Software and Knowing What Business You’re In

Theodore Levitt, a Harvard Business School marketing professor, wrote an article in a 1960 arguing that companies are too focused on producing goods or services and don’t spend enough time understanding what customers want or need. There are several examples in the article that illustrate the main concept, that your product is not your business. Perhaps the most famous is the railroad lines, which Levitt argues fell into steep decline because they thought they were in the train business rather than the transportation business.[read more]

Fast forward to 2011 and Marc Andreesen stated “Software is Eating the World”.[read more] “Today, the world’s largest bookseller, Amazon, is a software company — its core capability is its amazing software engine for selling virtually everything online, no retail stores necessary. On top of that, while Borders was thrashing in the throes of impending bankruptcy, Amazon rearranged its web site to promote its Kindle digital books over physical books for the first time. Now even the books themselves are software.”

Indeed, with ‘software eating the world’ it is easy to take the leap of logic that, just as the railroads thought they were in the train business, many companies don’t realise they are in the software business… except they’re not. Many businesses are developing complex software systems to underpin their entire operations, yet they don’t understand the real costs of developing software. This leads to all sorts of problems – like poor code quality, lack of security, dysfunctional development processes, and very very expensive systems that may never realise a return on investment for the company.

Thinking of software as just the ‘tool’ changes the perspective and forces some questions to be asked:

  • Should we really be making tools from scratch?
  • Should we simply adapt tools to suit our approach?
  • Should we adapt our approach to suit our tools?

This is where Levitt’s argument makes sense in the modern world; once we understand our business from a customer-centred view we can determine the right approach to how we use and deploy tools in the organisation. Let’s examine this spectrum of questions and see how they play out.

Should we really be making tools from scratch?

Making tools from scratch requires the capabilities to build software. The real costs of writing software are very high. Designing a great user experience, delivering quality code, incorporating security and secure coding practises, establishing robust operational processes, quality assurance, and deployment automation are all expensive and all of these things need to realise a return on investment for the company within an agreed time-frame.

If the organisation is capitalised to an extent that allows it to take on longer-term research and development to establish competitive advantage through technology, it needs to have a successful operationalised technical capability already, and essentially has to embed the Three Horizons of Innovation framework [read more] into the operating model of the business, to hand over and mature innovation projects into the business.

While I have grossly simplified things in this post, the bottom line is that to fully develop software, there needs to be a successful operationalised technical capability in the business already, the capital, skills, leadership, and culture to experiment and collaborate developing tools from the ground-up, and discipline to ‘operationlize’ early-stage software into stable and mature products. New innovations occurring in Horizon Three are ‘operationalised’ into Horizon Two and then ‘optimised’ as a core part of the business in Horizon One.

This may be the dream for many a mid-sized company, however the reality is that this is a very hard end-game to achieve. It is a bold ambition that requires drive and discipline and should not be undertaken lightly.

Should we adapt our approach to suit our tools?

This is often ignored or seen as a competitive threat. How are we different if we use the same tools as competitor X? While this is indeed possibly the case, asking this question with integrity – that is asking the question and really investigating deeply if this could in fact be an option – is absolutely worth doing.

This question is the catalyst when considering “What business are we really in?”. Is making a unique process or workflow really going to defend the business we are in? Is making this technology a different way improving the quality of the business we are really in? Probably the best example of this is Starbucks: In 2008, Howard Schultz returned to the company to turn it around. It had lost it’s way and essentially did not realise what business it was in.

“Whatever your need state is at Starbucks, if you ask a customer, I just want to get the coffee and get out, but do you want to be treated with respect? 100% of the time, yes. So the equity of the brand is defined by the quality of the coffee, but most importantly, the relationship that the barista has with the customer, and whether or not the customer feels valued, appreciated, and respected. And that’s how the company was built.”

Schultz knew that Starbucks was in the relationship business – and employees at Starbucks were the number one key to success. As such, Starbucks has invested hundreds of millions in employee training, benefits and health care – even for part timers – to ensure they could deliver enthusiastic, genuine relationships with customers – and ensure those employees radiated a deep appreciation for the Starbucks brand.

Tools definitely play a role – the learning management system at Starbucks is one of the key ingredients in delivering success of the business strategy. Starbucks employs over 238,000 people worldwide. Guess what; Starbucks trains their Baristas using an e-learning platform built on WordPress – a free, open source content management platform!

If Starbucks built a unique learning management system, would it really be a competitive advantage?

Should we simply adapt tools to suit our approach?

Over the past decade with the proliferation of cloud technology, the number and quality of tools available to mid-to-large companies has grown exponentially. The challenge facing companies that use these tools is that often times, none of these platforms provide a ‘single view’ of the business.

Integration of tools is a cost-effective way of providing competitive advantage – through integration of work-flows, branded experiences or business intelligence:

  • Integration of workflows is about having a consistent way of performing business processes that feed into one another without requiring ‘double entry’ of data
  • Branded experiences are a way for customers to interact with an aspect of the business process without having to develop all the functionality underpinning that business process. An example of this would be a self-service mobile app or an integration of some capability into your website
  • Business intelligence is where a single consolidated source of data can provide the foundation for real competitive advantage: using consolidated data allows a single view of the customer, and a source of information for analysis or predictive model development

Integration is a hot topic and there are many services that provide easy paths to connecting services. From the low end of IFTTT (IfThisThenThat) to Zapier to MuleSoft and Apigee. All of these solutions serve different levels of complexity and therefore cost.

The key to all of this comparison is that by choosing to adapt tools instead of build entire systems, the business is taking on a fundamentally smaller project to tackle. It is possible to grow a high performance software engineering culture within an organisation that traditionally did not have this capability, but it’s not something to rush into. Rather, this takes slow deliberate choices in defining talent, projects, and culture. Integration projects allow small sparks of innovation that can be fanned and steadily grow to become a flame that ignites innovation within the organisation without consuming it completely.

In conclusion, while software seems to be eating the world, software also eats itself. Generations of software are born and are superseded within a decade. Software is just the tool and the pace of change makes it harder and harder to realise a return on the investment when trying to build a bespoke business system only for your company. To stay relevant you need to deeply understand the subtlety of different tool-sets and how those tools affect your business.

Deliberately choosing if you want to be the toolmaker is an important decision. Don’t end up making that choice by accident.

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