som viser konsistent  «double digit growth» over tid. Resultatet ble krystallklart. De få selskapene i Norge som har klart denne bragden over tid er kun de som har satset på produkter basert på egen teknologi og langsiktige mål.

Eksempler på det motsatte, altså selskaper som har mistet troen på egen R&I og tapt, finnes også mange av. Leseren husker kanskje den fancy kampanjen som Ericsson lanserte for flere år siden: «It´s about communication between people…the rest is technology». I dag kjemper Ericsson for sin egen overlevelse.

Egen R&I er fortsatt et verdifullt element når det kommer til å etablere konkurransefortrinn. I disrupsjonens alder, å gi opp egen innovasjon og kjøpe standard teknologi som alle andre konkurrenter også har tilgang til kan fort bety en langsom og uungåelig død for din virksomhet. Your move.

Interessant? Del gjerne!

 

Er Facebook nøkkelen til en ny digital fascisme?

Facebook er i ferd med å kidnappe internett. Er digital fascisme neste steg?

Min venn Kjell-Ola Kleiven er en av Norges mest kjente og dyktige eksperter innen sikkerhetshåndtering, eller risk management om man vil.

Han er også foredragsholder og reiser Norden rundt med sitt foredrag Naive Norge.

Jeg har skrevet et innlegg på hans nylig relanserte blogg – kleivenblogg.com, som anbefales,- om faren som Facebook kan bety for demokratiet i det lange løp. Er politikerne klare over disse farene og hva slags beredskapsplaner har de utviklet mot dem i så fall? Lenken finner leseren her på kleivenblogg.com .

Leseren kan også se på videointervjuet med Kjel-Ola som jeg publiserte i januar om risikoer og personvern ved det digitale samfunnet.

kjellola-salvador
Vi slipper digitale skurker inn i stua

Interessant? Del gjerne!

So you think you have a competitive advantage? (II)

There are six types of competitive advantage. Previously I have focused on proprietary technologies, access to resources and switching cost. This post covers economies of scale, economies of scope and regulatory influence.

In the previous post on this subject I explained how the term «competitive advantage» has been diluted in many ways both by entrepreneurs and by innovation teams at established corporations. I listed the six types of competitive advantage I have both studied and worked with in practice.

The six types of competitive advantage that I assess in front of a new or established venture are: Proprietary technology, privileged access to resources, switching cost, economies of scale, economies of scope and regulatory influence.

In the previous post I described the first three of these advantages. In this post I will describe how the last three can protect or grow your business.

Economies of scale: This type of competitive advantage is created when the players in the industry only can achieve profit after passing considerably high production volumes. However, when production volumes grow beyond a critical volume, the profits per unit sold increase dramatically, often exponentially. Indeed, the massive scale and installed base that some players in certain  industries enjoy have given them an advantage that goes beyond production: It spills over to marketing, distribution, purchasing power vs. suppliers, R&I etc. This not only applies to physical product like mobile phones, digital cameras or, maybe the best example, mainstream automobiles. It also applies merciless to retail (like Walmart), consumer goods, telecom operators and pure internet players. Telecom operators are indeed absolutely dependent on achieving a massive critical number of customers in order to deliver a profit out of ever cheaper communication prices. On the other hand, internet-heroes like Spotify and Uber are still bleeding money. Why? Among other factors, because they still haven’t achieved big enough international scale and number of paying customers to cover their investments and operations. Economies of scale are an extremely powerful entry barrier against newcomers and they are specially effective when the company pursuits a strategy of organic innovation.

consumer-goods
The race for economies of scale: Only 10 companies control almost all consumer goods in the world. Most of them have dominated their markets for over 100 years.  Source: convergencealimentaire.info

However, companies making use of or planning to achieve this kind of competitive advantage must be wary.

First of all, it is extremely capital-intensive and can make the corporation very vulnerable to macroeconomic downturns, when sales may diminish dramatically. Those are the typical occasions when a wave of consolidation usually reduce the number of players even more and make them even more dominating. After the financial crises in 2008, the few «too big to fail» banks have become even fewer and even bigger.

