The gang of four

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An article yesterday on Bloomberg News (not available on the web) confirmed what a PricewaterhouseCoopers executive told me last week: PwC, Deloitte, and Ernst & Young have all issued instructions to their partners and staff not to denigrate or poach the clients of KPMG. The Bush administration is seeking a settlement on charges related to KPMG’s sale of tax shelters, rather than seeking to press charges. Instead the individual partners are facing criminal charges. It was clear from the start that regulators such as the SEC had no interest in pursuing KPMG in the same way that they hounded Arthur Andersen. Moving from four to three top auditing firms would result in massive reputational damage for the audit profession, forcing clients and regulators to reassess the current cozy oligopoly. So the audit firms are acting extremely differently from when Arthur Andersen was in trouble, when the attitude – and actively encouraged behavior – was kick them when they were down. The question becomes, if neither regulators, clients, nor the Big Four themselves will allow any of them to disappear, what is the moral hazard? I believe the firms understand that they will do the best when their practices are pristine. But knowing you can get away with it is not the best foundation for good behavior.

India benefits from Research Process Outsourcing

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The excellent Knowledge@Wharton site of Wharton Business School has just published an in-depth special edition on What’s Driving India’s Rise as an R&D Hub? (registration required). Motorola, Microsoft and many others are launching R&D programs in India. The real issue is that these are not isolated projects, but integrated elements of global research. The new term for this is Research Process Outsourcing. To do this effectively absolutely requires knowledge-based outsourcing, and harks back to the issues raised by the Harvard Business Review case study I discussed last month. There is no question that the increasing sophistication of the best of the Indian technology companies enables not just participation in global R&D efforts, but also the coordination of international efforts. However despite all the excitement about the potential of the Indian economy, the depth of its lag in education, infrastructure, and health will prove a massive drain on the ambitions of the leading edge of the nation.

The bottom-up collaborative economy

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I’ve just spotted a recent article in BusinessWeek called The Power of Us that provides a great overview of how mass collaboration is driving the economy. It refers to a number of examples I described in detail in Living Networks, such as Eli Lilly’s Innocentive, which enables companies to draw the best innovators globally into their internal R&D programs. As evidenced again by the references in the article, the success of James Suriowecki’s outstanding book The Wisdom of Crowds has played a powerful part in making people realize that collaboration – if correctly designed – is far more powerful than any other approach. The tools and business models that support that will be central to the next phase of the global economy.

Blogging in business

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My book Living Networks, which came out at the end of 2002, opened with the words “Macromedia, the company best known for selling Flash software, is blogging,” and went on to describe what blogs were, and how they were just beginning to be used in business. A few years on, and according to the title of a conference I spoke at in New York earlier this year, we are seeing Blogging Goes Mainstream. The week before the conference BusinessWeek came out with a cover story Blogs Will Change Your Business. Indeed, blogs are far more than a social phenomenon. They are playing an increasingly important role in business.

Now, Bill Ives, who formerly ran Accenture‘s knowledge management and portals practice, and marketing consultant Amanda Watlington have just released a new book Business Blogging: A Practical Guide. Not surprisingly, given Bill’s background, it is an extremely pragmatic guide for businesses looking at the applications of blogging. I strongly recommend it for any organization that is considering implementing blogging, either externally for profile-building or customer relationships, or internally for knowledge management and collaboration. The heart of the book is its 70 case studies of bloggers and their experiences, including individuals, consultants, large companies, and not-for-profit, encompassing an extremely diverse range of objectives and design parameters. Every organization should at least consider how they might apply blogs. For those in this situation this book should be considered on a par on quality and value with the ultra-expense reports from the tech analysts – just with a lot lower sticker-price!

