Do you outsource Labor?
Do you outsource Tasks/Work/Process?
Do you outsource Outcome?
In my view; a simple but very effective way of judging maturity of outsourcing spend.
I recently blogged on how our understanding of how people play games can be used to influence behavior.
Zynga’s new acquisition Area/Code has built a spectacular game called Macon Money. This game aims to bring integration between communities living in different area codes in the town of Macon, GA.
Area/Code created Macon Money – basically local currency (coupons) that allow you to buy services at local businesses. To get Macon Money you had to get a Macon Bond from the company – the catch is that you only got half the bond – to complete the bond you had to find the person with that other half. You could use the Macon Money forum, facebook, email – whatever.
The game engaged residents in different area codes(the university and the residents were two distinct groups for example) in the city to interact with each other – a fun way to meet people and a subtle way to create bonds.
Did it work?
1. The main idea was to get people from different areas to meet each other. the distribution of the different colors in the map below clearly point to the evidence that it succeeded in this.
2. What about local businesses?
Mayur Patel of the Knight Foundation has a detailed review . According to him:
Early findings indicate that the game is making a positive contribution to local revitalization efforts in Macon….Interestingly, because players saw their bonds as a “gift” (essentially free money), they were often willing to branch out from their normal consumption habits and visit new local businesses that they wouldn’t otherwise frequent.
The game is based on an age-old percept that common interests build coherent communities. The way they take this insight and use technology is truly amazing.
And yes, they have won awards. Including the future everything award for 2011.
It is exciting to see that social gaming is moving far beyond farmville!!
Every year approximately 4 to 4.5 million houses are sold in the US with an average sale price of $266,000.
For every such sale; agents make about 6% in commissions. This puts the total amount earned by real estate agents at about 80Bn$ annually.
With the US housing market in crisis, house sellers are scrambling to recover the money they put into their house. Any help in reducing transaction costs is very welcome.
The online service www.redfin.com is seizing this opportunity. Their premise is very simple. They break down the house search process into two parts:
1. Searching for a house
2. Closing the deal.
The first part is accelerated by providing the home buyer a very easy to use website that also helps manage the workflow involved in buying a house. Home tours are facilitated by “field-agents” who are less experienced but know enough to open the doors and walk clients through!
Experienced agents come in only during deal closure. This way, Redfin takes the major cost out of home buying and pass on the savings to their customers – Redfin shares 1/2 of their commissions with the buyer.
So, what they are doing is:
1. Break down a process into labor/time intensive and skill intensive parts
2. Use appropriate levels of expertise to each part
3. Create a technology platform to enable a smooth transaction
4. Share the savings with the customer.
In addition to this, they promote a culture of transparency by sharing all agent reviews on their website. This puts their clients in the center of the business and helps win trust.
How are they doing? Redfin has completed more than USD 2 Bn in sales with a 97% satisfaction rating.
The Redfin example is something that can be replicated in many other industries where high transaction costs are waiting as business opportunity!
Henry Ford revolutionized how cars are built with his invention of the assembly line and the use of specialized labor. The simple fact is that when one does a task repeatedly they get better at it!
I was reading an article in the Economist that gives examples of specialist healthcare providers and the benefits they bring:
1. Narayana Hrudayalaya in Bangalore that has reduced the cost of heart surgery to 2000$ – 60% cheaper than even comparable India based hospitals
2. LifeSpring Hospitals, again from India that used standardised procedures as in manufacturing to reduce the cost of delivering a baby to 40$
3. Aravind Eye hospitals in India that performs 70% of the number of eye operations performed by the entire NHS for just 1% of the cost
4. Minute Clinics in the United States (yes! the US!! – exciting stuff happens here as well!!) that specializes in treating simple conditions quickly out of CVS stores.
So; specialist services combined with learning from outside the parent industry – sounds like a good cue for some of our Global IT Services friends!
It is a popular notion that a SWITCH companies’ primary customer is a US based Fortune 1000 company.
Therefore the focus of the industry is to market itself aggressively to a select group of clients mainly through traditional B2B channels.
A typical 5 Bn$ revenue company in this business derives that number usually from about 500 customers. The average revenue/customer is therefore 10Mn$ and hence a engagement manager led go-to-market model suits the organisation best. Added to this customer turnover is extremely low – and so are the number of new customers added. No wonder very few of these companies invest in large branding spends like apple etc.
Now let us look at an alternate set of numbers – What is often ignored is the fact that these companies also compete in a very tough market for talent. Looking at the case of the same 5Bn$ company; to generate that kind of revenue our outsourcing firm will have to have about a 100,000 employees.
