Irving Wladawsky-Berger

Services, Markets, People, Complex Systems and Related Subjects

If you look at IBM's business last year, services revenues were roughly 55%, while systems (hardware) and software revenues were around 25% and 20% respectively.  But services constituted around one-third of the company's profit, for a very simple reason.  Systems and software products leverage technology assets and apply engineering principles to improve quality, scale-up capacity, and achieve higher productivity and profit margins.  Services, on the other hand, have historically been significantly more labor-based, less prone to economies of scale, subject to higher quality variations, and generally less productive and profitable. 

The picture is similar across most businesses around the world.  Services are an increasing portion of their revenues, but they are more labor-intensive than their product-based revenues and therefore not as profitable.

Another way to appreciate the increased importance of services is to look at the three main sectors into which economies are usually grouped - the service, industrial and agriculture sectors.  The service sector already accounts for more than 75% of the labor force in the US and UK, with the industrial sector being around 20% and agriculture in low single digits.  In other developed countries like Japan, Germany and France, services are more than two thirds of the labor force, and in Brazil, Russia and South Korea they are well over fifty percent.  While huge progress has been made in the productivity of the industrial and agricultural sectors, the service sector has lagged far behind.   

Senate Hearings on High Performance Computing

Last week, the Subcommittee on Technology, Innovation and Competitiveness of the Senate Committee on Commerce, Science and Transportation held hearings on high-performance computing. 

I had the honor to be one of the witnesses that testified before the Subcommittee and its chairman Senator John Ensign.  I submitted my written  testimony in advance, which I then summarized during the actual hearings and  answered questions along with the other panelists.

Some Personal Reflections on the Changing Nature of Strategy

Throughout most of my career, I have been quite involved in strategy.  I have thus been able to observe from first hand experience how the nature of strategy in the IT industry has changed over the last twenty five years. 

Most apparent is the increasing pace of change in information technologies and in the marketplace.  Product cycles are now significantly shorter than in the early '80s, perhaps one third the length they used to be.  Everything is moving quite a bit faster. 

Another major change is the increasing importance of focusing on the marketplace and the applications of technology, not just on the technologies and the products and services themselves.  As hardware and software components become increasingly powerful, inexpensive and ubiquitous, much of the innovation in the IT industry will be in the kinds of systems, applications and industry solutions that we can now develop by leveraging those technology components.

These are among the factors requiring that businesses approach strategy in a significantly different way than they used to.  While my comments are based on my experiences in the IT industry, I suspect that they equally apply to any industry where its technologies and markets are undergoing rapid and profound changes.

The Critical Importance of Customer Service

I have become increasingly convinced that good customer service is the key way for a business to differentiate itself and stand out in our increasingly global, commoditized and hypercompetitive world.  But, as is usually the case, "standing out" can cut both ways, so the other side of this coin is that in a world full of social networks, blogs and other ways for people to express themselves, poor customer service may be the fastest way for a business to not just alienate its customers but do perhaps irreparable damage to its brand. 

One of the most fascinating talks I have heard in a while was given by Sunil Mittal,  Chairman and Group Managing Director of Bharthi Enterprises at IBM's recent Business Leadership Forum, which took place in April in Rome.  Bharthi Enterprises is India's leading telecommunications conglomerate, and has been growing its consumer base for cellular, broadband, long distance and other communications services at a torrid pace.  To keep up with this huge growth and keep lowering its already low costs, Mittal developed a very innovative business model: focus all the energies of the company on attracting, supporting and retaining customers and outsource just about everything else, including all the IT equipment and the  network itself.

Mittal said in his talk that originally there was a lot of resistance to this strategy.  People were calling him from around the world saying that IT and the network were the heart of a telecom business and that he could not possibly outsource them and be successful.  To which he replied that the customer, not the technology, was the heart of his business and then proceeded to implement his customer-centric strategy.  Bharti Enterprises is now one of the top five companies in India, and Mittal's target is for Bharti to become India's most admired brand by 2010.

I was reminded of the wisdom of Sunil Mittal's strategy by an article titled AOL said "If you leave me I'll do something crazy" in the July 2 business section of the Sunday New York Times. The article is about the kind of pounding that a major business and brand can take when things don't quite go right and a disgruntled, Internet-savvy customer decides to take things into his own hands.  It describes the experience of Vincent Ferrari, who called AOL to cancel his membership because he and his family no longer used AOL. 

Democratizing Innovation

I recently attended a lecture by Eric von Hippel on Democratizing Innovation.  Von Hippel is Professor at MIT's Sloan School of Management and Head of its Innovation and Entrepreneurship Group.  The lecture was based on his book of the same title, which is also available as a free download.

In his own words:  "When I say that innovation is being democratized, I mean that users of products and services - both firms and individual consumers - are increasingly able to innovate for themselves.  User-centered innovation processes offer great advantages over the manufacturing-centric innovation development systems that have been the mainstay of commerce for hundreds of years.  Users that innovate can develop exactly what they want, rather than relying on manufacturers to act as their (often very imperfect) agents.  Moreover, individual users do not have to develop everything they need on their own: they can benefit from innovations developed and freely shared by others."  The book includes a number of concrete empirical studies, as well as extensive market research and statistics to support his arguments.