Pricing topics round up

It’s time to look back at the ground we’ve covered in order to establish the road ahead.  In a series of strategy posts, I talked about the fact that if you don’t know where you’re going, any road will get you there.  I also said it was important to have a sense of purpose and continue to review the goals that you started with in order to see if they’ve changed.

Let’s review what has been covered so that readers can easily catch up with anything they’ve missed and also to plot the next post.

Human behavior

It’s only natural to look for the best deal.  That’s exactly what happens when you get down to brass tacks with any business negotiation.  Humans treat everything with lots of variables as a game.  We like to play with graphic equalizers because we think we can make our music sound better when we have a greater degree of control over the gain of each frequency band.

Flexibility is not strategy (part 3)

A clear sense of purpose and a common understanding of that purpose seem like an obvious requirement to engender prosperity.  These elements are elusive because humans are not machines.  Creativity abounds, opportunities knock, tangents manifest, and allegiances are pledged. The confluence of these can help or hinder the evolution of companies and individuals.

Flexibility is the substitution of laissez faire for purposeful direction.  Unchoreographed dance or theatre may be expressive or interesting, but it’s not repeatable.  Good directors accept input, but in the end specify precisely what’s to be done for the entire piece’s overall impact – yet they don’t do the acting themselves. 

Actors and employees alike may not always be able to see how their specific role helps achieve the objectives, but leadership, transparency and ultimately trust resolves this.

Flexibility is not strategy (part 1)

You can’t focus on everything and succeed.  Obvious, right?  Clearly if you don’t know where you’re going, any road will get you there (in this case, all roads do not lead to Rome).

No person or company knowingly decides to be everything to everyone.  But that’s exactly what happens when you can’t choose (and stick to) a specific goal.

Banking on flexibility is tantamount to saying yes to everything.

While it’s OK to be open to possibilities, sometimes it’s hard to tell the difference between distraction and opportunity.  Opportunity’s transient nature can lead you to chase every possible direction until you forget who you are and how you got there.

You may ask yourself, “how did I get here?”

Some companies end up backing into disperse activities through growth or acquisitions.  Acquisitions can bolster a product portfolio in an unusual direction which deviates from the company’s core competency and tenets.  Unless the company consciously adopts a new strategy.

Economic necessity: reaping innovation’s rewards

In a previous post, I discussed the role of constrained resources in innovation.  I strongly feel that it behooves companies to create a culture of innovation by rewarding employees for their novel ideas with more than “not getting fired.”

Users develop solutions from actual problems or opportunities on the front line.  These projects can lead to significant innovations.

I like the story of Dynamic Matrix Control (DMC). If it weren’t for a long-term strike at a Shell Refinery, this new way of controlling operations would never have come to fruition.

Innovation comes in many different shapes and sizes.  Creating DMC and turning it into its own business is more of an exception than the rule.  But measureable improvements abound when users are allowed to be creative.

Economic necessity: When all you have is a hammer…

The lure of “Something as a Service” may not be for everyone, but I think some of (the few) positive aspects of hard times are discipline and innovation. 

Reflect on Michael Porter’s HBR article “What is Strategy” to see what I’m talking about.  As is validated in this blog post, everyone will cut costs and focus on operational excellence, but that opportunity is transient.

Innovation through discipline is typified in my work with small theatre companies.  The arts have known nothing but hard times.  Yet, we have pulled off miracles with zero money.  That’s not to say we couldn’t have used more funds, but creativity was the order of the day to make something out of nothing.

User innovation, like art, may actually thrive in hard times.

The sin of opulence?

Fifteen years ago great debates raged on USENET newsgroups about the merits of programming in constricted resource environments (yes, comp.sys.*.advocacy).  Assembly vs. higher level languages.  It was very geeky.

The premise was simple: relying on hardware for performance lead to undisciplined code.  Today’s constraints are different, but using existing assets better will force creative thinking – as long as there is incentive, and merit is recognized.

Users may not have access to anything in today’s buzzword parade (SOA, SaaS, etc.),  but they will discover great potential in tools like Microsoft Office.  Innovative users will exploit all their available resources if they have the time and incentive.

Problems will be solved in new ways, costs may go down, and new value may be discovered – if users are empowered.

The revolution may not be scrutinized

In almost any company, certain users have the flexibility to operate on the outskirts of IT’s control.  So experimentation could already be underway.  Using the Office example, users can install a long term trial version in stealthy manner and create the “next great thing” right under the nose of IT.

