System feedback - organisation gone wrong

One of the biggest problems with businesses is their failure to develop systems to gather feedback. Some of the failures I have noticed are:
1. Commonwealth Bank - A failure to communicate with customers, a failure to design systems which suit a broad range of customers (despite marketing to a certain customer base), and a failure to use the preferred communication modes of customers. Too many organisations are undermining people's capacity to communicate in order to retain the benefits of scalability.
2. Google - Online solutions provide businesses with the ability to automate processes giving them a new level of scalability. What if the business acts unilaterally without informing the customer, even if they are in breach of their rules? Is that good customer service?
3. Tiger Airways: Airlines are shifting to online booking services. I note with Tiger Airways that there are no flights on the Manila-Perth route which they profess to offer? Tried to contact them. No email option. I'm not going to write a letter. Do they know? I don't think I want to deal with a company whom I can't readily contact. A business relationship is bi-directional. I think businesses that design systems solely to suit them are missing something.

These organisations will make the argument that its too easy for people to write emails, that email criticism is too direct and argumentative. I think this trend is because business organisations have been poorly prepared to deal with the influx of communication, so rather than resolving issues, they are instead closing this convenient mode of communication. Do we accept that most emails are a waste of time. That there are thousands of tragic souls in the world seeking to waste the time of business.

Perhaps the biggest problem is the tendency for business to see themselves as the centre of reality. They design systems that fit their 'business' without considering the broader consumer experience. What would you think of a customer survey by Commonwealth Bank which did not allow you to ask questions, or to make a specific complaint. A survey is not a good way to survey the market because it does not address specific problems, it allows problems to accumulate. More often the survey is designed to make the marketing executive look good. That is why the independent commentary option is often missing. Regardless, its a tool which is going to miss or understand consumer complaints because consumers are not fully invested in an organisation's problems 6 months after a specific complaint. Business is dynamic. The customer experience needs to be fully dynamic as well, if they are to be fully satisfied. The attempts by business to 'manage' the relationship by sabotaging the communication process does not serve them.

The implication of this is that the largest companies are tending to offer the worst services because they are interested in mass markets rather than any specific customers experience. It is therefore the discerning customer who is leading the market. What we need is better consumer feedback systems to feed people the business review information they need.
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Andrew Sheldon www.sheldonthinks.com

The impact of open source on market structures

You might wonder what impact open source will have on the software market. Will a proprietary giant like Microsoft be replaced by a open source one. There is a number of reasons for suggesting that the ‘developer culture’ will avoid that, though I think the extent to which it does will depend on the extent to which they avoid the traditional folly of not attending to their developer needs.

The reality is I believe that open source will with time cease to be open source. Instead there will be a core element of code that will be ‘free’ or remain open source, which will attract developers, but there will be periphery systems, ‘plug ins’ or ‘add-ons’ which will be proprietary solutions which users will need to pay for. Clearly there is some self righteous ‘virtuosity’ to software development, but I think such idealism will disappear as open source migrates towards the ‘user needs’. Userability will finally equate with profitability. The sustainability of open source will not rest on profitability but the desire of programmers to work with a ‘free system’, or free at its core.

I therefore believe the evolution of open source and the software market is going to evolve like this:

1. Development of functionality: Firstly the platform must meet the needs of developers. The platform gains acceptance when it secures a critical mass, which is only likely where there is a dire need for the solution to justify the support.
2. Development of useability: The broader market acceptance of the language depends on the developer’s willingness to customise the language for the useability of non-programmers. The current leading open source platforms have yet to do that. The migration to broader marketability will be at odds with the ‘ideologue’ who was previously a supporter of time and money for open source.
3. Commercial sustainability: The migration towards a commercial basis will means developers will make money from the peripheral solutions they create, where the core language will remain free ‘open source’. The free use of the core language will be the basis for remaining the loyalty of programmers.
4. Growth model: The platform that wins will be the platform that offers developers free code. I suggest therefore that the language which succeeds will be the one which requires developers to surrender their proprietary rights after a certain number of years. This will have two impacts: It will encourage more programmers to join their platform, which means it will have greater functionality, and thus more users. Developers will be competing with each other for solutions, so add-ons need not be expensive.
5. Succession model: At some point in time the free core language becomes limiting so a new platform is developed on the same basis.

