new dog old trick

Business Model Fest for NewDog

Wow, it's looking like 2009 will go down as the year of business models around here. First the business model centric Getting to Plan B by John Mullins and Randy Komisar, which we just got done reviewing. And then today, a brown box shows up in the mailbox and out pops my copy of the just published Business Model Generation by Alex Osterwalder and Yves Pigneur. It's a fantastic-looking book that I am very much looking forward to reading this week.

Business Model Generation is the result of a lengthy project that is described on Osterwalder's website/blog The book describes a complete process to help you understand, design, and differentiate your business model. It includes a great visual tool for modeling and describing a business model.

The book itself is the result of an interesting design process and is not your standard business book. The book's design and the thinking behind it is also discussed on Osterwalder's blog (just scroll down a little way) or on the book's website. It's very much the result of real design thinking by a talented team of collaborators. My congratulations to all involved!

There will be more on this subject later this week after I've had a chance to read the book. But I'm looking forward to not only discussing Osterwalder and Pigneur's thinking but comparing and contrasting their view of a business model with that of Mullins and Komisar.

Another subtle issue with VAT taxes

Jeff Cornwall posts today on the momentum that seems to be growing for VAT taxes in the U.S. Jeff points out some issues with VAT taxes, esp. relative to the burden that VAT taxes place on business for additional compliance and reporting costs. From the perspective of small business and entrepreneurial business, VAT taxes are highly problematic due to the disproportional cost impact of compliance activities. Yet another additional burden that will suppress job growth and entrepreneurial activity.

There's another aspect of VAT taxes that should frighten us all relative to their imposition. I strongly believe that one reason political elites like VAT taxes is that VAT is almost invisible. It gets baked into the cost of all goods, so the consumer never really is aware of the amount of VAT that is included in everything that they purchase. In this sense, it's even more invisible than a standard sales tax, which is added at the cash register on top of the shelf or list price of goods. VAT on the other hand is included in the list price.

Having lived in Europe for a time during the 90s, what I recall is that as an American I was generally aware of the fact that prices for most things seemed higher than we would pay in the States, but locals generally did not have that perspective in their day-to-day shopping. Now, Europeans were certainly aware of the cost differences in a general sense, hence the fact that any Europeans visiting the U.S. would stock up on all sorts of clothes and other products when they were here. But to a much greater degree than a sales tax or income tax the VAT becomes invisible. The same relative degree of increase in VAT will not generate the same degree of awareness or opposition as an increase in income taxes.

This insidious aspect of VAT is something we should all worry about before signing off on adding a VAT to the tax mix in the U.S.  Personally, I think we'd all be better off if all taxes were very visible and in our faces whenever we pay them.  For example, gas pumps should be forced to display clearly every tax that's baked into the price of a gallon of gasoline.  Every tax should be as visible to us as our income taxes are on the bottom of the form 1040 every April 15.  It should be an integral part of being an informed citizen, instead of cattle for the political and corporate elite to bamboozle from Washington. 

On the other hand, a VAT is a consumption tax instead of an income tax, so it is less burdensome on those who invest and save vs. those who consume. In that sense, many feel a VAT is more "fair" (whatever the heck that somewhat slippery term means). Personally, I'd prefer that at least some degree of the tax burden in the U.S. be shifted to consumption taxes and away from income taxes. But I'd also strongly prefer that to be part of a much larger rethink of the tax code in the U.S. that moves away from today's massively complex, loop-hole and preference ridden disaster of a tax code and toward a clean, flat-tax based income tax code possibly combined with some form of consumption tax. If done right that could and should result in less compliance costs for all businesses, less bias in the tax code against small business and entrepreneurs, and lots of productive resource freed up from tax-related administrivia, game playing, and rent-seeking.  Odds of this happening seem vanishingly small, but it's good to have dreams.

UPDATED - to expand and clarify some of my original points

Entrepreneurship and The Big Shift

A couple of connections between entrepreneurship and The Big Shift (TBS) clicked for me while I was reading the research report I've discussed here and here. I'm not sure if those connections are valid but they still work for me after a few days of consideration.

I see the "entrepreneurial economy" that has risen in the U.S. over the past 25 years or so as partially being both cause and effect of TBS. The drivers behind TBS have created waves of disruptive innovation in industry after industry which partially gives rise to the dramatic rise in topple rate found by TBS researchers as well as helps create the dramatic rise in competitive intensity. Once this starts it seems to me that another impact of the digital technologies that are being deployed in the big shift is that you get a self-reinforcing spiral of innovation, more toppling, even more competitive intensity, etc.

All of the disruption of industry leaders has also led to many workers being shaken loose from companies impacted by lower ROA, increased competition, etc. I think that's had the effect of creating lots of new entrepreneurs. Some of these new entrepreneurs felt pushed to start businesses due to changes in the economy while some viewed it as an opportunity to take control of their own destiny. Some transitioned back to established company jobs when one came along but many came to love the combination of freedom, control, passion, learning, etc. that they felt as entrepreneurs.

