Let me admit right up front that I am an innovation junkie. Coming from Silicon Valley, I consider innovation to be the high art of business. Sure, operating an efficient, productive, competitive widget maker is the Holy Grail for many professional managers, and I admire great operating prowess wherever I find it. But what use is it all if it isn’t creating something new? Innovative businesses are an engine for change. And change is exciting because it is ripe with opportunity and possibility.
One more thing before you read on: I am not a big fan of business books that purport to tell you how to succeed. When I am pleasantly surprised by a business book, it is because of the value of the insights that it provokes rather than the advice or examples that it gives.
I tend to think of innovations as breakthrough ideas or game-changing technologies — like the Internet or genetic sequencing. On the other hand, I know there are many hardworking, successful businesspeople who consider new packaging for a breakfast cereal to be innovative. Merriam-Webster OnLine defines innovation as “the introduction of something new; a new idea, method, or device: novelty.” In the thesaurus, the first word that comes up for innovation is change. The combination seems like a good working definition to me: A new idea that effects change. Bigness or smallness is not important. With this definition in mind, I set out to see what the current batch of writers had to teach us about innovation.
Three of the books chosen explore innovation from an analytical perspective; each holds the view that networks are critical to innovation. In How Breakthroughs Happen: The Surprising Truth About How Companies Innovate (Harvard Business School Press, 2003), Andrew Hargadon sees a series of “small worlds” — seemingly distant, disconnected, and disparate populations or actions — that need to be bridged by technology brokers. Henry Chesbrough, in Open Innovation: The New Imperative for Creating and Profiting from Technology (Harvard Business School Press, 2003), sees a diffusion of knowledge that needs to be knitted into innovative solutions, both inside and outside companies. In The Slow Pace of Fast Change: Bringing Innovations to Market in a Connected World (Harvard Business School Press, 2003), Bhaskar Chakravorti sees a network of constituencies that must coordinate if they wish to abandon the status quo they currently support and create a new environment where innovation may flourish.
Each writer brings something unique to the discussion. Hargadon emphasizes that the structure and culture of organizations determines their success with innovation. Chesbrough feels that business models are crucial to creating value from innovation, and that they can also help to organize internal research and development. Chakravorti believes that, with the help of game theory, a new market environment of supportive, benefiting parties can be successfully negotiated around disruptive innovations. Each book addresses the elephant of innovation from a different perspective, but all cogently describe the same beast.
Andrew Hargadon hails from Silicon Valley and Stanford. He has relevant experience at IDEO, one of the world’s most impressive product design firms, and Apple Computer, which is likewise distinguished by its innovative products. But Hargadon isn’t enamored with the notion of solitary, ingenious inventors. Instead, the premise of How Breakthroughs Happen is that innovation results from the hard work of talented synthesizers — people who bridge ideas from unrelated small worlds. These small worlds are often the detached domains of seemingly unrelated industries, like health care and running shoes. He calls these synthesizers technology brokers rather than inventors, not to diminish their importance but rather to illustrate how most innovation actually occurs.
Take the example of Design Continuum, a product-design firm located in Newton, Mass. Despite its resume of innovative products, Design Continuum “invents” remarkably little. Rather, it pulls together knowledge from its divergent experiences to form compelling new solutions to various problems. When Reebok retained the firm to design a new athletic shoe, Design Continuum drew upon its prior work with medical IV bags to develop an inflatable air bladder for ankle support and comfort. IV bags were certainly not new to the medical industry, but they were quite new to the shoe business. Design Continuum bridged the two worlds to create a novel solution.
Hargadon holds that it is not enough simply to apply disparate ideas to new solutions — it is then necessary to build communities of support around those solutions. This insight is important and arises again in other works. Inventing is only the first step in innovating. If innovation is to take root, many parties must embrace it along the way. People must be willing to let go of their current thinking and incorporate the new ideas into their own work. To effect changes, it is critical to build support among those constituencies necessary for the changes’ adoption and success. Consequently, organizational skills and structure are key assets in innovation.
These collectives and communities are directly affected by the organizations and cultures in which they arise. If you don’t have an organization and culture that encourage risk taking — and that accept the failures that frequently result — then you are likely to fall prey to the “safer” dominant logic. In order to innovate, according to Hargadon, it is best to start by opening up your company, and in particular your researchers and developers, to outside thinking. This stands in stark contrast to the classic monolithic research efforts like those of AT&T’s Bell Labs.
In Open Innovation, Henry Chesbrough carries this idea even further. He defines the old methods of research and innovation as “closed” and asserts that the future of innovation lies in being “open” to the diffusion of ideas and knowledge that lie outside your company.