The transformative power of e-paper

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Fuji Xerox has just announced a new ultra-thin electronic paper that doesn’t need electricity to maintain its display. Meanwhile, Sony recently announced flexible electronic paper that can be rolled up like a normal piece of paper. The leader in the electronic paper industry, E Ink, has already announced products that embody aspects of both of these innovations. The vision of e-paper technology is to create a low-cost, thin, flexible screen that has very high resolution and relies on ambient light (i.e. has the same readability as normal print on paper), feels good to the touch and does not require a current to maintain its display. In other words, just like paper, except you can change what’s printed on the paper at will. As a brief overview of the field indicates, this is still a technology of the future. Sony has launched its Librie ebook (which is only available in Japan) using current generation epaper, and has received great reviews for the epaper screen. As we all know, ebooks have not so far replaced the traditional paper variety we still find in bookstores. Yet at a certain point of technological development, epaper will become transformative. The reality is that real books and newspapers are currently far superior to the current digital versions. However when the paper feels, looks, and acts sufficiently like the tree-based material, everything changes. We can then tuck a newspaper under our arm, open it out to peruse in the subway, and when we get bored of the New York Times, turn it into the South China Morning Post. Similarly, we can carry around a book that is nothing like a laptop, but rather – if we choose – is indistinguishable from a contemporary hardcover, including the ability to scribble in the margins. The primary difference being that you can turn it into any book you happen to feel like reading. Another transformative application of e-paper is in large displays. As soon as it is cheap enough, there is no reason every square inch of visible space – table-tops, elevator walls, pavements and more – will not become a screen for news, advertising, and other distractions. No, the technology is not here now. However 10 years is a reasonable estimate these technologies to be commercially viable. At that point, they will completely transform media, publishing, and public-space advertising. More to the point, they will change how all of us interact with information and media.

Better matchmaking

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One of the most successful business segments on the Internet has been matchmaking. People are prepared to pay to get in touch with potential mates. We probably all know people who have met their partners online (whether they admit it or not). Yet the way matchmaking is usually done is incredibly crude, based on checking a series of boxes, and being matched with people who check the same boxes. An advance on this science has been made by OKCupid, which among other approaches allows people to specify their own questions, rate the importance of these, and uses people’s matchmaking behaviors to assess their personal characteristics within defined confidence levels. To boot, the service is free. As a newly-married man I’m certainly not in the dating scene. However I do think it’s an important social function to enhance a key promise of the Internet: to be able to draw on the entire world in finding our perfect mate, as opposed to being limited to who we happen to bump into along the way. Business matchmaking is equally important. How do we find the people or organizations that we can create unique value with? There are a host of event-based matchmaking systems to enable conference attendees to hook up with interesting people. (More on this another time.) One of the most sophisticated is IntroNetworks, which asks people to position a whole range of business and personal topics along a spectrum of how interested they are in them. This enables them to identify with great accuracy the other people at the event who have the closest match of interests. Check-the-box profiling is so last century!

Update August 19: A CNN news article quotes a Jupiter Research analyst who forecasts 9% annual growth in online dating revenue this year to US$516 million. The story is focused on the slowing in growth of the sector after a massive surge. However part of that has been due to the relative lack of innovation in the sector, thus the story above. Still, 1% of all Internet activity is attributed to online dating, which is pretty hefty. Social networking software such as Friendster and Google’s Orkut cross boundaries, including both dating and other personal networks. The story of Ruper Murdoch’s News Corporation recently acquiring the popular social networking MySpace shows that mainstream media are recognising the power and potential of social software. News Corp’s Australian media rival Fairfax recently paid A$40 million for Australia’s premier online dating service RSVP, demonstrating that this truly is a convergent media space.

The third phase of outsourcing

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A recent survey by TPI shows that 81% of large UK companies expect to increase their offshoring activities over the next 2-3 years, with just 4% saying they will decrease it. Other recent stories have focused on the woes of outsourcing. While these stories seem to be contradictory, the reality is that companies are not usually responding to outsourcing problems by stopping the practice. Rather they are working out how to do it better. This is reflected by another major finding of TPI’s survey: companies are tending to offhsore with wholly-owned subsidiaries rather than contracted providers. This relates to my current work on the rise of “knowledge-based” outsourcing. The global outsourcing business is rapidly moving into its third phase. In the first phase of outsourcing, organizations paid companies to take over selected business processes. In the second phase, clients became more sophisticated, specifying in detail how the companies would create results. The emerging third phase of outsourcing is “knowledge-based” outsourcing, in which organizations develop deep mutual knowledge, design knowledge transfer, and integrate their business processes so that the outsourcing companies are in a situation to effectively “lock-in” their clients. In some cases, in order to get that level of integration, you want the offshoring company to be owned by you. However this means far less flexibility on many levels. Ultimately you do want an external provider that can provide a high-level of knowledge-based integration. This relates to the rapidly increasing quality of offshore service providers. Another finding of the TPI survey is that 60% of UK companies believe that Indian companies match local UK providers on quality, irrespective of cost. Indian outsourcers, which for now are in the vanguard, are very actively focusing on building effective knowledge-based relationships. I featured Infosys as a major case study in the second edition Developing Knowledge-Based Client Relationships for some of the great work they’re doing on this.