Secondly, economies of scale imply a large balance sheet and massive investments and installed base. They usually imply rigid processes and business models. Therefore, a disrupting technology or a new player exhibiting a more nimble and effective business model can rapidly destroy them. The tragedy of Nokia or the struggles of Walmart against Amazon are good examples of this. A company or startup pursuing economies of scale should make sure that either their operations and business model are resilient to technological changes or dare to lead them. 

Economies of scope arise when the value of the products and services it sells increases in function of the number of business that the firm operates in. It is often associated to the same companies that make use of economies of scale. The main economies of scope are operational and financial.

Operational: This is the case when different business units of the same company share activities  -like R&I – or when the competencies from a particular business unit can be transferred to another. For instance, a single sales force can be used by the parent company to sell several brands to the same client. The same sale agents can «bundle» products and services together and achieve status of «single point of contact» for the customers, thus reducing their search and transaction costs. Telecom companies have done this for decades, combining TV, telephony and data access as an integrated offer to their customers.

Financial: This type of economy of scope arise when capital can be allocated among business units across the  company for the purpose of financial or taxation efficiency (read «pay less taxes»). Some companies buy other firms in financial distress in order to profit from tax reductions due to the accumulated losses of the acquisition target. When I worked as an Investment manager at Telenor New Business, it happened that entrepreneurs with failed startups came to us  with the purpose of being acquired. Their argument towards Telenor was precisely their accumulated losses and the tax efficiency that those could mean for Telenor.

In my opinion, Facebook has mastered economies of scope like few other technology companies have. The social giant has  seemingly done everything right. It has several services – messenger, Facebook, whatApp, instagram etc. Their users flow from one service to another thanks to the fact that those services are de facto «bundled», consuming advertising in the process. At the same time, the core operations infrastructure (sales, servers, data rooms, analytics…) is common for all of those services.

Is your new corporate venture capable of creating economies of scope? How could the new services be bundled with current ones? Will other business units acknowledge the value increase that the new venture represents for them or will they just ignore it and kill it in silence? Which incentives will you use in order to avoid such fate? 

Regulatory influence (or lobbying): Technology giants like Google, Microsoft and Apple dedicate huge amounts of money to lobby for their own interests vs. regulatory agencies. Telecom operators have lobbied (and still do) protecting their interests through organizations like ETNO (European Telecommunications Network Operators). Microsoft fought many years against making office documents compatible across productivity programs. Each fiscal year that compatibility was avoided,  the shareholders of Microsoft were rewarded with billions from the MS Office cash cow. The dominant manufacturers of electromechanical contactors  have avoided the introduction of cheaper, electronic ones in Europe thanks to their influence on European standards.

Is your company present in the right lobbying organizations? If you are a startup or small entreprise, are your much bigger partners doing it? What are those partners lobbying for? Are you at least following the standards and regulatory frameworks that may transform your competitive landscape?

Even in these turbulent times, it is possible to develop and sustain a competitive advantage. Both Google and Amazon  are over 20 years old already. Microsoft is over 40 years old. Toyota is over 80 years old and has consistently been a dominant player in the automotive industry. The Norwegian painting producer Jotun is 90 years old and enjoys healthy growth. All these companies have built and maintained competitive advantages that have secured their dominance for several decades

Either you are an established company, a new venture inside a parent corporation or a startup, to chose a competitive advantage is crucial. In a world subject to permanent changes, it is the responsibility of the management to develop the right resources and skills to build, change, and defend them.

Interesting? You may want to share this with your peers.

So you think you have a competitive advantage? (I)

Which competitive advantage is your business built on? Do you have one at all? There are only six types of competitive advantage. Decide which one will be yours and you can dominate your market.

In most of cases, when a startup or an innovation team at an stablished company present a new venture, they will be asked a crucial question: «Where is your competitive advantage?» The answers may not always be neither clear or specially convincing. The term «competitive advantage» is used and abused by entrepreneurs at startups when defending their business idea in front of investors on a daily basis. The same can be said about innovation teams at established companies.

In fact, there are only six types of competitive advantage that I judge credible beyond deciding whether a company should build on differentiation, cost leadership or focus. It is crucial for innovators to precisely identify which of those they are intending to create in order to build a lasting business.