Chesbrough offers a compelling set of reasons for the necessity of the move to open innovation. The closed paradigm of innovation reflected a very different business environment — one where the boundaries between industries seemed impermeable to outside ideas because there was little apparent overlap between the products and core competencies of each. What could research in the pharmaceutical industry have in common with research in the electronics industry? Large, vertically integrated companies were able to reap the value of their internal research within their siloed business models. They could hire the best talent in their industry, manage the speed and timing of their inventions, direct those innovations toward their customers’ stated needs, and realize the full value of those innovations through aggressive intellectual property protection and captive markets. Bell Labs is an excellent example of just such a closed innovation paradigm, one that worked successfully for decades.
Toward the Open Paradigm
But something happened in the last 20 years that undermines the closed innovation model for the majority of businesses, which no longer can rely on vertical integration and captive markets to harvest their internal breakthroughs. The conditions favoring closed innovation have been eroded by the increasing mobility of talent, the influx of venture capital, the abundance of entrepreneurial startups, and the increasing importance of university research. The resulting network of communications and talent has created strange bedfellows, like genetics and microelectronics, which have been melded in microchips designed for use in the diagnosis of cancers.
Chesbrough points out that this erosion calls into question the closed model of innovation. When the best minds in your company can easily leave to found a new business with venture capital, you quickly discover that your company no longer has a monopoly on the best ideas, no matter how much you spend on R&D. When you find that the newly minted Ph.D.s you were relying on to inject your company with state-of-the-art thinking are instead happier to pursue their university projects at upstart competitors, you become acutely aware that the fortress you have built to lock your innovations inside actually may be keeping the best ideas out. Sure, the threat from startups may be momentarily abated, but that is a consequence of the current business cycle — not the ultimate trend of the underlying market dynamics.
Chesbrough offers a framework for how businesses can move toward open innovation. He uses the example of IBM, once a pinnacle of closed innovation, which adopted an open approach after, as he puts it, “a near-death experience.” From 1945 to 1980, IBM dominated the computer business. It had the largest sales, largest research budget, and most patents of any company in the industry. In 1992, its business was facing powerful competition on every front from the likes of Microsoft, Compaq, Sun Microsystems, Hewlett-Packard, and DEC. At the end of that year, IBM recorded the largest quarterly and annual loss in U.S. corporate history. Something had to change.
Louis V. Gerstner Jr., an outsider, was brought in to lead the charge. His IBM shifted its focus from products to customers and soon realized that its research dollars were being squandered on lower tiers in the value chain. IBM needed to redirect its efforts toward the applications and solutions that its customers valued. So Gerstner hired research managers to broker technology between IBM’s labs and its business units, with special emphasis on those innovations that could directly influence sales. And IBM stopped using its intellectual property largely as a defensive measure to ensure itself the freedom to innovate products safe from litigation. Rather, it attached its intellectual property to processes and components that its fabrication and manufacturing supplied to other companies — including would-be competitors. In this way, IBM’s component customers pay for the otherwise contestable right to use a particular technology that IBM has developed, and IBM earns a return on its intellectual property apart from issuing naked licenses or selling finished goods.
What really caught my attention in Chesbrough’s book, however, was his discussion of the role of business models in innovation. The value of technology is not inherent; instead, it is derived from how the technology is ultimately deployed. A major challenge for large companies that innovate is not that they can’t invent technology, but rather that they are impaired in creating new business models to best exploit it. Startups have nothing invested in their business models; they are agnostic in their pursuit of the best way in which to capitalize on an innovation. Large companies, on the other hand, are constrained by the dominant logic that pervades their organization and culture. The result is the exodus of talent and ideas to startups.
Take Xerox, for example. In the 1980s, the corporation’s business model sprang from its legacy copier business. The company made a modest profit on equipment and relied heavily on the sale of supplies. The key to capturing value was that Xerox required customers to purchase things like paper, toner, and maintenance only from Xerox. When researchers at its famed Xerox PARC labs in Silicon Valley developed PostScript (page “layout” software that enabled Xerox workstations to communicate with Xerox printers), there did not seem to be a compelling business model for PostScript as a stand-alone product. Rather than remain captive to Xerox’s closed systems, PostScript’s inventors, John Warnock and Chuck Geschke, spun off and began selling libraries of fonts for desktop publishing based on PostScript. The company they formed was Adobe, and the rest is history. Xerox’s dominant, closed-technology business model could not accommodate the open-standard approach that underlies Adobe’s success.
This type of phenomenon leads Chesbrough to go beyond encouraging businesses to open up to outside ideas: He also recommends that they make their internal innovations available for others to exploit. Where structural impediments hinder the realization of an invention’s potential, an innovator can still reap its value by licensing it to others who are not so impeded; startups, spin-offs, and existing companies with compatible businesses. The innovator can still share in the rewards through equity investments or royalties. More important, the returns from investment in research will be greatly improved over those that result from simply shelving innovations that don’t fit the dominant model.