Now, the Big Shift isn't the only driver to all of this. Globalization is as well, although it seems to me that TBS and globalization have a bit of a cause/effect relationship too. I think we'd be seeing big changes in the economy due to globalization even without the rise of digital enabling infrastructures, etc. But, I think that TBS has enabled the effects of globalization to accelerate and intensify - which also has driven greater rates of entrepreneurship in both the U.S. and elsewhere.

Key findings of the Big Shift project

I talked about The Big Shift project a couple of days ago as research that I felt was fundamentally important to understand. Here are some key findings of the research as summarized by Big Shift co-author John Hagel on his blog.

For the moment, though, we have a report that draws attention to some of the key findings in the Index. The report is accessible here. Perhaps the most interesting findings can be summarized as follows:

• Return on assets (ROA) for U.S. firms has steadily fallen to almost one-quarter of 1965 levels at the same time that we have seen continued, albeit much more modest, improvements in labor productivity.
• The ROA performance gap between winners and losers has increased over time, with the “winners” barely maintaining previous performance levels, while the losers experience rapid deterioration in performance.
• The “topple rate,” at which big companies lose their leadership positions, has more than doubled, suggesting that “winners” have increasingly precarious positions.
• U.S. competitive intensity has more than doubled during the last 40 years.
• While the performance of U.S. firms is deteriorating, the benefits of productivity improvements appear to be captured in part by creative talent, which is experiencing greater growth in total compensation. Customers also appear to be gaining and using power as reflected in increasing customer disloyalty.
• The exponentially advancing price/performance capability of computing, storage, and bandwidth is driving an adoption rate for our new “digital infrastructure” that is two to five times faster than previous infrastructures, such as electricity and telephone networks.

Given these long-term trends, we cannot reasonably expect to see a significant easing of performance pressure as the current economic downturn begins to dissipate—on the contrary, all long-term trends point to a continued erosion of performance. So what can be done to reverse these performance trends?

The return-on-assets gap was not something that I recall reading anywhere before and was just one of the bits of information that caught my attention the first time I read the summary of the research. More to come.

The Big Shift

Last week I discovered, courtesy of a post by Irving Wladawsky-Berger on his weblog, the recent research report The Shift Index. I downloaded both the entire research report, as well as the abstract. I then went back and dug out my July-August issue of Harvard Business Review which has an overview of the Shift Index. I believe that this is important research that deserves to be widely read and discussed.

The Shift Index research was developed under the auspices of Deloitte's Center for the Edge. The effort was led by John Hagel and John Seely Brown, two very respected thought leaders.

What's the Shift Index about? Here's Irving Wladawsky-Berger's summary:

As we all know, digital technologies are causing long-term transformations in the global business environment. The team at the Center for the Edge has been studying these long-term business transformation, which they named the Big Shift . They have been trying to render explicit some of the major drivers behind this historical transformation, as well as providing an overall framework for research on the subject.

Here's John Hagel's take on what sparked the research project...

... everyone acknowledges that we are in the midst of a fundamental shift playing out on the business landscape on a global scale over many decades. We may not all agree on the exact dimensions of the big shift, but the reality is so widely recognized that it is often unstated. When we looked for indices that gave us some insight into the nature and pace of this big shift, we pretty much came up drive [dry?]. There were isolated measures and one-off analyses, but there was nothing resembling a comprehensive index of key metrics updated on a regular basis.

So we decided to develop one. We had a team work for about six months developing the conceptual framework for describing the dimensions of the big shift and how these dimensions related to each other. We then spent the next six months working to define the specific metrics for a Shift Index and collect and analyze the data related to these metrics.

This research strikes me as very meaningful. It's complex, and multi-faceted, work of significant depth, even at this very early stage of development. I believe the work has many implications.

I am particularly struck by the predictive implications of the research as it relates to entrepreneurship and public policy. I'll post more on the subject here later.

I suggest starting with either the abstract of the full report or the Harvard Business Review article, which is a somewhat abridged version of the abstract.

The full Shift Index report can be downloaded here.

The abstract can be downloaded from co-author John Seely Brown's website.

Carnival of the Capitalists 12/19/2005

Only one Carnival of the Capitalists remaining before Christmas...and it's up at Coyote Blog. 

Link: Coyote Blog: Carnival of the Capitalists 12/19/2005.

Happy Birthday Carnival of the Capitalists!

Link: BusinessPundit: Carnival of the Capitalists Turns Two!.

The Carnival of the Capitalists is celebrating its second birthday this week (and next).  BusinessPundit, one of the two proud parents of the carnival, is hosting this week.  As always, it is an interesting collection of the best of business, economics, and management blogging. 

