Thursday, August 18, 2005

Books, learning & JSB

I finished the last entry recommending some books. Books are good. Books give you ideas. Books tell you what other do. Books contain analysis.

Books reading a book isn’t learning. Only if you act on the information in the book have you learnt anything, otherwise, well, you may have memorised a fact or two, or maybe it was just a hypothesis, or someone’s opinion. So, all those books I recommended last time on change, well, unless you internalise what they say and change yourself there is no real difference.

And the problem with books is, its too easy to read and read and read and not do. I’m guilty of this too... if I just read one more book I’ll know the answer.... if I just read that book everything will be explained.... and so on, yes I’ve done it. I’ve read when I should have been acting. Conversely, I’ve also acted when I should have read first.

(That is one of the things to remember if you ever think about doing an MBA. There is no “secret information” that an MBA will teach you. Of course, lots of people like to tell you that if you have a Harvard MBA, or a Kellogg MBA, or even a Nottingham MBA, then you will have the “secret information” which automatically entitles you to membership of the McKinsey club, or the CFO club – or what ever club it is you want to join.)

The book I’m reading at the moment is co-authored by one of my favourite business writers: John Seely Brown (or JSB for short). I mentioned this book the other week after I read the FT review of it, it is: “The Only Sustainable Advantage” by JSB and John Hagel.

Yes, I took a diversion between the review and this book to read another JSB book but that was my accident, I found it while I was trying to buy this one. The two books demonstrate something I’ve noticed with JSB’s work, he’s a bit inconsistent. Most of his stuff is really good and well worth reading, but then, once in a while, he produces something that is just not up to the same standard.

“Only Sustainable Advantage” is one of his lesser works. It has some good ideas, and some good research, and I couldn’t agree more with his main argument but in other places I find inconsistency or faulty assumptions.

If you want the good news, hang on, I’ll tell you in the next blog entry. For now I want to talk about something I think he’s got wrong. In chapter 3vthey argue that firms must choose to specialise, they must choose to be either: an Infrastructure management business, or Product innovation and commercialization company, or a customer relationship business.

OK, I can see some logic here, this sounds reasonable. And it you remember that other parts of the book talk about outsourcing and offshoring (more on that another day) then it fits in with the argument.

But hang on: what business ever survived without customers? Surely every business needs to specialise in customer relationships? Yes, some might be better at selling than other, some may even specialise in things like market research, but every (good) business needs to have a strong customer relationship function.

Later in the same chapter they site the example of American OEM (original equipment manufacturers) computer manufactures. These are the guys who badge equipment made by others. They got to be “badge engineers” because the outsourced their manufacturing to EMS (electronic manufacturing services) companies.

Over time OEMs also decided to outsource their equipment design – this time to ODMs (original design manufacturers.) Now at this point we have the 3-way split they described: OEMs look at customers, while ODMs focus on product and EMS manufacture them. But...

The authors go on to tell how ODMs flourished because they combined design with manufacture. So some of them are now doing product and manufacturing?

One of the examples cited in BenQ a Taiwanese firm that until a few weeks ago wasn’t very well know. It was an ODM, and later an EMS too. The reason you may have heard of them recently is that they bought Siemens mobile handset division. They’ve added OEM to their range. Surely, if we believe JSB & Hagel they are doing the opposite of what they should be doing.

So, why did BenQ buy Siemens? I don’t know, I’d have to ask BenQ executives but I can make some guesses: they want to get closer to customers, they wanted to own the brand, they wanted to take more of the total profit.

The brand owner is in a position to squeeze their suppliers and steal their profits because they own the customer relationship. And because they are close to the customer they know (or at least should know) what it is the customer wants.

Where does this leave the 3-way split described by JSB and Hagel? Well, I think it could work, for some companies, at some times it may make sense. But business is dynamic so while this formula may work for a while it won’t work forever.

The other use of the 3-way split is as a model to compare yourself to. What if your organization was to concentrate on one of these three? What would it look like? What would you change? How would it improve profitability?

Next time I promise to write on what JSB has got right in this book, and I may even fill you in on their thoughts on offshoring – they raise some interesting points.

Anyway, it must be a good book, it made me think!