But what about realizing value from those innovations that businesses choose to pursue themselves? Bhaskar Chakravorti, in The Slow Pace of Fast Change, focuses on the challenges that arise after innovations go out the door. Chakravorti describes a complex network of interconnected parties that need to be coordinated for an innovation to succeed. These parties are stakeholders in the status quo. They have arrived at their positions by rational choices intended to maximize their self-interests. This ecosystem includes competitors and partners, customers and vendors. To introduce an innovation, one must coordinate a move away from the current market environment and then recoordinate the group in the creation of a new set of market relationships that reinforce the innovation’s success. This harks back to Hargadon’s lessons about collectives inventing and communities embracing.
Chakravorti’s book presents a cerebral approach to the topic. He employs game theory, explaining how companies can choose from among a set of strategies that move toward the end game with due consideration for the many independent choices that others will make in their own self-interest. This process is recursive, with each choice dynamically affecting every other.
Chakravorti argues that by concentrating on those end games that plausibly serve the common self-interests of the various constituencies, you can negotiate a path to success. Focus is critical, since resources are ultimately limited — especially for startups. Finding points of leverage to help move the various decision makers toward the desired new alignment of businesses and customers is also paramount. You won’t be able to convince everyone. Who is necessary to the result? And why would it be in their interest to go there?
The networks of ideas, talent, businesses, and stakeholders envisioned by these authors make up a whirlwind of opportunities for technology brokers and open innovators. Armed with these insights, among others, I was ready to delve into two new tales of remarkable creativity and invention that happen to reinforce the theories presented in the Chesbrough, Chakravorti, and Hargadon books.
I started with Code Name Ginger: The Story Behind Segway and Dean Kamen’s Quest to Invent a New World (Harvard Business School Press, 2003), by Steve Kemper.
Kemper follows the early days of the Segway, the self-balancing scooterlike device invented by Dean Kamen. Interestingly, much of the hype related to the Segway started with a leak about Kemper’s attempts to peddle this manuscript. (In the interests of full disclosure: Kemper even includes me in a cameo appearance because I informally advised on this project. Caveat emptor.)
To tell a good story, an author has to settle on a point of view. The reader should never expect the “whole” truth. Kemper favors the perspective of the inventor and his team. That is not to say that Kemper does not train his critical eye on Kamen from time to time. Indeed, for his indiscretions Kemper is eventually tossed out of Kamen’s paradise of innovation prior to the Segway’s launch. But before he is expelled, we are treated to a page-turner.
Kamen is revered in the press as a modern-day Edison. Hargadon points out that Edison was more of a synthesizer than a free-form inventor. Kemper paints Kamen in much the same way.
The Scooter as Metaphor
True to Hargadon’s and Chesbrough’s theses, the creation of the Segway borrows from what has come before and feeds off the small worlds that have already birthed efficient motors and gyros and batteries. The brilliance of the Segway is in Kamen’s searing vision and the development team’s tireless creativity. As if concurring, Kamen admits at one point, “I don’t have to invent anything. It’s out there somewhere if I can just find it and integrate it.”
There is a tug in the book between the mythical image of Kamen’s lone genius and the well-led, hardworking team of developers. Kamen, like many great visionaries, seeks to maintain control of the Segway and its commercialization even when the task exceeds the limits of his experience. He battles wills with the likes of Steve Jobs and the legendary venture capitalist John Doerr, and wins Pyrrhic victories that ultimately seem to handicap his success. Kamen’s struggle speaks to the passion that fuels creativity and the tenacity that is required to challenge the status quo. Greatness does not come easy, and it is not for the meek.
Kemper spends a good deal of time whittling Kamen down to size, but he nevertheless shows appreciation for Kamen’s achievements. In addition to his many inventions, Kamen created FIRST, a philanthropic mission to elevate scientists and engineers as role models for young people through staged robotic competitions between teams of students and their corporate sponsors. FIRST has been a tremendous success, attracting more than 600 teams and 20,000 kids in 17 regional championships in 2002. Genius, promoter, or otherwise, Kamen is using his celebrity and vast energies to foster visionaries and innovators among future generations.
Although it was a fun read, I did not find Code Name Ginger very insightful for a business reader because Kemper spills his first-hand observations onto the page without much attention to the nuances of the various parties and interests. As a result of his slant, we see only two-dimensional characterizations of almost everyone except Kamen and key members of the development team. The businesspeople and the business issues are given short shrift.
In contrast, Jeffrey Zygmont, in Microchip: An Idea, Its Genesis, and the Revolution It Created (Perseus Publishing, 2003), calls upon a rich and textured history in revealing the lessons from the innovation of the chip.