So where does this leave commercial software developers? I think it leaves companies like Microsoft struggling to remain relevant. You only need to look at the take-over of Yahoo. They are paying full price for a business that is in decline rather than paying nominal amounts for businesses of the future like Google does. Thus I suggest proprietary developers are like to live off the coat-tails of the open source solutions. The Google model serves as an interesting model, which works because it has elements of the Open Source solution. It has a closed but flexible work culture, but it takes smart people, but by necessity safe people or young people who want to learn. It is the comfort that keeps them at Google and the practicalities of life, like the desire of people to debt fund their house rather than giving that all away to 'play the idealist' with OS.

Proprietary solutions will differ in their capacity to deliver technical people benefits upfront, so its a safety vs value decision of workers. Can you guess which type of people makes the best programmers?

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Andrew Sheldon www.sheldonthinks.com

The capacity of open source to address user needs

Software development has historically been based upon corporate endeavours to solve user problems. These solutions were given new features, though they always seem somewhat constrained by their legacy systems. Corporations tend to be focused on short term goals and it tends to take years before they finally address flaws, usually as a result of a user revolt. I am reminded of my trading software which for many years as been tremendously unstable. Only in recent years has it finally addressed that issue.

What is evident with open source is its superior capacity to address user needs. Because goals are defined by user-developers, where there is a need, there is often a programmer or two willing to support changes. The organisational framework is flexible enough to create the opportunity to support it, and the team environment is structured well enough to achieve the purpose.

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Andrew Sheldon www.sheldonthinks.com

The inter-operability of Open Source

One of the benefits of inter-operable software solutions is that functionality can be shared between solutions. This operability of course depends on whether a certain language is supported, and thus success in future (as always) will depend on one language establishing itself as a standard. This is not always the language that is the most versatile just as the Beta vs VHS battle of the 1980s and the Apple vs Microsoft battle of the 1990s demonstrated. I think in the open source arena, its more likely to be the OS platform that reaches out to the broader market with user-friendly features that is doing to be the winner. At this point there is no clear leader. In the content management area, Drupal and Joomla seem to be tied.

Functionality will continue to rest upon the capacity of these languages to absorb new innovations in other languages whether they support other languages or just morph their functions.

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Andrew Sheldon www.sheldonthinks.com

Open Source as a management system

There is a belief that open source has no limits, no laws, no regulations and no monopolies – that its the wild west of software development. Actually I think that is far from the reality. My sense is that they different from proprietary software, commercially developed applications in the following sense:

1. Commercial software: This is software developed by businesses who are pursuing profit objectives
1. Financed by shareholders, creditors and users (purchasers)
2. Rigid goals and business structures
3. Creativity is sponsored by seniors so not well-supported
4. Greater financial constraints and struggles to prioritise goals
5. Software limited by funding so develop narrow specific market-orientated applications
6. Creativity is defined by business owners, who may or may not be programmers, who may or may not be empathetic to the needs of users
2. Open source software: This is software developed by businesses who are pursuing creativity objectives
1. Financed by generosity of developers offering time & contributors offering money, who are more often than not users
2. Flexible goals & deadlines and flat organisational structures
3. Creativity goals are sponsored by developers so well supported
4. Fewer financial constraints means the product develops in multiple ways
5. Creativity is defined by developers at the expense of useability. Users without programming skills struggle with these platforms, reducing the market reach of these products
   

The ‘Open Source’ management system is superior because it is less constrained by financial issues, but in these early stages its dominance by developers has meant they have failed to develop product that is user-friendly. For this reason products like Joomba and Drupal have not attracted the market or success that they should have given their great functionality. We can expect them to address their useability issues in coming years as the open source community becomes exposed to more criticism.