These installations can grow gradually with minimal impact on operations, and users can solve some really interesting problems for the business by just assembling components. 

D.I.Y. solutions to problems like document management, “Excel hell”, and rich application construction without programming are all possibilities given the capabilities of Office.

But companies must create a structure to reward the curiosity of its innovators.  Fear of job loss is not a motivator.  In today’s world where company loyalty has dwindled on both sides, a collaborative approach to surviving and thriving is not an option, but a requirement.

In a later post, I’ll write about how and where to draw the line in order to reap the benefits of these innovations sustainably.  Then we’ll discuss what this means for vendors.

Software maintenance: what have you done for users lately?

I have several friends on both the vendor and customer side of the enterprise software fence.  The vendors always rely on a blend of license revenue and maintenance fees to pay the bills.  Sure, they do some service (consulting, installation, etc.), but the ratio of license revenue to maintenance revenue is the yardstick by which the health of a software vendor is measured.

In today’s economic times, I’ve heard many of their customers talk about going on a “maintenance holiday” (a “version staycation”?) in order to cut costs.  After all, many software applications and infrastructures that are in place today aren’t going to get upgraded in the coming 12, 24, or 36 months unless there is a mission-critical feature added or addressed in a vendor’s product.

To prevent this, some vendors have put in place a measure of protection.  Sometimes these show up as maintenance-lapse penalties which are more of the “stick” side of the balanced “carrot and stick” equation.  This usually results in user grumbling.

A user-mandated, semi-collaborative approach comes from SAP’s base.  In response to its users, SAP has created a practice to measure the value of their maintenance contract with customers in order to justify the expense.  It will be interesting to see how that story develops.

But there may be a more proactive way to go.

Vendor revitalization strategy: remain relevant

As the SAP example suggests, the rules are changing in more places that just the economy these days.  We’ve watched the government provide stimulus packages to revitalize the economy, but for most of us, the benefits will be fairly intangible.  I believe vendors have the ability to make a tangible difference to their users by creating a stimulus package of their own.

Vendors should adopt the three R’s: be responsive, relevant, and required for success.

Clearly the best way to do this, if you’re a vendor, is release something so compelling that customers will flock to it.  But not all vendors have the next-generation iPhone or Palm Pre up their sleeve.

Another approach is to adjust licensing policies to encourage wider adoption of a product or further “adhesion” to the platform. Continued customer reliance on a software platform is like an insurance policy against being “ripped and replaced” (a disruptive act for everyone), or “congestive software failure” (where your product just atrophies in place and is consumed by something else).

You can see evidence of this from Microsoft as they court developers away from the LAMP stack (open source tools).  Over the past few years, they have released very capable, free editions of Visual Studio, SQL Server, and a mashup tool (Popfly) for free.  Most recently they have released SharePoint Designer for free in concert with their open sourced ASP.NET MVC Framework.  This is all to stimulate their developer base and get people in the community to use their tools to make new components like Silverlight into compelling offerings.

Create a hero, be a hero

Out there in user land, the prospects are bleak.  Layoffs and belt tightening may also mean that a vendor’s champions inside a company will disappear.  Once that happens, the vendor’s product could “go legacy” and be the next target for consolidation and “standardization” (i.e., migrate to your competitor’s product).

Vendors should realize that any team leader within a customer worth their salt will be in a protectionary mode.  It’s a fight for survival.  They will be trying to demonstrate the value of their team to avoid being part of the next wave of cost-cutting measures.

So, vendors, listen up: if users can find a way to replace or prevent the acquisition of a vendor’s software product in exchange for saving their team from layoffs, you can bet that software licenses and maintenance fees will be the first to fall.  I’ll post on that later.

This is why I’m calling on vendors to invest in becoming the ally of their customers and users.

The buyer persona of a company isn’t enough to address. Vendors that want their maintenance fees paid or their software upgrades installed must take an active role in making their users succeed as well.  Keep those users as your champions and your software will remain relevant.

Vendor stimulus packages

Vendors have ultimate flexibility in this situation.  By working out creative licensing terms or enabling a feature that the customer or user has been trying to justify purchasing, vendors can maintain an active, positive presence at a customer and become part of their economic success story.

Another approach is the help users use your existing product for something that is new and valuable to them.  I don’t mean go build it for them, but pony up the training, webinars, or prescriptive whitepapers and architectures to help their teams build the thing that will be valuable enough to save their jobs AND assure your place in their hearts (and wallets).

