Brad deLong has a great discussion of the difference between quants and schmoozers (or specialists and generalists, in my terms) in the investment bank community. Any young consultant who wonders why the old farts on the golf courses are paid so much should read it – for one thing (not mentioned by Brad) they know the capabilities of their own company and which deals to walk away from.
The greatest danger to a consulting company (or investment bank, I presume) is the young salesman who doesn’t know what is hard and what isn’t. The old farts are there because they have tacit knowledge on what they can commit the company to, and at what price.

Guardians of markets past is an English translation of an opinion piece I wrote for Dagens Næringsliv, the biggest business newspaper in Norway. It argues against legal protection for DRM technology in a Norwegian context, but may have interest in other countries as well.

As previously mentioned, I am involved in a very interesting project at the Concours Group, called tools and techniques for business experimentation. We had a great teleconference yesterday, discussing the use of experimentation as a business tool, particularly focusing on the role of IT.
One issue that came up towards the end of the conference was the question of justification – how do you get funding for running experiments? Experiments, in our view at least, are not happenstance “lets try a few things and see what happens”, but real, planned activities with predefined learning objectives. The costs of those are substantial and relatively easily determined. But what insights do you gain from business experimentation, and what is the value of those insights?
Thinking about this, it struck me that the learnings from business experimentation most likely will be boring, obvious and – somewhat implausibly – very valuable. They are boring because they generally lead you to design offerings that the regular customers wants, not what designers dream up. And they are obvious because you really should have thought about them yourself. They are valuable because, while boring and obvious, you really need the experimentation not just to discover them, but also to document that this is what the customers really want.
But still – boring and obivous?
Let’s start with the boring part. Check out Fidelity’s homepage. While it will never win any awards for fancy design, it is in daily use by millions of customers who use it as a tool for managing their finances. The page – as are all of Fidelity’s pages – is carefully designed after extensive usability testing in Fidelity’s usability lab. In this lab, they use eye tracking, videorecording and careful monitoring of user behavior (and they use regular users, not whiz kids) and have come up with a page that is boring – but highly usable. The most used features – customer login, access to customized page, most used services) are up in the left corner, where people look first. The choices up on the top, providing access to the services offered, stay the same through all web pages. I could go on and on …
In fact, I think I will. Search is prominently featured, as is stock quotes. The main space, where user-defined information such as bank transactions would go, is used for advertising new services and features, until the customer specifies something else. Every choice you make takes you to a page where you can do something (as opposed to many financial web pages, where, if you jump from banking to insurance, will take you to the top level of the insurance subsidiary.) Corporate information and contact info is available at the bottom of the page, easily found when needed but not in the way for daily use. The colors are understated but easily recognizable.
This is an excellent web site – and rather boring. But in this sense, boring is good – as seen in the disappearance of the brochure-oriented financial website, high on flashiness and very low on actually getting the job done. Insisting that web pages be subject to usability tests – that is, to highly structured experimentation – means that customers will like them. Not to mention that it is a great way to fend off the fancy web designers, still wearing black turtlenecks, who insist on Flash animations and font coloring straight from WiRED Magazine. Fidelity did this early, and it was experimentation that got them there.
As for obvious – in the late 90s, I learned about the English retail chain Sainsbury‘s, who was about to design a service where customers could order groceries and have it delivered at home. The company was well underway with the design when it occurred to them that perhaps they should test this out with the customers first. They ran a few experiments – and discovered that not only was it extremely expensive to deliver groceries at home – the customers did not want it! What customers wanted, was either to have the groceries delivered at work (so you could walk out the front door of the office, pick up the groceries from a Sainsbury’s truck parked outside, dump them in the back of your car and go home) or to pick them up outside the store (which meant that, if they had forgotten something or wanted to touch and feel the merchandize, they could run into the store for those items). Delivering at home with any kind of precision is hard in the densely populated England, and customers can’t be bothered to be at home to receive the goods at a precise time anyway.
With hindsight, the fact that most people don’t want groceries delivered is fairly obvious – but it took experimentation to discover it and the documentation provided by the experimentation to convince the organization that home delivery would not be something the customers wanted.
The very valuable part has to do with how we think. As pointed out in Clayton Christensen‘s excellent The Innovator’s Solution, companies designing products and service have a tendency to think in boxes. Either they become product focused – that is, they look at what the competition is offering and then design something that imitates successful features of the competitors’ offerings. Or they become segment focused, obsessing over what they should do in the youth market, the retiree market, or whatever. The Norwegian radio channel Kanal24, for instance, decided that their average customer was a 32 year old working woman who liked Elton John and easy listening music, not realizing that just because companies have a need to simplify their picture of the customer, the average customer not only may not exist, but also don’t want to be boxed in with “appropriate” offerings.
What companies should do, says Christensen, is ask themselves what job the customer is hiring your product or service to do – realizing that it might differ with time, place, and mood. Most of all, it differs by preference, as anyone involved in a discussion of what computer tool to use for almost any job quickly will find out.
Doc Searls has stated that “markets are conversations” – you have to find out what to do in a dialogue with your customers (as Hugh McLeod says, smarter conversations). Having a facility to do experimentation, not to mention a culture that allows for it, is crucial in establishing and nurturing that communication.
And what you will find, is boring, obvious – and very valuable.

