Whether to outsource….

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Every issue of Harvard Business Review includes a hypothetical case study, together with commentaries by leading practitioners on what they recommend in the situation. The case study in the July-August issue, written by Nitin Nohria, titled “Feed R&D – or Farm it Out?” is a very interesting examination of a company that is wondering whether to outsource part of its R&D to India. Issues raised include accessing best-of-breed and potential loss of intellectual property. Of the four very interesting commentaries, the most striking is written by Azim Premji, chairman of Wipro, one of India’s top three technology services companies. He is cautious on the merits of outsourcing in this case, spends most of his analysis on the internal dynamics of the company involved, how to support collaboration, and emphasizes the importance of providing strong contractual protection of IP.

Encouraging and constraining collaboration

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In one of those cases in which there is a whole world of implications behind a seemingly small news item, an article in the Financial Times recently stated that banks are in danger of insider trading by sharing information inside the bank on credit derivatives. Trading in credit default swaps (which are essentially financial instruments that represent the credit risk of corporate borrowers) has always being done based on the privileged knowledge that banks have of their clients. Now banks are being told that if they want to trade these instruments, the parts of the bank that know their corporate debt clients well, can’t talk to the parts of the bank that trade these instruments. In the first instance, given that this development represents a broad, long-term trend to regulation on similar issues, this suggests that diversified financial institutions – which are based substantially on sharing knowledge between their operating divisions – may have far less justification for existence than in the past.

In the context of the issues addressed by the Collaboration in Financial Services Europe conference I am chairing in London this June, this has crystallized some of my thinking about the future of collaboration. In a nutshell… Every organization is experiencing the imperative of collaboration. To survive, we must enable information flows and collaborative work. At the same time, there are many ways in which we must disable communication and information flows, inside and outside the company. This is particularly pointed in financial services, with old and new regulations constraining who can share information, from investment banking and research, to lending and trading. However similar dynamics apply to companies in every industry in that they both have to actively share information, and also have constraints from intellectual property, privacy, regulation etc., in how they work both internally, as well as with suppliers, clients, and other external partners. This tension between encouraging and constraining collaboration and information flows will be central to the evolution of organizations over the next years and decades. More on the Collaboration in Financial Services conference soon – this will be drilling down into detail on some of the leading initiatives in collaboration the financial services sector in Europe – there are some very exciting developments.

Live impressions from MeshForum 2005

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Some live impressions as I sit in the extremely interesting MeshForum 2005, blogging on the local WiFi network. Currently watching a video by the founder of the Yellow Arrow Project – an extremely cool global project that is a kind of collaborative filtering – people use yellow arrows to point out what’s worth looking at, and the arrows have codes that allow people to share their comments via mobile networks. Counts Media, the company behind the project, among many other interesting things does “mixed reality” gaming, which brings together real-life and online worlds. The conference kicked off with Dr Anna Nagurney, who works at UMass on Supernetworks, which is the science of how different types of networks relate at a higher level. An example is the choices that people make on telecommuting or physical commuting, that bring together both communication networks and transportation networks. These approaches are being applied across digital, transport, social, financial, migration and many other kinds of networks.

Collaboration in Financial Services conference in NYC

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Collaboration – technological and otherwise – is central to the future of the financial services. In order to address these issues, in conjunction with Business Development Institute and Michael Ross Associates, I am designing and co-organizing a one-day conference in New York on September 29 on Collaboration in Financial Services. Full details are at https://www.bdionline.com/cfs.

We have got a tremendous response to the event. The current key sponsors are Intralinks, I-Deal, Microsoft, Interactive Data Corp, Vignette, Broadvision, and FaceTime, together covering the key technologies that support collaboration in institutional financial services, including real-time collaboration such as IM in a trading environment, document collaboration in deal-making including M&A and syndication, and internal collaboration systems. Many of the leading investment banks, including Goldman Sachs, Merrill Lynch, Deutsche Bank, CSFB, Bank of America etc. etc. are involved. Banks now see collaboration as a key driver both internally, and externally with clients. While there are significant compliance and security issues in the short-term especially, the core issues are first technological, and then process, organizational, cultural, and strategic. Banks are recognizing these will be major shifts, and there is lots to do in gearing themselves up to address these issues.

The reality is that we are far from achieving the potential of collaboration technologies in the financial services industry. Much of the reason is standards battles have at times dramatically slowed progress. A classic example is instant messaging, which is already at the core of communication in many of the financial markets such as bond trading, but the reluctance of AOL, Yahoo, and MSN to enable interoperability between their instant messaging systems has placed severe constraints on how banks can implement these technologies. Many similar issues remain in other domains, including establishing collaborative workspaces for M&A and other complex deal-making.