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Andrew Sheldon www.sheldonthinks.com

Options - the universal incentive program

Management systems are designed to serve people. The question is do they serve people equally? One important element of a management system are incentive programs. Unfortunately most incentive programs are poorly structured. Mostly poorly approximate the contribution of recipients, few hold recipients accountable, and thus few serve people well, or rather, some serve some people at the expense of other people. Generally active interests are served at the expense of passive interests, bosses at the expense of subordinates.
So what would constitute an effective incentive program? Clearly one that rewards achievement and penalises failure. There are several matters that have to be considered:

1. Risk-reward balance

Does it serve the organization that authority figures have everything on the line? Clearly not when you consider that high risk can cause stress, and executives might be expected to make bad decisions if they have personal risk of loss clouding their judgement.

2. Sustainable rewards

The problem will option schemes is that they are date-stamped. The options are only an incentive in a rising market, and absolutely no incentive in a falling market. I dare say executives are inclined to adopt shares in-lieu of salary at these times. I remember executives telling me that they were not getting any salary back in the late 1990s - I don't doubt it, they were likely accumulating shares at low prices. The record lows in mineral exploration were a testimony to the way executives were 'mining the market'. It made more sense at that time to preserve cash by issuing shares to directors and doing minimal exploration. They were in effect acting as 'absent directors'. This was no doubt in the interests of directors, but it also was good for shareholders as well, as it makes sense to spend money when you are able to raise more at higher prices.

When options have the possibility of being worth something, I think we get a very different decision making path by directors. The long term best interests of a company come from investing in cheap emerging projects, but instead we see executives supporting acquisitions or mergers with similar sized companies despite them enjoying a similar market premium in the market. The company does not lose (in absolute terms) because the other company likely trades at a similar premium, it just carries an opportunity cost because it could have bought projects cheap and developed future revenue streams. Executives thinking first of their options however would just seek companies that they can merge with to increase fund manager interest in the short term. This occurs because CEOs want to lift the short term share price so they can cash out their options when the 'vendor' limits expiry, allowing them to freely sell their shares or options they have accumulated. It helps that these options have staggered expiries.
Another examples of this issue is a decision by an executive not to upgrade computer systems because the cost of the upgrade will impact on his short-run profits, and thus his options benefit. It seems sensible that options should be provided on the basis of profits after capital expenses, so that executives dont defer capital spending. If this was the case, its seems likely that executives would be more inclined to invest, but they might still only invest for as long as they can make returns over their period of responsibility.

3. Meaningful reward

Executives are given options that give them benefits that far exceed their contribution. The reason I say this is because serving executives have no role in initiating the stock market boom that has extended from 1986-2007, so why should they profit from it at shareholders expense. Why aren't their option payments tied to an index of similar-sized companies since ultimately that is the standard which determines their contribution - how well they perform ahead of other executives. Afterall the salary component reflects their remuneration for 'nominal levels of performance', so the option should be based on the extent to which they have differentiated themselves from other directors.

4. Contribution of benefits
The other problem with rewards is that they don't necessarily go to the right person. The CEO and the directors might be the public face of the business, but sadly it is often the subordinates that account for a great deal of the value-add. Its unfortunate that accounting has not developed in such a fashion that accounting systems are not low-maintenance. It seems probable that this will come with fully-electronic monetary solutions. This will allow essentially every person to be considered a cost-centre, whether they work as a captive, shared or public contractor does not matter.

A better reward program
I am suggesting a better reward program would make provisions for:
1. Benefits to be offered on the basis of performance relative to other directors or companies
2. Outsourcing business responsibilities so that we can see the real contributors to an organisation.
3. There needs to be a salary & incentive elements to a salary package
4. There needs to be greater accountability to determine the contributors to the organisation
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Andrew Sheldon www.sheldonthinks.com

What is the role of a system?

A system is a formalised methodology or approach for achieving a pre-defined purpose. If you dont have a purpose, then you have no way of establishing the suitability of the system. The purpose is the key value but it is not the only one. There is a whole context in which we set values, and most importantly, if we are talking about a human system, then we are talking about a hierarchy of values. So we need to factor in all those values that help humans achieve their goals, as well as ameliorating those factors that can frustrate the achievement of goals.

That is not to say that systems need to have a human element to them, but in the bigger picture, if we are talking about systems that serve humans, or if we are talking about systems which we would want to serve humanity, then we need to consider the human context.
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Andrew Sheldon www.sheldonthinks.com