I was more than pleasantly surprised by Zygmont’s book. I thought I knew most of the microchip’s lineage, but Zygmont weaves a fascinating set of stories together to illuminate one of the last century’s most amazing feats of innovation. Of course it discusses Bill Shockley’s seminal work at Bell Labs coinventing the transistor in the 1950s and Jack Kilby’s creation of the integrated circuit at Texas Instruments, grouping transistors with other components to create smaller circuits. The pace of innovation quickens when Shockley packs up for California to found Shockley Semiconductor Laboratory. Here is Shockley’s greatest piece of brilliance: He hires Gordon Moore, Robert Noyce, and a group of other ingenious engineers and scientists. There is a mass diffusion of knowledge when the “traitorous eight” leave Shockley to form Fairchild Camera, and I couldn’t help but reflect on Chesbrough’s comments about the mobility of talent eroding the conditions that once supported closed innovation. These stars and their protégés move on to startups like Intel, Advanced Micro Devices, National Semiconductor, and Mostek, and eventually supply rise to a new capital, Silicon Valley.
Zygmont sees the competitive market as the master of innovation. In his model, we are empowered, not the innovators who slave endlessly to win our acceptance. In Chakravorti’s terms, we are key stakeholders in the new market equilibrium that spells success for any innovation.
The microchip saga is an embarrassment of riches for its wealth of material: There are geniuses like James Siepmann, a tenacious physician who fights off depression by developing the Light Clock, and Jean Hoerni, who broke through from the “vertically” layered transistors to the “horizontally” connected wafers that predominate today. There are formidable engineers like Ted Hoff, the man who designed the microprocessor because he was appalled at the convoluted layouts of one of his clients, and misanthropes like Harold Koplow of Wang, who formulated the model for word processing as he was biding his time waiting to be fired. One never senses Zygmont judging, but rather illuminating the whole primordial soup. Itinerant talent and garrulous customers and suppliers broker the technologies that drive development to the relentless clock of Moore’s Law: Every 18 months the capacity of chips doubles while their prices drop by half.
The key insights of Hargadon, Chesbrough, and Chakravorti are substantiated by this engaging story about the big bang of innovation that was unleashed by the microchip — cell phones, personal computers, microwave ovens, antilock brakes, etc., etc. I could not put this book down without a sense of awe for what the likes of Shockley and Kilby wrought.
In early 2003, Larry Ellison of Oracle pronounced the decline of technology innovation. Where is the invention that can spawn a bounty of innovations the way the microchip did? Ellison should read these books. Opening up the walls of captive research to the wealth of outside knowledge offers the opportunity for accelerating innovation. Technology brokers have access to an abundance of ideas generated in these networks of innovation, which they in turn can cross-pollinate into brilliant new products and services. The methods may be changing, but unchanging is the fact that invention and change themselves are inextricable parts of being human. Innovation is far from dead; in fact, it is an unstoppable force of nature.
Serial entrepreneur, the founder and CEO of Food Rocket, a U.S.-based rapid delivery service ($27 million funding).
A recent string of companies shutting down or laying off workers has many venture funds and industry analysts concerned. Many analysts question these newer business models and wonder if profitability is too much to ask for.
The media has been quick to highlight the failures of many rapid delivery services. However, from my vantage point of running a company that has not experienced the same woes, there are some unique approaches I think can help businesses that run or deal with rapid delivery models.
The Struggles of Rapid Delivery
It’s no secret that the industry has a widespread problem of needing to one-up competitors. In most cases, companies like GoPuff, DoorDash and Gorillas have two ways to attract customers: speed and discounts.
Rapid delivery faces other challenges, such as getting customers in the most lucrative areas with the highest average order value (AOV). This means startups suffer under the weight of enormous marketing costs.
Unfortunately, I’ve witnessed the lack of loyalty from customers if a competitor offers better discounts or faster delivery. And, of course, there comes a point when you can’t deliver any quicker or cheaper and remain in business. (Just ask Buyk and Fridge No More.)
There are struggles on the labor side as well. While the gig economy is booming, and flex work is more popular than ever, there are legal and legislative challenges for grocers to be mindful of.
Venture capital funds invested $9.7 billion into rapid-delivery companies in 2021. Yet, we’re now staring at a business landscape of floundering startups and even established brands frantically looking for ways to pivot. Below are some ways that I have found can help you succeed in this market.
1. A Data-Driven Approach
For traditionally capital-intensive industries, the AI impact on profitability can be dramatic. A report by Accenture found that incorporating AI can boost profitability by 38%. Businesses can use AI algorithms to analyze users’ purchase histories and then let that information inform the SKU range of their inventory.
Swiggy, an Indian food delivery platform that recently partnered with Burger King, is an example of how you can utilize the power of AI. They use time-based prediction models to help restaurants plan ahead. Other companies, like Optimoroute, offer to help optimize delivery routes.
Data collection informs logistics, too. My company optimizes route navigation and worker deployment based on customer shopping habits throughout the day. This can help reduce mileage while adding to your delivery capacities.
Delivery services can use this same data for customer retention. A common problem is the pressure to keep offering huge discounts, regardless of order size or composition. I’ve found that offering targeted deals based on customer data is a better use of your money.
2. Flexibility And Agility
The best way to remain successful is to understand that your business needs to evolve according to customer wants. Netflix is often cited as a prime example of staying agile in a competitive market, and its success can also translate over to rapid delivery companies.
