February 2007 Archives

I had a very interesting discussion yesterday with Olivier Réaud from inPrincipo consulting. We were arguing over the valuation of intangibles, and Olivier came with this very simple idea that tangible assets eventually boil down to money, and intangible assets to brands.
This triggered a connection with a discussion I had with Lee Bryant in London last november. We were discussing business models -how to make money with online social networks and communities- trying to move away from the consulting fees model or the software licensing model. Networks and communities do have a tendency to live a life of their own that may eventually diverge from the original intent of their sponsors, which happens quite often. My thought at that time was that the media/publishing industry offered a clue. Publishing a collaborative web site created by a community looks like publishing a book written by some author. Money should come primarily from royalties of derived products or services.
That's where the brand comes in. Let's imagine you build an online user group community on behalf of your company who pays for the associated costs. Let's imagine it worked nicely, but that community members are focusing on topics of little interest for the company, or that the focus of the sponsoring company has moved elsewhere, which comes back to the same. What do you do? One is to let it die. Another is to keep investing: Find new sponsors and build the brand. In the end, you may not own much in terms of tangible assets. But what you may end up owning is the brand itself and the trust attached to it. And that can be traded quite nicely if the brand is as famous as YouTube or Coca-Cola.

On the Clingan Zone of the blogs of Sun employees (highlights are mine):

Now for what Blogging @ Sun has done for me. I've "met" (well, not face-to-face) some folks I now call friends. Ya' know it when ya' start asking about birthdays and kids. On another note, I feel that The Clingan Zone has enabled me to learn a lot in a short period of time thanks to the conversations I've had with blog readers that share a common interest. In turn, blog readers have told me The Clingan Zone has helped them decide to become Sun customers. Do the math and replicate that by the current 2886 blogs and we could be talking some serious business. Gotta clear out the non-blogging-heathen ranks @ Sun. Continuing on, The Clingan Zone has enabled me to enter new customer environments where I had already (and most often unknowingly) established a baseline of trust and credibility. My job became a bit easier. And frankly, more enjoyable. Blogging has also raised my visibility within Sun. More employees know who I am and come to me for help in my area(s) of expertise. In return, I know a boatload more Sun employees through their blogs and, heck yeah, I call them for their areas of expertise. My job got easier again. In a highly work-at-home sales force, the Blog has become a pseudo water cooler.

Interesting insight that says a lot about the rationale behind enterprise blogging, which combines ego-management and commercial efficiency in a striking way. What is even more striking is the comment made on this post by Sun's CEO, Jonathan Schwartz:

Blogging hasn't just moved the needle for Sun, it's moved the whole damn compass.

Does anybody use understatements in California?

Still in The HBR List: Breakthrough Ideas for 2007, an article on the buiness value of social networks, by Christopher Meyer

Networks lend themselves to at least five basic tasks. They can scan the horizon, as the Global Business Network does, for events and patterns with implications for corporate strategy. They can help to solve problems: InnoCentive does this by posing problems to a far-flung population of scientists. A network can innovate for its own benefit. Members of the Polycom User Group, for example, seek new ideas for using Polycom’s conferencing products by interacting with other users and by sharing best practices. Networks can be used to exert influence: It was only when researchers experiencing errors with the Pentium microprocessor banded together that Intel took the issue seriously. And a network can efficiently allocate resources. The staffing company Aquent uses its substantial network to match marketing and communications professionals with projects that need them.

Then the author explains the five steps in designing a valuable network:

• 1-Define the work
• 2- Identify the talent
• 3- Engineer the exchange
• 4- Design the experience
• 5- Assemble the technology

Surprisingly, the word "community" is not to be seen in the article, which to me is a big problem, especially when the author mentions some of the "bad bets" than can ruin everything:

The founders of Facebook, a network to enable students to make and manage their social contacts, learned this lesson in the summer of 2006, when they moved to allow nonstudents access to the network in order to create the possibility of greater ad revenues. Core members considered this an invitation to stalkers and staged a revolt.

Why is it that the strongest advocates of a networked economy fail to see the importance of communities, which they wrongly equate to social networks?

Stil in The HBR List: Breakthrough Ideas for 2007 an article reporting on a systematic study of innovation in relation with the size of an organization, here a city:

We did indeed find that cities manifest power-law scaling similar to the economy-of-scale relationships observed in biology: a doubling of population requires less than a doubling of certain resources. The material infrastructure that is analogous to biological transport networks—gas stations, lengths of electrical cable, miles of road surface—consistently exhibits sublinear scaling with population.