The six types of competitive advantage that I assess in front of a new or established venture are:  Proprietary technology, privileged access to resources, switching cost, economies of scale, economies of scope and regulatory influence.

This post will cover the first three. The next and final three types are covered in this post.

Proprietary technology: A company or startup that has developed a superior proprietary technology can enjoy market dominance for a long time. Google is an excellent example of this. When Google appeared, its proprietary PageRank algorithm was vastly superior to any of the competitors in the market. From Altavista to the Norwegian player Sesam, all competitors had to surrender eventually. Today, Google has 90% of the desktop internet search market. On another level, today we see a frenetic race among technology giants like Apple or Amazon in order to acquire much smaller companies with superior products within Artificial Intelligence. Their purpose is of course to secure the best possible AI technology to embed in their current and future offerings. Is your new product or service backed by a superior technology vs. your competitors, and how long do you think that superiority can last? Based on what? If not, which technology should you develop or acquire?

Privileged access to resources: When some resources are scarce and/ or vital for an industry, the player that controls them enjoys a tremendous and lasting advantage. A resource can be physical assets (like raw materials or factories), intellectual (like customer data), human or financial. A key resource to examine in detail is distribution, physical or virtual. For instance, the IBM personal computer was not necessarily the best of its breed when it first was launched. However, the most attractive market for PCs was the enterprise market and IBM had a total dominance in it through its sales channel. The rest is history. Another critical resource is customer base. A dominant customer base makes the company a much attractive player for partnerships and acquisitions because of market access. When it comes to social media, the customer base, measured in MAUs (Monthly Active Unsers) or DAUs (Daily Active Unsers), is one of the most significant drivers of the enterprise value.  Which are the resources that your enterprise controls? Are they relevant enough to secure a durable competitive advantage? Are they valuable, rare and/ or difficult to imitate? 

Switching cost: It refers to the cost a current customer or user incurs when trying to replace your product with another one from a competitor. It is probably one of the most powerful competitive advantages, specially when it comes to platform-based businesses. It is very difficult for a business customer that has invested significant amounts of money and resources in a given platform to abandon it. There are not only financial reasons behind this. Installed systems talk to each other thanks to previous integrations between them that are difficult to remove or suspend because they may be business critical. Banks have suffered under this reality for decades. In some cases, they only decide to revisit their IT systems (and thus their vendors) when the employees in charge of maintaining them retire or simply die. Switching cost is also essentially what makes Facebook so difficult to defeat: For a user, to move into another similar social medial platform implies the cost of building up a new «friends» base without any guarantees that his or her friends will do the same. The Google+ debacle is a powerful reminder of how resilient switching cost may be, even for the giant of Mountain View. Is your product or service built around a switching cost? How can you quantify that switching cost? Is it greater than the one from your competitors? 

Interesting? You may want to share it with your peers!

«Vi slipper digitale skurker inn i stua»

Denne gangen har vi intervjuet Kjell Ola Kleiven. Han er en av landets mest profilerte risikoeksperter og Administrerende Direktør i Risk Information Group.

Vi har snakket med Kjell Ola om personvern og konsekvensene som misbruk av teknologi har for nordmenn hver eneste dag.

Vi har snakket også om de store økonomiske konsekvensene som «hacking» har for norske bedrifter allerede nå, og om hvordan Schengen og gammeldagse holdinger fra myndighetenes side gjør å ta et fly nærmest til en risikosport.

Og forresten, hvilke er farene som et «cash-less» samfunn skjuler for oss og våre barn?

Vil du vite mer, kan du se på videoen eller høre på podcasten lengre ned.

Takk for at du følger oss!

Video

 

Podcast

Interessant? Del gjerne!

Why corporations should have Cyber security as a matter of partnership policy

Cyber security is, without a doubt, a hot issue. The recent allegations from both USA and Russia on vote manipulation is only the latest spike on the matter. At the same time, there is a lot of confusion on what cyber security really is, how does it work and how to mitigate its effects.

To illustrate the importance of this threat, the following site presents a visual perspective of cyber attacks around the world in real time. Click on the picture to access the real time website. Amaze yourself. 

cybermap

 

Visual Capitalist has published an infographic that sheds light on these issues. It is a very useful document for CEOs and CDOs in order to focus their attention on the aspects that really matter. The conclusions can be paramount for the operational future of responsible corporations.