The most successful companies are the ones that seek new ways to meet consumer needs. Don’t be afraid to explore new ways to sell. For example, one of my company’s most exact expansion plans is to open ghost kitchens in select markets so customers can order ready-to-eat meals alongside groceries. Launching dark stores and kitchens is looking to be a quickly growing industry that I think pairs well with companies that use or run rapid delivery services.
I also believe that dark stores allow for better inventory control. In fact, a new survey by the National Retail Federation and IBM shows that 49% of people primarily focus on product availability. This far outstrips the previous top two pre-pandemic concerns of price (36%) and quality (34%).
Especially in dense urban areas, businesses that can move more products while keeping their inventories flush can easily increase the value of the average customer basket and get closer to a sustainable, profitable business model.
3. A Willingness To Partner Globally And Locally
Partnership with well-established retailers lets smaller businesses leverage the brand’s extensive marketing knowledge, supply chain and procurement network to facilitate growth. Some of the largest companies like Instacart and Uber Eats have already shown how well this works. For example, Instacart has recently partnered with Canadian supermarket chain Metro, and my business recently signed a partnership agreement with Circle K.
This move helps expand both the customer and provider base. It also lessens the cost of goods sold, allowing businesses to lower prices sustainably. Thinking of ways to lower costs overall without sacrificing quality or profit is something that most competitors seem to struggle with.
Brands should seek out local suppliers in the markets where this makes sense. Sometimes, you can achieve more profitable terms with smaller suppliers. Local partnerships also reduce the supply chain and supply businesses more control over their inventories.
4. Smart Employee Deployment
Employees are your top resource for rapid delivery, so it’s crucial to manage them to your greatest ability. It’s wise for companies to invest in software and tools to help with the logistics of planning shifts, scheduling appropriately during peak times and knowing how much staff each store needs.
Smart, strategic employee deployment can be a substantial cost-saving measure. It ensures that you’re not paying for unnecessary staff during slow times and keeps deliveries flowing smoothly during peak times (which makes customers happy and increases AOV).
Launching the production of new products, like coffee in dark kitchens, also allows you to expand the skills of your personnel and attract new business.
Companies Need to Start Thinking Differently.
It’s understandable to see the failures of other rapid delivery brands and start to question if the successful brands just got lucky. The rapid delivery sector has some serious challenges, but they can be met head-on.
The four keys to profitability are data, agility, partnerships and employees. If businesses can shift their thinking and incorporate these strategies, I believe they’ll be able to achieve success.
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Manufacturers have faced am uphill battle during the pandemic, from supply chain and workforce disruptions to demand upheavals. Yet the overall outlook for the sector remains strong. Manufacturers were already a year into contraction before COVID-19 hit, so they were already looking to reinvent their business models around digital offerings.
Many of upped their subscription offerings. Caterpillar noted in its Q1 report that the company would continue to prioritize investment in its subscription services business even as the company cut back on salaries and operational costs. In its Q1 report, IBM reported that 60% of its revenue was derived from subscription sales.
In its annual Subscription Economy Index (SEI), Zuora noted that manufacturers with subscriptions are continuing to outperform their S&P counterparts as they rebuild after shutdowns. Companies with subscriptions have seen a 7% revenue growth compared with an 8.1% revenue decline for S&P counterparts that don’t offer subscriptions. The report noted that the subscription economy has remained resilient, demonstrating steady growth.
The manufacturing portion of the SEI index includes companies that offer fabrication services, industry-specific software, industrial design, heavy equipment, and tools. The SEI also provides an IoT index that includes a broad mix of several industries including security, technology, energy, transportation, scientific instruments, and construction. All of the companies in this index manage digital services based on connected hardware.
We caught up with Amy Konary. global VP of the Subscribed Strategy Group at Zuora and chair of the Subscribed Institute.
What Are Subscriptions in Manufacturing?
Design News: Explain how manufacturers have using the subscription model
Amy Konary: In manufacturing, subscriptions are typically tied to a service, often those made available through IoT devices and technology. They’re valuable because they can extend the lifetime of products, providing customers with more data insights (such as machine utilization and workforce monitoring) and a reduction in operating expenses. For example, instead of selling a product as a one-time transaction, a manufacturer may sell regular maintenance, safety analysis, or location tracking for devices as a subscription.
This is true particularly within IoT services. Caterpillar leads in the space. It is driving value for customers by equipping its smart machines with the power to analyze a huge number of data points and plugging that into its proprietary algorithms. This is helping to monitor, manage, and enhance its job sites in four key areas: equipment management, safety, sustainability, and productivity. By the end of 2019, Caterpillar had 1 million connected assets sending information to its platforms, and, just a few months ago, confirmed that it is prioritizing spending to allow continued investment in services, a key element of its strategy for profitable growth.
Manufacturers with Subscriptions Outpace Their Peers
Design News: How has the pandemic impacted this model? How about post-pandemic?