Attrition rates of about 20% and growth rates of 20% this means that each of these firms need to attract and hire 40,000 new people every year! It is an industry benchmark that for every 1 hire we need to talk to 3 people – this means that each of these firms talk to close to 150,000 people a year. Some more numbers – In 10 years; these companies accumulate an alumni population of about 60-100,000 people.
Big numbers indeed.
Look a little deep; each of these companies are doing different things to understand this large “consumer” market.
The boss of India based HCL – Vineet Nayar has made Employee First his mantra, he has also written a book about this recently.
Mahindra Satyam aggressively positioned itself during the recent FIFA world cup in South Africa.
Infosys, just hired KV Kamath as chairman. Kamath’s primary expertise was in building one of India’s most recognized consumer brands – ICICI that has more than 24 Million customers – He does understand the market very well – the market for talent!!
Built to Last. Very few products can say this convincingly.
Two examples from the 60’s come to mind:
The SABRE system built by IBM in 1965 had a design spec of 84,000 transactions a day. Today the same architecture supports 30,000 transactions a second and is the heart behind all of today’s travel apps.
Interestingly the entire idea was pitched in a plane ride when an IBM salesperson called Blair Smith was seated next to the president of American Airlines CR Smith. According to American Airlines at that time it was:
“A Complex Problem that no one could solve.”
The Porsche 911
When launched on 1964, the 911 looked like this:
Here is what the 2011 911 looks like:
The same fantastic recipe – rear engine; near 50/50 wt balance; low cg design – mostly unchanged for almost 50 years.
Hat Tip to the fantastic engineers at IBM & Porsche!
Thanks to Wall Street, companies today have a culture of metrics driven measurement.
How about measuring how new your revenue is? If the technology industry is all about innovation; it is important to see how much of your revenue is driven by new products/ideas. This will give us an idea of where a company is headed as against where it currently is at or worse; where it had been.
A Few examples: Apple today gets close to 50% of its revenues from the iphone, in other words; in less than 5 years apple created a 12 Bn$ business!
Contrast this with many technology leaders where most of the companies revenue/profits come from products that have been around for decades!
There is more to numbers than just P/E ratio’s.
As someone said; it does not matter where you are, it matters where you are headed!
Stumbled upon this gem from one of my all time favorites – Devils Advocate:
The Devil played by Al Pacino finally baits Keanu Reaves who plays a conscientious lawyer from a small town by appealing to his Vanity.
It just struck me that this is what Facebook’s entire business model is about. Everyone wants to know if they are doing better than their classmates! Since time immemorial, human beings have been measuring their happiness using a relative scale.
No wonder users spend more time on Facebook than Google. http://mashable.com/2010/09/10/facebook-overtakes-google/
However, Google lets you search for something you are looking for while facebook helps you “keep score”. Not sure if amount of time spent is the best metric to measure utility!
The Argument continues….
I think we belong to a society of “Screenagers” – a generation that spends most of it’s work & leisure hours front of some kind of screen. Think about it – TV, laptop, Smartphone, PSP, Kindle, iPod, Tablet….
In the 70’s and the 80’s there was just one screen – the TV.
Nielsen pioneered the use of electronic devices – in their ” TV Families” to understand media consumption. These ratings are measured to this day and can make or break a TV Series. An aside – this device also created the hugely entertaining Leno-Conan wars!
So where is the research for smartphones? After all; we do spend more time with our phone’s than anything else (in some cases more than any person!)
Some interesting questions would be:
How may minutes do we spend looking at at our phone?
How many times a day we touch it/input something into it?
Ho many hours do we play/work/talk with it?
What apps we use and for how much time?
Is it an work device/information device/game machine?
If the dot-com era was all about eye-balls; what will be the metric for the smartphone era?
New Opportunity Area?
I recently bought an iPad2 for my brother as a birthday gift. My options were either 3 weeks for online delivery or a 3 hour wait in a line in front of the apple store at Palo Alto.
While I thought over my options, my wind wondered as to why Apple products have a cult like following – one answer was how simple they are to use. Their products have clean interfaces; and have so few controls/buttons/dials etc…
There is a lesson in here for every website designer. How many websites have we seen with Type 12 font buttons? An average website has at-least 30-40 places one can click on.
This is fine with a portal dishing out information; but what about the hundreds of portals built that are used to automate business processes in companies.
Stuff that lets you put in your expenses; leaves etc etc.. Each of these are dedicated systems that have fairly well defined, linear processes. So when we automate them; why confuse the user with multiple buttons to click?
Sometimes; less is more!