First of all, the most harmful source of cyber attacks are not vicious rogue corporations launching Denial of Service attacks from the other side of the globe, but insiders. This concept doesn’t limit itself to employees, but also consultants and in-house contractors and business  partners. The motives are clearly identified: Personal advantage (including financial gain) and professional revenge. The latter is a threat  that can be specially difficult to control, because it may have a seemingly irrational root and may be hard to identify. 

This is important because insider attacks are the number one source of financial loss (145.000 USD a year), losses that are almost as big as web-based attacks and phishing combined.

At the same time, the number of insider attacks is the lowest among all types both internal and external.  Only 35% of all attacks are insider issues.

A corporation investing ever growing sums in trying to stop virus and malware can therefore  probably misallocating its IT resources.

As a consequence, to minimize the impact and frequency of cyber attacks, the most important actions are preventive, and focused on six human-centric areas:

  • Identify: What are the most sensitive data you possess. Which of them would give a competitor a competitive advantage if they had been stolen or compromised?
  • Restrict: How can you avoid that those most sensitive data could be transferred, specially with unsophisticated devices like memory sticks?
  • Monitor: How can we monitor irregular activities in the network to stop attacks before they propagate?
  • Train:  Most corporation have guidelines on Health and Safety. Some of them are imposed by regulation. CEOs should implement clear training guidelines across the organization on security and safe data handling
  • Encrypt: Ensure that data identified as sensitive are encrypted before they leave the organization. Again, this is a matter of training and policy
  • Extend: Communicate and implement Corporate policies together with business partners and other third parties

 

It is precisely this last bullet that should catch the attention of any CEO and CDO immediately. Non Disclosure Agreements (NDAs) legally protect the rights and responsibilities of both parties when disclosing sensitive data. Corporate Social Responsibility (CSR) policies are designed to avoid the violation of national laws on citizen rights. Corporations are used to secure that both NDSa and CSRs are followed along the entire value chain, from employees to suppliers and third party business partners. They do this because they know the legal and financial consequences of breaching those policies.

Cyber security agreements will probably become the next step in corporate responsibility, because the legal and financial consequences may be far bigger than we are used to believe.  As an example, the acquisition by Verizon is being delayed and may be entirely withdrawn because of a poorly communicated  large-scale security breach last December. This is causing significant losses to shareholders on both sides of the transaction.

As a consequence, corporations are posed to gradually experience the legal and financial imperative of including business partners in their cyber security objectives as a way to avoid legal and financial liabilities.

The good news are that this trend doesn’t necessarily have to lead to  the burden of increased cost and complexity only. The need for internal standardization of these policies may lead to better cooperation between partners along value chains. Potential distrust and secrecy may open the door to faster identification of security issues and lower severity of their potential effects avoiding their propagation further down the value chain.

You can access the Visual Capitalist infographic here.

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Disse er fellene som gjør drømmen om en plattform til et mareritt for gründere

De som kjenner meg vet at ikke alt jeg gjør er for penger. I mange tilfeller treffer jeg gründere som vil ha et par timer med meg for å diskutere veien fremover for deres drøm. Jeg synes at det er veldig givende å prøve å hjelpe mennesker som dedikerer sitt liv til å utvikle vårt samfunn videre og skape en bedre verden for våre barn.

De aller fleste av disse gründerne drømmer om å utvikle og kommersialisere en IT plattform som vil gi dem verdensherredømme innen området de vil revolusjonere, fra media til transport. Hvem kan bebreide dem? De ser på mega-suksesser som Facebook, Uber, AirBnB eller Salesforce og deres relativt rask oppstiging til enhjørning status. Hvorfor kan de ikke klare det også?

Svaret er at de selvfølgelig kan. Samtidig  lager mange av disse gründerne grusomme feller for seg selv som raskt omgjør drømmene deres til et sammenhengende mareritt.