Amy Konary: Today’s pandemic is accelerating the growth of the subscription economy across the board. I am the founder and chair of the Subscribed Institute. We provide the Subscription Economy Index, which measures the health and growth of hundreds of subscription companies around the world.
This year, the report found that subscription businesses are continuing to outperform their product-based peers, growing revenues approximately 6X faster than S&P 500 companies. This is also true for manufacturers monetizing with subscription-based digital services. They outperformed their S&P counterparts as they rebuilt after shutdowns. The difference was 7% revenue growth versus 8.1% revenue decline in Q2 2020.
Historically, much of the growth of digital subscription services in manufacturing was prompted by the need for companies to look for ways to increase efficiencies and cut costs. The pandemic added the extra concern of employee health. The resulting financial crisis only compounded the need to maximize ROI. Increasing automation through IoT has reduced worker density, increased machine productivity, and improved the workforce overall.
Post-pandemic we expect to see continued growth and increased competition. Moving forward, manufacturers must continue to assess their toolbox of pricing strategies and other elements related to the subscriber experience. They can shift from free trials and tailored customized packages in order to retain customers and continue to grow accounts and revenue.
Subscriptions Have a Long History in Manufacturing
Design News: How long has this model been apparent in the manufacturing industry?
Amy Konary: Subscriptions have been around for decades. However, the rise of the IoT has maximized its value and increased its popularity. The stability of the recurring revenue model has been a key growth strategy during the pandemic, so many manufacturers have shifted more of their business to subscriptions.
For example, Honeywell has truly used IoT to its advantage, evolving from a traditional manufacturer of solely focused on products, into an industrial software and services company. Last year the company launched Honeywell Forge, an enterprise performance management software that provides insights to operators of buildings, airlines, industrial facilities, and other infrastructure. Usman Shuja, Chief Commercial Officer for Honeywell Connected Enterprise, recently said, “Honeywell Forge is being built on the premise that the entire physical world is going to be connected.”
Subscription Model Transcends Industry Sectors
Design News: What type of manufacturing industries use this model: Medical supplies? Consumer goods? Auto? Food & Beverage?
Amy Konary: The subscription model can be used across the board. It’s not specific to any one product or industry. Products sold by manufacturers are only a way to reach a higher goal, such as removing dirt or building a house. To create a subscription service, manufacturers should be thinking about the true goal of our outcome desired by their customers, and how they can best provide this value.
Look no further than Ford. The company launched its new EV Mustang Mach-E with a subscription service to a nationwide network of over 13,000 electric charging stations. Or Arrow Electronics, a Fortune 500 electronics manufacturer which started in 1935 by selling radio sets. The company now offers a Sensor to Sunset IoT service which is built to help design, monitor, and complete projects, rather than simply providing materials. It is essentially a comprehensive solution addressing everything from sensors, wireless connectivity, gateways, and analytics to security.
Another great example is Philips, a 135-year-old company that seamlessly transformed its business to meet digital demands, from innovative healthcare to lighting-as-a-service and more.
Design News: What size manufacturers use this model? Just the largest manufacturers? Is it gaining traction in small- to mid-size manufacturers?
Amy Konary: The subscription model – and in particular leveraging Industry 4.0 technologies and IoT to launch valuable digital services – isn’t limited to a single company structure.
Manufacturers of all sizes are steadily innovating to meet the demands of today’s consumers – and they are reaping the rewards of these end-to-end customer-centric business models. Any manufacturer focused on enhancing its traditional offerings by adding a layer of convenience and flexibility – and additional value – for customers are the ones that will continue to thrive.
Rob Spiegel has covered automation and control for 19 years, 17 of them for Design News. Other courses he has covered include supply chain technology, alternative energy, and cybersecurity. For 10 years, he was the owner and publisher of the food magazine Chile Pepper.
Bitcoin may be the poster boy of cryptocurrencies, but over the years, there have been hundreds of other digital currencies that have entered the market. It can be tough to keep a tab on them all, but some have managed to stand out from the pack, such as the world's first meme coin, Dogecoin. One may wonder how a meme coin can be an investment choice, but that's precisely what Dogecoin has managed to do and do rather well.
If you have been thinking about buying Dogecoin, here's a detailed guide that might help you.
Dogecoin (DOGE) started as an online joke. In 2012, Jackson Palmer, a software engineer at Adobe, first thought up the coin as a way to mock the craze of cryptocurrencies. Palmer christened the coin based on a popular meme featuring a Shiba Inu dog, bought the domain name, and set up a website. Billy Markus, a software developer at IBM who had never met Palmer, came across the website and got in touch with Palmer. Over the next few months, he designed the coin's protocol based on another cryptocurrency called Litecoin.
