The firm of the future

Warning: Idle rambling ahead.

Outsourcing is today, a nascent phenomena, atleast to the general public. Beyond the standard hulla-balloo that is heard in the media on outsourcing and the loss of jobs in the US, most are largely ignorant of its play.

What is interesting about outsourcing is its impact on the structure of the firm. For something that started out as a means to delegate fringe services (non 'core', as they used to be called some time back) to third parties as a cost and headache reduction measure, its interesting to see how widespread its impact is, today. From running entire IT setups to large parts of firms - I've even heard of new firms being setup from scratch in a totally outsourced manner - outsourcing is today an integral part of the structure of the firm.

In effect, outsourcing service providers are turning into service factories - that can take any proven business operation/process and industrialize it to run it faster, better and cheaper.

The only thing that's not yet been ever outsourced is the conceptualization or the ideation of the firm. Entrepreneurs still need to figure out business models and prove their worth - however, once they have done that to a reasonable extent, the operations and management can be very well parcelled out to an outsourcer.

So what will the firm of the future look like? One extreme view is that firms of the future (excluding, of course, the service provider firms themselves) will just consist of the ideators - who will conceptualize, design and initiate service offerings - and a bunch of service managers, who will govern delivery relationships with outsourcers. Therefore, a much leaner and more agile firm.

The other view is that outsourcing service providers will not be able to competitively perform every task that an internal firm environment can; that the marginal costs of outsourcing will someday catch up with its marginal benefits and stop it in its tracks. But nothing we know currently seems to point in this direction - if anything we have a long way to go till we get to that point of equalization.

It would be interesting though to see what ultimately happens - hopefully the options would play out in our lifetime. Or maybe, like the theories of contracting and expanding universes, we would just need to be content with conjectures.

In tall orders we trust

Is our society fundamentally heirarchical? I wonder about this as I work more and more with people from other cultures and am made aware of our subliminal biases ("our" - meaning us as Indians).

Its interesting to notice how we Indians exhibit heirarchies at work so much more than people from other, particularly western, geographies. A laddering of seniorities is almost taken as a given - with a view that somehow, people who are "senior", are greater in some respect. Its noticeable in the body language and the mannerisms, particularly when seen in contrast with the behavior of non-Indians in the same work environment.

You'll even notice it in the behavior of global and Indian arms of the same multinational firm - the global 'big boss' would walk down and shake hands with everyone in a meeting room, while the Indian would hardly ever acknowledge the junior members of his own team. And its weird, for I now notice this pattern over and over again in a number of multi-cultural interactions. (And mind you, this doesn't change much amongst those who return from global stints)

And then maybe, its a culturally inbred thing. Maybe its a remanant of the royalty that ruled our land and its consequent class systems. Maybe its a relic of the brit-raj and their babudom that made some citizens more equal than others. Or just maybe, we Indians do not like shaking hands in meetings :|

In any case, its time we started being a bit more civil to each other (at least in the workplace), its time we got over this false sense of ordained heirarchy and started building flatter organizations, its time we realized that fortunes do exist at the bottom of a pyramid.

To boldly go where no man has gone before

Rarely, just rarely, does come along a film that makes you root for it with whoops and whistles, that makes you forget the adult you've grown into and relive the excitement of a kid. To science fiction aficionados, star trek will always remain an unforgetable franchise - the adventures of the starship enterprise, always religion. It is, but a tall order, to expect a movie to live up to such expectations; and it is to the new Star Trek movie's credit that it, not just meets, but takes it to a whole new level of awesomeness. This post is a tribute to those who made the best science fiction movie I've seen in a long long time.

"Society doesn’t need newspapers. What we need is journalism."

A brilliant perspective on the changing media landscape, drawing analogies from the past to highlight the inevitable and the imminent - Newspapers and Thinking the Unthinkable:

"Revolutions create a curious inversion of perception. In ordinary times, people who do no more than describe the world around them are seen as pragmatists, while those who imagine fabulous alternative futures are viewed as radicals.

...shunting aside of the realists in favor of the fabulists has different effects on different industries at different times. One of the effects on the newspapers is that many of their most passionate defenders are unable, even now, to plan for a world in which the industry they knew is visibly going away...

That is what real revolutions are like... The importance of any given experiment isn’t apparent at the moment it appears; big changes stall, small changes spread. Even the revolutionaries can’t predict what will happen. Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing.

...And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution.

...Society doesn’t need newspapers. What we need is journalism. For a century, the imperatives to strengthen journalism and to strengthen newspapers have been so tightly wound as to be indistinguishable. That’s been a fine accident to have, but when that accident stops, as it is stopping before our eyes, we’re going to need lots of other ways to strengthen journalism instead."

(via twitter @suryanair)

What is this funny thing called value?

The central tenet in a lot a economics and strategy is this concept called 'value'. These days, I seem to be ploughing through one engagement after another building all sorts of valuation models and therefore I present my (rather muddled) musings on this notion that has vexed me through many a sleepless night.

In its most basic sense, 'value' is said to be 'created' in an activity if the benefits exceed its costs (note that this could be economic, social, metaphysical, whatever). That is to say, if the outcomes exceed the effort you put into an activity, you have created value.

This notion is of course extendable to a group of individuals who come together to form, say a firm, and thus if they create something together thats worth more than their effort, the firm's created value.

The question is, who determines the worth of the outcome?

This is clearly relative. If the output is being consumed by the creators (say, if I wrote a piece of code to search my own data), then I determine the value (say, the amount of time it saved me from going through the data manually).

But in most situations, we are concerned about the worth of the outcome to the market. Value, in a market context, is set by the consumers who would benefit from the outcome. (In the same example, if I started giving out the piece of code to all, value is set by the benefit to all who utilize it).

Of course, this is a bit simplistic. What if there is a big group of similar producers (like a lot of people writing the same code) and consumers could ideally choose between any producer? Value created is then bounded by the how much of it can be consumed. In economic terms, this point is where the market 'clears' and a price is set.

The interesting question of course is, how much of this 'value created' will each of the creators and consumers capture? The answer, is clearly not easy to determine and (it seems) is dependent upon market structure and the bargaining power of each in the market.

If you would recognize, in a firm's context, this question is what a lot of strategy literature tries to answer. The whole notion of 'competitive advantage' or 'strategic moats' (and all those Porter 5-force models) is largely linked to identifying those elements that enable a firm to gather as much of value as is possible from its market interactions. In a micro-sense, this is the realm of pricing theory.

(These days, there is also this interesting field of research in coalitional game theory, thats trying to answer the question from a GT point of view. See this and this).

'Shareholder value' creation by a firm is therefore largely linked to its ability to participate in a marketplace that values its output and then its ability to appropriate as much as possible from its interactions.

Value creation is an oft bandied term. Whoever knew so much lay beneath.