Part of my vision for the conference is to contribute to the industry – comprising both banks and vendors – acknowledging and beginning to address some of these standards issues. The last high-level panel session of the day will focus specifically on creating an industry roadmap to enable greater benefit from collaborative technologies in the near future. This conference will be run annually, and we may also establish some kind of working committees to help further these agendas on an ongoing basis.

Hope to see you there!

The Future of Knowledge Management

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I recently wrote an article on The Future of Knowledge Management for the Australian Financial Review which has attracted substantial attention. It also been slightly adapted to be published in the current edition of the leading knowledge management journal, KM Review, as “The Five Key Frames for the Future of KM”, and once I get a moment free (!) will also adapt it for some other publications that have requested it.

The basic theme is that “knowledge management” is no longer the most useful name to apply to much of the work that has flourished in this broad domain. It’s always been too unwieldy a term and concept, and today we have a number of emerging frames that are more relevant and practical to today’s business challenges. The term “knowledge management” still has a long, solid future, however several of the more focused disciplines it has spawned offer more traction for business. One leading practitioner said that he is finding that companies are referring less and less to KM, with one of the terms succeeding it being “organizational effectiveness”. Indeed, that’s a central objective, and more focused thinking is more likely to get us there.

In October I’ll be speaking at KMWorld in Silicon Valley and ActKM – a leading government KM community and conference – in Canberra. During the late 1990s I was strongly associated with KM, and it’s around five years now that I’ve been endeavoring to move beyond that. It’s interesting that I’m being drawn back a little into that domain. Despite my misgivings on the terminology, there is much in KM that will continue to be immensely valuable in what absolutely is a knowledge-based economy.

The Future of Customer Relationships

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I’ve just posted a new article on Creating the Future of Customer Relationships on my Advanced Human Technologies company website. The article supports the keynote speech I delivered recently at Customer Contact World 2004.

The article examines how to integrate the entire spectrum of relationship channels available in order to build true “knowledge-based” customer relationships. This is founded on understanding – and accentuating – the difference between what technology can do and people can do. Fast Company magazine’s blog wrote about and linked to the article, which has resulted in lots of attention and traffic for this.

Living Networks Forum debrief

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The Living Networks Forum in New York the other day was great fun and went extremely well. Both anecdotal and formal feedback was excellent. The official commentary on the event is here. When you’re trying something new, you never know quite how it will work until it happens, but the reality was a very good match with my original vision. The core concept was creating connections between people and ideas at the event, and that’s exactly what happened in a very rich fashion. In the end the way in which we created serendipitous connections at this event was more based on innovative facilitation processes than technology, however in future events the technology will gradually be integrated to take this “enhanced serendipity” to the next levels.

The major sectors respresented at the Forum—because of the location and the representation of both my and Business Development Institute’s core communities—were professional services, financial services, and technology. All these sectors are grappling with similar issues in the event’s core themes of developing client relationships, enhancing collaboration, and creating partnerships, so the cross-pollination was invaluable for participants. We began the session with a space-based facilitation process, in which people position themselves in a room according to their relative interests in key themes, enabling immediate connections with people with similar profiles. For each of the themes we had a brief presentation of core material, and then demonstrations, syndicate group discussions, and break-out exercises. All of the groups for both syndicate discussions and exploring potential partnerships were carefully designed around participants’ profiles. In this way the connections were not “engineered,” but facilitated. Before lunch we played a game between teams based on game theory, which was used to explore some of the dynamics of trust development over time. Much hilarity and some confusion here—it went well but perhaps a little redesign required for next time.

The overriding theme of how technology can enhance personal and organizational networks drove much of the very tangible excitement at the event. While by this time most attendees had come across the concept of social software and some of its implications, being able to see and experience the technologies helped to bring to life how these can be applied in business. Earlier in the week I’d been to the Christmas party of SDForum—the leading Silicon Valley technology networking organization—where the interest in social software was immense.

The social software space is hot, Hot, HOT! I frame what is currently happening as phase two. Phase one began with the now defunct sixdegrees.com and a couple of similar initiatives. After a lull and some nascent initiatives last year, this year has seen the space take off big time. Living Networks Forum gold sponsor Spoke Software has recently secured another $11.7 million in funding. Business is waking up to the fact that not only is this a new technology sector with strong promise—because of its ability to create value—but also that these technologies could transform how businesspeople communicate, form relationships, and develop trust. I’ll be writing a lot more about this later—this is a seriously important topic.