In December 2013, Dogecoin was officially launched and became a runaway success. When China banned its banks from investing in Bitcoin within weeks of Dogecoin's release, the value of the meme coin soared nearly 300 percent. Over the years, Dogecoin's value went up and down with the rest of the crypto-verse. The value of Dogecoin increased in 2019 after it was listed on the crypto exchange Binance and again in 2021 after it appeared that Elon Musk had endorsed the coin in a cryptic tweet.
Speculation is rife that Musk owns a significant share of Dogecoin. Musk's tweets about the altcoin often pump up its price. If Musk were doing this intentionally, it is working rather well, since as of mid-June 2022, the coin was now trading at around $0.044. Although this is a fall from highs of $0.64 in 2021, prior to this the coin spent years trading at about $0.002. However, it remains to be seen what the long-term prospects are for the coin. If you are looking to buy Dogecoin now, here's how you can do it.
Dogecoin can be bought at most crypto exchanges. A crypto exchange connects the buyers and sellers of cryptocurrencies in the market for a small fee. It works a bit like a stock exchange, but since the cryptocurrency market is not regulated, they do not tend to carry the same security guarantees that stock exchanges offer. Keep in mind that, as with stocks, any investment carries the possibility of losing all of the money you have invested.
To make investments, you will need to set up an account with the exchange. If you are looking to trade only Dogecoin, you must ensure that not only does the exchange allow you to trade this altcoin, but that it also allows transactions in the currency of your choice. Some crypto exchanges allow only USD as payment options for trading purposes. You will also need to ensure that trading complies with any laws in your jurisdiction.
If the platform's fee structure and payment options are acceptable, you will need to set up an account before you begin trading. Setting up an account is usually very simple and involves
Once the account is set up, verified, and activated, you will need to add funds to it before you begin trading. This can be done using a bank account, debit card, or a wire transfer. Crypto exchanges may also allow credit cards for these transactions; still, banks can charge hefty fees on their use at exchanges, so users need to exercise caution before tapping into their credit limit to buy Dogecoin.
With sufficient funds in the account, one can buy Dogecoin at prevailing market rates, or set up a Buy Order to execute the transaction when the Dogecoin price reaches a specific value. Crypto exchanges also charge a small fee when a transaction is completed, which can be a fixed amount and a percentage of the transaction amount.
There might be some delay in receiving your Dogecoin into your wallet since the transaction must be confirmed on the blockchain. If you have purchased Bitcoin before, you would be happy to know that the transaction confirmation for Dogecoin usually takes just a minute as compared to Bitcoin, which can take at least ten minutes, if not more.
This is because Dogecoin uses a different crypto protocol than Bitcoin. All transactions on the coin's network are stored in a public ledger in blocks, hence the name blockchain. Like Bitcoin, Dogecoin also uses 'proof-of-work' technology to confirm a transaction on the blockchain. This involves solving complex mathematical problems to arrive at a solution called a hash, which allows a transaction entry to be made on the blockchain.
Although it was created as a joke, the creators of Dogecoin also tried to address the shortcomings of Bitcoin in their design and improved the transaction speed complaints that users had with the first cryptocurrency.
Most crypto exchanges offer a digital wallet to save the Dogecoin you purchase. However, some unbundle the wallet from their services, meaning you either need to pay additional fees to use their digital wallet or another wallet service to save your Dogecoin holdings.
A secure wallet is imperative since cryptocurrency holdings are in the public domain, and everybody can see how much Dogecoin a wallet is holding at any given time. An unsecured wallet is an easier target for hackers and since Dogecoin is a decentralized currency, there is no mechanism to recover your lost holdings.
One can use two types of wallets: an online wallet and an offline wallet. An online wallet, also known as a hot wallet, is always connected to the internet and can be used for receiving Dogecoin or making transaction payments such as buying merchandise on the Tesla website. However, it is possible to hack hot wallets.
An offline wallet, also known as a cold or hardware wallet, stores your Dogecoin away from the internet so that hackers cannot get to it at all. This is usually done by transferring your Dogecoin assets to a specialized thumb drive-sized device. Not all thumb drives can serve as cold wallets. If you want to use one, you need to
Dogecoin has a history of climbing up in value whenever Elon Musk tweets about it, only for its value to fall again in the following days. If you bought Dogecoin at a lower price and are looking to make some money from a bumped-up price, you will need to sell it quickly.
Any platform that lets you buy Dogecoin will also let you sell it. If your Dogecoin holdings are secured in a cold wallet, you will need to transfer them to a hot wallet before you can sell them.
Crypto exchanges allow users to not only sell Dogecoin but also buy other cryptocurrencies. This can be aan excellentway to diversify your cryptocurrency portfolio, i.e. hold different types of digital coins without investing more money into them.
Investors who hope to make money when the coin rises in value can simply choose to sell Dogecoin for fiat currency like USD or Euros and pocket the difference in the price. As with buying Dogecoin, you can use either a crypto-currency exchange or a peer-to-peer exchange platform.
Just like a Buy Order, you can also set up a Sale Order that the exchange will execute when Dogecoin reaches a certain value or you can sell your Dogecoin at prevailing market prices.