Den første fellen de går inn i er mangel på fokus. Gang på gang treffer jeg gründere som begynner å snakke om plattformen sin og umiddelbart engasjerer seg entusiastisk i en endeløs historie  om alle de ulike tjenestene som den har potensial til å levere. Ord som «alle», «kunden», «partnere», «økosystem», «overalt» og «viral» flyter i alle mulige retninger fra den ene potensielle tjenesten til den andre. Samtidig klarer de færreste å presisere hvilken av disse tjenestene som er viktigst, altså mest og raskest inntektsbringende. Det stopper ikke der. Hver funksjonalitet de beskriver har tilsynelatende en ny type kunde. Formidlingen av verdiforslaget blir dermed veldig krevende overfor meg og, som gründeren etter hvert innrømmer, overfor investorer.

Fokus er ekstremt viktig. Hvilken er den grunnleggende tjenesten som plattformen leverer? Til hvem? Hvilke av de aktivitetene som allerede eksisterer hos konkurrenter eller substitutter kan plattformen levere billigere eller bedre? Hvor mye billigere eller bedre og hvilken pris er sannsynligvis den potensielle kunden  dermed villig til å betale? Denne første tjenesten som velges er kritisk fordi alle de andre tilleggstjenestene må kunne bygge på denne første suksessen. Facebook startet ikke med video, messenger, på mobil og med én tjeneste for alle mulige brukere i verden. Mark Zuckerberg lagde først en veldig rudimentær tjeneste, for studenter på Harvard, og med sladder som «killer application».  Hvilken killer application tilbyr din plattform?

Felle nummer to er å tro på «Build it and they will come».  Det er ekstremt vanskelig å få potensielle brukere til å engasjere seg i en en ny plattform. Enda vanskeligere er det å engasjere utviklere og innholdsleverandører. Disse har mange andre plattformer å velge blant å levere tjenester til. Hvorfor skal de prioritere akkurat plattformen som gründeren foreslår når den til å begynne med ikke har brukere eller kunder ennå? Alle forretningsmodeller basert på plattform hviler på et «egget eller høna» problemstilling fra starten av. Hverken brukere, innholdsleverandører eller utviklere vil engasjere seg i en plattform uten å ha insentiver til det. For å lykkes må man kunne ri en bølge som allerede er i bevegelse. Det kan være et sterkt brand, en partner med en stor og etablert brukermasse, noen utvalgte brukere som byr på sterke nettverkseffekter, eller en annen etablert plattform. Til og med Steve Jobs måtte svelge egoet sitt og lansere iTunes på PC (og ikke bare på Mac som var den opprinnelige tanken) for å kunne sikre iPoden- økosystemet universell suksess. Vipps (en plattform i app-klær) har på sin side DnB i ryggen. Hvilken bølge velger din plattform å ri?

Den tredje og kanskje den største fellen er å undervurdere driftskostnadene assosiert til enhver plattform-basert forretningsmodell. Det er lett å tro på påstanden om at en gründer kan utfordre hele industrier fra gutte -eller jenterommet med en PC som eneste kostnad. Det stemmer selvfølgelig ikke, bortsett fra kanskje de første månedene. Plattformer er vanligvis enkle å replisere. Brukerne, utviklere, innhold og tjenester må dermed samles fort rundt plattformen før noen andre kan kopiere konseptet. Frykt for konkurrentene gjør at tjenesten prises under det driftskostnadene rasjonelt skulle kreve eller tilbys rett og slett gratis. Salg- og markedsføringskostnadene blir fort brutale til tross for at planen var at tjenesten skulle spre seg «viralt», spesielt dersom tjenesten skal etter hvert lanseres globalt. Bevisene for denne harde kampen er overalt. Twitter, Spotify, Uber, Linkedin… alle taper penger i stor skala. Kan ditt team eller dine investorer ta utfordringen? Kanskje er det  best å begrense de globale ambisjonene, gjøre seg sterk i et begrenset geografisk område eller segment og selge seg ut når muligheten byr seg.

Forretningsideer basert på plattformer er vidunderlige og forførende. De kan vokse og rakst bli til en enhjørning og forandre verden på under et tiår. Baksiden av medaljen er den enorme innsatsen de krever i kapital og ressurser. Å være klar over disse utfordringene er første steg mor suksess. Lykke til!

Interessant? Del gjerne!