Perhaps not surprisingly, both Business Development Institute and myself have had numerous enquiries since the Forum about designing and running innovative events. There is an increasing recognition that it really is possible to create conferences and events that are far more valuable to participants than what we usually experience, by carefully designing for rich sharing of knowledge and ideas and forming connections in valuable ways, fully integrated with novel and useful content. We’ll probably run at least one other public Living Networks Forum somewhere in the US next year, however it seems as if more of the demand will be for creating similar events for professional associations, user groups, vendors, and inside organizations that need to create richer connections and exchanges between divisions and locations.

The evolution of legal services

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I gave the keynote address at LegalTech LA on Tuesday, conveying to the delegates my vision of “Leading Your Clients in the Connected Economy,” in the delightful retro-kitsch setting of the Westin Bonaventure in downtown Los Angeles. The legal community—at least recently—has being fairly good on implementing information technologies, which is only natural given how information and knowledge-centric they are. However it is another substantial leap for them to extend these kinds of systems to their clients. Encouragingly, several of the leading software platforms being touted at the exhibition offer capabilities to create client extranets easily and simply. These are often just ways of making documents and billing visible to clients—which is an important step—but are well shy of allowing workflow to be integrated into the clients’ processes—which is where this is all going. Ready-to-roll customized client extranets are now available in a number of firms. The Chief Technology Officer of one of the leading West Coast law firms told me he asked at an internal conference of all their litigation attorneys how many had created extranets for clients, and was amazed to find out that 85% had done so. No arm twisting involved.

One of the key questions is to what degree clients will drive the shift to providing online legal services and transparency. At the moment these demands are coming primarily from the most sophisticated Fortune 100 companies, however the scope is gradually broadening. There is a widely held view in the global legal community that the UK law firms—and in some cases even Australian ones—are ahead of US firms in implementing knowledge management and online services. My perception is that this is not because clients in these regions are more demanding, but that the law firms are being more innovative, and arguably the benefits of this can already be seen. Law is one of the most conservative professions, not least because the partnership structure (especially as implemented in law firms as opposed to the slightly more corporatized large audit firms) is very difficult to shift. I believe that the next 5-10 years will bring substantial change in the legal industry, and what clients expect in terms of service delivery. Those firms that do not fundamentally shift how they work with their clients will find it increasingly tough going.

Social Network Analysis and alliances

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I recently shared the platform with David Ewbank, head of knowledge management and alliance management at pharma giant Aventis, at the European Business Information Conference in Paris. I spoke on the living networks, while David spoke about how Aventis is using social network analysis to undertand better how knowledge is flowing within its R&D team, and its joint R&D projects with other pharma companies—these topics tied together very well. Social Network Analysis (SNA) is not new, but it has seen an immense surge of interest in the last 6-12 months. As society and work processes become increasingly interconnected, gaining insight into the dynamics of personal networks becomes critical. However it is often not evident what “interventions” in shifting organizational structure or personal behaviors will enhance performance. We are now in a phase of experimenting with how to bring out the positive network characteristics of organizations, with Aventis doing some very interesting work in this area.

Since I believe that the the next decade and more of management will be dominated by working in a world of increasingly blurred organizational boundaries, I’m delighted by David’s dual role. The Wall Street Journal commented on this in an article on how knowledge executives are reinventing their roles. The juncture of knowledge and alliances (which to my mind includes client and supplier relationships) is an immensely important domain that will see far greater attention in coming years. One of the themes in my keynotes and work that has attracted particular interest over the last months is that of “information policies”. Organizations are subject to opposing forces. On the one hand, there is an imperative to share information and knowledge actively with key clients, suppliers, and partners. However there are still limits on what can and should be shared. The challenge is to create a culture and policies that enable effective sharing within appropriate boundaries. Extranets are now standard practice, helping to bring this issue to a head. More on this later.

How many degrees of separation?

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Microsoft is about to release a beta of software for peer-to-peer social groups, called Threedegrees. Here is the CNET article. (The Threedegrees website currently is only taking email addresses to notify when the beta will be out.) The intention is to extend the functionality of instant messaging, and to create trusted communities. Users can form groups of up to just 10 people, with whom they can instant message, share photos, send animations called “Winks”, and playback (but not share) music. Users can join multiple groups, but the idea is to create more intimate fora for interaction than the usual free-for-all chat groups.

I believe strongly that technology has the potential to bring people together, and that is what people want to use it for. I’ll be very interested to see the software when it comes out – if it’s good I think it could do very well. The “killer apps” are increasingly social in nature. As readers of Living Networks or my blog will know, I see the famed “six degrees” of separation shrinking dramatically. The inner city area of major cities can now largely be spanned by three degrees of separation. These sorts of tools will shrink this further.