At Concours, I am currently involved in a project on tools and techniques for business experimentation.
One experimental tool is simulation – and I think business simulation will be increasingly important in business training and perhaps strategy formulation, as it already is in medicine (from Boingboing).
As for justification – note the phrase “Every group overdosed the patient”….

Peter Drucker, who remains the “consultant’s consultant” shows his form in his article The Evolution of Protectionism in National Interest, arguing that the United States is no longer the single dominant economy in a world where blocking imports no longer can protect home industries, since prices are set in worldwide markets where information is freely available. Protectionism has evolved from tariffs to export subsidies and bureaucracy – especially on agriculture. And regulatory bodies, especially national ones, matter less since multinational companies increasingly are small and outside the realms of economic statistics. Excerpt:

We have almost no data on the world economy of the multinationals. Our statistics are primarily domestic. Nor do we truly understand the multinational and how it is being managed. How, for instance, does a multinational pharmaceutical company decide in what country first to introduce a new drug? How does a medium-sized multinational, like the German surgical-instrument maker mentioned earlier, decide whether to keep importing into the United States? To buy a small American competitor who has become available? To build its own plant in the United States and to start manufacturing there? Our dominant economic theories–both Keynes and Friedman’s monetarism–assume that any but the smallest national economy can be managed in isolation from world economy and world society. With an estimated 30 percent of the U.S. workforce affected by foreign trade (and a much higher percentage in most European countries), this is patently absurd. But an economic theory of the world economy exists so far only in fragments. It is badly needed. In the meantime, however, the world economy of multinationals has become a truly global one, rather than one dominated by America and by U.S. companies.

He finishes by painting a picture of an (as it seems to me, at least, global) “new mercantilism” increasingly influenced by the E.U. and its standards and regulations, adopted as free market alternative to the US-dominated NAFTA.
(Via Marginal Revolution)

Interesting idea by Dana Blankenhorn – how about Apple buying Sony? Would make an interesting inroad into portable cellphones/MP3 players, and also get them access to a lot of digital music for iTunes. I wonder to what extent there would be institutional obstacles, though. Sony is an old Japanese company and the shares may not be as licquid as a listing on NYSE should indicate.

Joi Ito reports that LinkedIn suddenly is popular at PeopleSoft as the effects of the Oracle takeover comes in.
I have been fiddling with LinkedIn myself – not that the Norwegian School of Management is getting rid of people, but as an excercise starting with Christmas cards (going through the list makes you remember people) and finishing with a lecture on social software for my MBA class on Friday.
I like LinkedIn because being on it is limited to work issues, and you don’t give out your life and email by signing up. Plus, it is quite surprising how wide a four-degree network can get.
However, some people seem to have missed the point: That you are only to link up with people you have some form of prior connection with. One LinkedIn member has more than 5000 connections and clearly sees that as an achievement in itself. Since connections more than one degree away requires endorsement from someone who knows you, this kind of defeat the purpose of the network itself. All coverage and no depth.

It has long been the case that companies selling products, such as GE, make no money on the products themselves, but on financing or service (once the products are installed.) This can, of course, work in reverse: I learned last week that IBM, allegedly, sells outsourcing services without profit but make their money on product sales to their (in practice, captive) service customers.
This is a conundrum to me, for I learned in the late 90s that the falling transaction costs caused by vastly increases communications and coordination capability would lower factor prices and make cross-subsidization more difficult. Of course, our ability to construct and maintain complex pricing schemes would increase as well, but still – are these cross-subsidizing schemes clever bookkeeping, intentionally complicated pricing to confuse customers and competitors, or simply the result of historical developments, where companies structures haven’t yet caught up with economics realities?

Clayton Christensen has advised Microsoft to learn to love Linux, since it is a disruptive technology for the company – and that in order to break into the market, they should purchase RIM.

I agree in principle, but Microsoft has so much cash that they don’t really need to set up a company to kill their old business. But as I have said before, they are at the place where IBM was in 1988, making a lot of money and looking invinsible, but being annoying to many people with little money and little use for mainframes. And along came Bill Gates, with Windows 2.11 and cut-and-paste between Excel and Word.

Actually, I thought this would happen at the desktop, with Netscape (in 1995), or perhaps Google (next year) creating the net-centric application suite. But it seems we need to move to handhelds before this takes off, a market dominated by telephone operators and OEM producers, with tiny processors, shoddy cameras and customers willing to invest in inferior, low-margin technology to get portability.

So, we’ll see whether Bill Gates can do a Lou Gerstner operation – but odds are against it.

Currently, I am writing up a report on the Concours Group research project DBI: Driving Business Integration – and was wondering how to illustrate the concept of integration. Well – here is a picture that gets my prize: Jake Cress‘ Ball and Claw Chair.

Picture a corporation trying to reign in a fragmented business unit, and you have an idea…..
Incidentally, there are other interesting pieces of furniture at Cress’ website as well.