It could be true that there are some vendors that are “too entrenched to fail.” But, user and buyer morale is still important to maintain lest that software product become “too entrenched to upgrade.” 

Look for competitive vendors to examine fallow customer bases and create programs to migrate customers away from existing platforms.  In some cases, software that’s difficult to upgrade represents an equal opportunity for replacement to a user.  If a responsive vendor courts a customer and portrays equal or greater value plus a “low switching cost” to the customer, some established players may not be so established anymore.

Economic necessity is the mother of user innovation.  We will see creative uses of products that become “good enough” to replace or postpone purpose-built products.  Let’s talk about that in another post later on.

For now, be responsive, relevant, and required in your customers’ recovery plan.

Microgrids – an information and energy revolution

Technorati Tags: Renewable Energy,Innovation,Process Manufacturing

One of the keynote highlights (both at the beginning and end) at this year’s OSIsoft User Conference pertained to the novel intersection of energy and information.  A similar topic addressed frequently by Daniel Yergin, chairman of Cambridge Energy Research Associates. 

The basic tenet is that information and brainpower will always defeat an energy crisis.  This is something I believe quite strongly, and it’s no secret that Pat Kennedy (founder of OSIsoft) thinks he’s both got the problem described, and solution nailed with OSisoft’s product.

I’m also involved in the renewable energy revolution, and the work I’m helping do in that area harnesses the power of information to transform the reliability of renewable resources… but more on that in some other post.

Pat Kennedy talked about using information to fuel a localized, business-park level energy production and distribution design called “microgrids”.  Basically, small islands of businesses (and perhaps residences) that can produce power, utilities like steam and chilled water, and can operate independent from the grid if needed.

The upshot of a microgrid is that it can lead to a better use of energy – every BTU spent in power generation is maximized because of very tight energy integration to other utilities required by process manufacturing tenants.  Fuel spent on firing a combined cycle gas turbine is then converted to heat for making steam, which is then used by other tenants in the park, which can help drive machines to do other work.

Renewable energy can also play a part in these microgrid designs.  Solar rooftops can run the street lights or anything else that can operate during the day.  The same goes for wind, though decoupling both these renewable resources from the actual electrical grid in the microgrid would help keep it stabilized.  Renewables would be focused on creating energy required to do things that don’t have a direct impact on the grid frequency, but do reduce the energy demand on the main power generation units. 

Like powering a new kind of HVAC technology…

At the end of the conference ICE Energy discussed their product that results in electrical peak load-shifting on the demand side of the energy curve.  They can diminish the cooling load required for business buildings or industrial applications by creating ice at night when energy is cheap (often renewable since wind power works best at night), and plentiful.  During the day, the ice melts, and as any good chemical engineer knows, the latent heat of the ice melting is then used to provide air conditioning.  That reduces energy demand, and therefore customer expenses during peak-use (and rate) times.

Of course, ICE Energy uses OSisoft’s PI System to help manage and instrument their machinery.  So it’s one big happy, real-time data family.  But the results are important:

By combining innovative energy consumption and production / distribution technologies and monitoring everything in a high fidelity, high speed way, it’s easy for any engineer to make a microgrid work in its most efficient way possible.  It’s like the “Prius effect”.

By scheduling the operations of the microgrid’s tenants to move their peak demand off to cheaper hours, tenants will operate in the “energy sweet spot” where their operations become both cheaper and more sustainable.

What’s the catch?

Policy.  Right now, any company that employs co-generation assets is not allowed to sell their energy out to the main grid.  They can use it on their own, but due to regulations, they are not allowed to work in the energy market at large – which could be quite profitable for a very efficient generator with spare power during peak times.

Microgrids can offer some shelter from the current policies because under the auspices of a landlord / tenant relationship, the utility provider can make the utilities they offer part of the lease agreement.  But it’s not quite as flexible as being able to plainly work as utilities do with their customers.

It’s an idea that’s catching on, and it’s all about leveraging information from both inside the business park / microgrid, and outside.  To see an example of this in practice, visit http://www.eastmanbusinesspark.com.  Eastman even offers up energy analysis optimization services to keep tenants on track with efficient energy practices.

It’s all about the data… everything must be instrumented, analyzed, and watched for ultimate efficiency gains.  And those gains could be substantial.