Big Tech Deals: Oracle/Siebel and eBay/Skype

Two big tech acquisitions got announced today.  One I understand; the other not so much.

Oracle took out Siebel in a deal that has been rumoured several times over the past months.  This may well be the last big acquisition in the wave of consolidation that has been underway in the enterprise application software market for a couple of years now.  There will be more deals before this wave of consolidation ends, but they will likely be smaller, more vertically-focused extensions and add-ons to the product lines of the remaining major players.  All two or three of them.  This must be bittersweet for Tom Siebel.  Larry Ellison has just added to an already massive multi-dimensional integration project: integrating organizations and integrating product lines and technology from Peoplesoft, Retek, ProfitLogix, and I-Flex with Oracle.  Still, this transaction takes out the largest single player in the high-end enterprise CRM application market and continues Oracle's drive to best SAP as the leader in applications.  They are not there yet but they are clearly on a mission. 

The other transaction, and the one I must admit I don't grok the logic of, is eBay's acquisition of Skype.  People who have thought about it include Om Malik, James Enck, and Ross Mayfield.  Ross says the logic is simple - I still don't quite see it.  One thing does seem clear to me though.  I've read some things indicating that the Skype management team and investors had a choice of a totally up-front buyout or a deal structure with up-front cash plus a performance-based earn-out.  They took the earn-out, with $2.6B up-front and the potential to earn another $1.5B over the next 3 years.  If it's true that they had a choice and settled for the earn-out, then it's clear that at least those folks see the logic and potential in the combination of companies.  It will be interesting to track the performance of this combination over the next couple of years. 

Carnival of the Capitalists: 12 Sept 2005

After two weeks watching the Hurricane Katrina train wreck unfold it is past time to get back to work.  What better way to kick off the work week than with the umpetty-eleventh installment of the Carnival of the Capitalists...good job this week by Evelyn Rodriguez, who has her own personal experience with natural disasters.

Link: Crossroads Dispatches: Carnival of the Capitalists - Hosted by Evelyn Rodriguez.

Economic Impacts from Katrina

Hurricane Katrina has left a wide swath of devastation in its path across New Orleans and the Gulf Coast.  The recontruction efforts will be going on in those areas for at least a couple of years; however, I've been wondering about other economic impacts across the rest of the U.S. as a result of this storm.

We've been hearing plenty about possible disruptions of energy supplies and energy prices from Katrina.  I'd be willing to bet that those impacts will turn out to be somewhat limited and transient unless some much greater damage to well heads and pipelines in the Gulf is found over the next couple of days.  Not to say that we won't see a spike in gasoline prices, but releases from the U.S. strategic reserve can help to smooth out oil supply disruptions over the next couple of months. 

I am wondering about longer term disruptions to the construction industry as a result of the demand for materials to recover and rebuild from Katrina.  I'm not an expert in this area but in talking to builders in the Nashville area over the past couple of months I've learned that material costs have already increased significantly this year.  This includes materials like concrete, lumber, etc.  In addition to price increases, apparently concrete supplies are such that in some areas of the southeast it has been on a rationing/allocation system.  I'm not clear if this is due to supply problems or just sky-rocketing demand based on the continuing robust construction market combined with good overall economic growth in many cities in the southeastern U.S. 

My recollection is that the construction materials market was somewhat disrupted after Hurricane Andrew as a result of the demand for supplies like plywood, concrete, etc.  Given that for some of these materials we are already in a sitution where global demand (yes, global - the Chinese among others are consuming huge quantities of building materials like concrete, steel, and lumber) is very strong, I wonder if we are looking at the possibility of a ripple effect across the housing industry that has been helping to support the U.S. economy.  I wonder what will happen in this corner of the economy, and others, as a consequence of Katrina.

UPDATE:  Well, the bits were barely dry on this post when I found a headline on the Nashville Business Journal online addressing the cement/concrete shotage.  High spots:

Cement's in short supply and that's causing big problems for a construction industry already dealing with shortages of structural steel and soaring fuel costs.

   

"I would say that this period of time, I've seen the greatest increase in our costs since I've been in this business ... some 30 years," said Jim Winchester, president of the family-owned QUIKRETE in the Atlanta area.

Limited supply has driven up the price of cement, in some cases more than 25 percent in the past year, the Atlanta Business Chronicle reports.

And industry experts say they don't expect relief any time soon.

"Cement is going to be a worry for a long time to come,'' said Ken Simonson, chief economist of the Associated General Contractors of America. About 32 states have experienced shortages of cement, he said.

The shortages are caused by record construction figures.

And that's before Katrina.

Also, when I said the energy impact was likely to be transient - I was thinking on the scale of a few months, not days or weeks, but also not years.  We'll know more in another couple of days once the infrastructure in, under, and around the Gulf is surveyed.