Citizen journalism

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One of the most important global trends is that of citizen journalism. Blogging is one of the most evident forms. The most popular blogs rival the major newspapers’ online sites (see the recent interesting (though controversial) ComScore report for an analysis of blogs and blog readers). Other more structured media such as OhMyNews aggregate citizen journalists’ reports.

The use of images taken on mobile phones by those on the scene at the London bombings has brought the issue to the fore, with now television stations such as CNN and the BBC, as well as other media channels, actively asking their viewers to submit photos and videos from the scene. Now the UK Chartered Institute of Journalists believe that using citizen journalists is irresponsible. Certainly some journalists have reason to be concerned by this trend, but as in other industry shifts, it means they need to shift their role as media gatherers, filterers, and presenters. To give a brief excerpt from my previous book Living Networks, under a section titled “We the media” (published well before Dan Gillmor‘s excellent book by the same name):

The brilliant visionary Marshall McLuhan accurately described the media as an extension of our senses. Your eyes can see what’s happening in your immediate vicinity, your ears can hear what people are saying in the same room as you, but with television and radio as an adjunct to your senses, you can see and hear anywhere around the world. All of the cameras and microphones of the world’s media are an extension of your eyes and ears, and journalists are your personal emissaries to report on their findings and impressions.


Now connectivity is extending your senses to all the connected people on their planet. Media is becoming a participatory sport. You can tap into what any of a vast army of people are seeing and thinking, or contribute yourself to the global flow. This certainly doesn’t mean the end of mass media. Most people will always choose to access a common frame on the world, that gives views of politics, society, and entertainment that provide a basis for interaction and discussion. However the new world of media is at the heart of how the networks are coming to life.

We are now seeing this begin to hit the mainstream. Our senses are everywhere, represented by everyone. The only question that remains is through what filters, channels, and distribution will those extensions of our senses reach us?

Amateurs, professionals, and open source

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Paul Graham, author of Hackers and Painters, has written an interesting piece on What Business Can Learn From Open Source. He compares blogging to open source software, as bottom-up endeavors by people doing what they love. Most importantly, they are done by “amateurs” rather than professionals, almost by definition. It reminds me of one of my favorite quotes, by the wise old Marshall McLuhan: “Professionalism merges the individual into patterns of total environment. Amateurism seeks the development of the total awareness of the individual and the critical awareness of the groundrules of society. The amateur can afford to lose. The professional tends to classify and specialize, to accept uncritically the groundrules of the environment. The groundrules provided by the mass response of his colleagues serve as a pervasive environment of which he is contentedly unaware. The ‘expert’ is the man who stays put.” Today this is more true than ever. Make sure that you’re an amateur at at least some of the things that you do!

Technorati, tags, and making sense of the web

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Over the last week, Technorati‘s reports on the state of the blogosphere have received massive press attention. The focus has been on the raw numbers – Technorati tracks 14.7 million blogs, and the number of blogs doubles approximately every 5.5 months. One of the other reports, on blog tags, has received far less attention. Blog platforms usually allow bloggers to create categories in which to allocate their postings. Given the millions of people who are each creating their own taxonomy for structuring information, this is implicitly creating a bottom-up means of making sense of a world of almost-infinite information. There’s a very nice movie of the growth in tags (12.2MB) that gives a sense of how this has developed at a stunning pace over just the last 6 months since Technorati started tracking tags. For those not familiar with it, Technorati is a blog search engine, that in real-time keeps track of what is being written by bloggers about what, what is emerging, effectively uncovering the current stream of consciousness of the global brain. Other good blog search engines are MIT Media Lab‘s Blogdex and Daypop, where I tend to look at the media stories currently most broadly referenced by bloggers worldwide.