However, to our surprise, a new scaling phenomenon appeared when we examined quantities that are essentially social in nature and have no simple analogue in biology—those associated with innovation and wealth creation. They include patent activity, number of supercreative people, wages, and GDP. For such quantities the exponent (the analogue of 3/4 in metabolic rate) exceeds 1, clustering around a common value of 1.2. Thus, a doubling of population is accompanied by more than a doubling of creative and economic output. We call this phenomenon “superlinear” scaling: by almost any measure, the larger a city’s population, the greater the innovation and wealth creation per person.

This is interesting because it seems to challenge the widespread idea that large companies are not as innovative as small ones. But there's a snag. The study is about cities, not firms, and cities are far more self-organizing and adaptive than large companies, which tend to be far more bureaucratic as a side-effect of pyramid-shaped org charts. But still, the result of the study is encouraging. There is no reason why a large organization should be intrinsically less innovative than a smaller one, and quite the opposite in reality. But it probably needs in that case to be organized as a complex adaptive system, and not like the Red Army.

In The HBR List: Breakthrough Ideas for 2007 Duncan J. Watts argues against the overstated importance of charismatic leaders to induce change. Very interesting article that shows that the ability to influence others is after all far less important than their tendency to be influenced.

Our work shows that the principal requirement for what we call “global cascades”—the widespread propagation of influence through networks—is the presence not of a few influentials but, rather, of a critical mass of easily influenced people, each of whom adopts, say, a look or a brand after being exposed to a single adopting neighbor. Regardless of how influential an individual is locally, he or she can exert global influence only if this critical mass is available to propagate a chain reaction.

[...] Cascade size and frequency depend on the availability and connectedness of easily influenced people, not on the characteristics of the initiators—just as the size of a forest fire often has little to do with the spark that started it and lots to do with the state of the forest. If the network permits global cascades because it has the right concentration and configuration of adopters, virtually anyone can start one. If it doesn’t permit cascades, nobody can. What seems in retrospect to be the special influential quality of a particular person (or group) is, therefore, mostly an accident of location and timing.

In other words, it's better to be on time than to be right, and leadership is mostly about resonating with the spirit of the time and revealing the hidden and untapped energies of people. Leaders are like sparks igniting latent energies eager to be revealed in a population of already connected people. So it's largely driven by circumstances after all, and by the level of social capital in the network in particular. You can't do much as a leader if the social network of your organization is broken. You have to rebuild it first. by weaving people together by climbing the ladder of collaboration. The leaders who "make it happen" are harvesters of the seeds planted by others. So why do we worship them so much? Maybe just because we need gods, and we want them to be winners, even if winners are first and foremost people with unusual flair, people who know exactly when their time has come.

Hereunder a few extracts from Global news, business news, management thinking, expert opinions, latest research - World Business, where Sam Palmisano, CEO of IBM defines the large company of today as the globally integrated enterprise.

The corporate model that is emerging today looks very different. It shapes its strategy, management and operations in a truly global way. It locates operations and functions anywhere in the world - based on the right cost, the right skills and the right business environment - and integrates those operations 'horizontally'. (...) A globally integrated enterprise is radically different from the multinational corporation it will replace. As I've suggested here, its success will depend not just on its economic logic, but on the development of new ways to access and develop expertise; new approaches to policy, ownership and collaboration; and a global economic and societal environment that strengthens trust. Of all the issues facing leaders in business, government, academia and beyond, I believe this last to be the most fundamental. (...) At IBM, we've set off down the path of empowering and enabling our people to make decisions and to act based on their own judgment. We have been working to lower the centre of gravity of the company, as I like to put it - that is, to trust IBMers and to push decision-making authority out and down.(...) Indeed, I believe it is shared values that must form the foundation for a trust-based enterprise in a radically more fluid and democratised world. Being much more open, collaborative and trusting is, at times, messy, uncontrollable and uncertain.

I like this image of "lowering the center of gravity of the company", and allowing people to make decisions out of their own judgment. We all agree that this is the right thing to do. Sam Palmisano gives a few examples of how this is achieved at IBM, namely by fostering collaboration. Maybe I should send him my book ;-)