Dogecoin's valuation in relation to the US dollar has varied significantly since its launch. In May of last year, the cryptocurrency reached its all-time high of $0.64 but then dropped sharply to $0.30 by the end of the month.
All cryptocurrencies are highly volatile investments and Dogecoin is no exception. At the time of writing, Dogecoin was at $0.056 which is still a significant growth from its earlier valuation of around $0.004, which it held in 2018 and 2019.
Bitcoin started off as a way to replace traditional currency ,but Dogecoin was initially designed as a joke or a "just for fun" cryptocurrency that later took on a life of its own. Some retailers now accept Dogecoin as a mode of payment but due to its low value, it is not in as much demand as Bitcoin.
Unlike Bitcoin, which has a ceiling on the number of coins that will be created, Dogecoin is an "inflationary coin." This means that its supply is unlimited. Because there will never be a scarcity of Dogecoin, its value is unlikely to ever appreciate to the levels of Bitcoin. However, it is also popular with Litecoin miners, partly because Dogecoin can be merge-mined with Litecoin, meaning both cryptos can be mined simultaneously using the same work.
For a new investor, Dogecoin offers lower barriers of entry due to its llow-costprice and subsequently reduced transaction fees. Many Dogecoin holders use their DOGE to tip content creators on social media platforms. Since Bitcoin is also very popular, the currency's network is prone to congestion. Comparatively, transactions are recorded faster on the Dogecoin blockchain.
A peer-to-peer (P2P) exchange allows traders to trade directly with one another without the need for a centralized third party. One can also purchase DOGE using this method.
Unlike most crypto exchanges, in P2P trading, users pick their own offers and trade directly with other parties rather than using an automated engine to execute their transactions. This means you have more freedom to pick the best rate and payment method for your needs.
Using a peer-to-peer crypto exchange might be helpful if you are looking to pay very low transaction fees, A P2P exchange connects you to cryptocurrency holders from across the world, and you buy or sell Dogecoin with very low or even no transaction fees. The issue with such exchanges is that they have fewer regulations and verification processes which makes them popular places for scammers. As a newbie, spotting a scam can be difficult , so the safest way to buy Dogecoin is at an established crypto exchange.
If you are picking a provider for an online digital wallet, you must ensure that it offers the best security measures to keep your money safe. A wallet service that comes at unbelievable or 'never-seen-before' prices is likely cutting corners somewhere and might be targeted by hackers.
If you are looking to buy up a lot of DOGE, cold wallets would be an ideal way to stash them away from the reach of hackers. For beginners with small holdings that they want to use for buying merchandise on the internet or trading the meme coin from time to time, secured online ("hot") wallets should just be fine.
Like with other cryptocurrencies, Dogecoin holdings are in the public domain,; scammers may also target you to get a hold of your DOGE. You must always remain skeptical of offers for great returns in a short time, as this is the most common way deployed by scammers.
If your Dogecoin holdings are large and you intend to hold on to them for a long period of time, you can even use trusted paper wallet services that allow you to print your public and private keys. You can then store them completely offline, for example, in a deposit box safe, disconnected from the internet.
Investing in Dogecoin may not require you to have deep pockets, but as with other cryptocurrencies, Dogecoin investments are also fraught with risk. Elon Musk may be singing Baby Doge from time to time, and prices may spike in reaction to events, but things could also go eerily silent tomorrow and lead to the coin crashing.
As 2022 has shown us, even the valuation of high-flying coins like Bitcoin can drop precipitously in a matter of days, so if you are planning to invest in this space, be aware that you could end up losing all of your investment,. Thereare rarely any insurances on such investments.
Dogecoin has, however, been linked to some exciting projects, such as payment to send a cubesat on a SpaceX Moon Mission, so there might be some jumps in its valuation in the near future. But this may also be contingent on the mission being completed in its planned time frame and no other major news that could take crypto markets further south.
Dogecoin is a risky investment, perhaps even riskier than Bitcoin, but its low valuation means it could be a good way to enter the crypto markets rather than investing heavily in just one coin.
If you are looking for other ocrypto market opportunities,check out our guides for buying Ethereum or NFTs or the good-old Bitcoin.
In this podcast, Motley Fool analysts Deidre Woollard and Tim Beyers discuss:
Motley Fool contributor Rachel Warren interviews Ali Parsa, CEO of Babylon Holdings (BBLN 1.88%), a digital-first health service provider. They discuss the company's journey going public and the exciting frontiers of genetic research.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on June 29, 2022.
Deidre Woollard: We've got CEO shake-ups at Pinterest and Bed Bath & Beyond, and also a major back-office change for Nike. You're listening to Motley Fool Money. Welcome to Motley Fool Money. Today we're looking at CEO shake-ups, I'm Deidre Woollard sitting in for Chris Hill, and I'm joined by Motley Fool Senior Analyst Tim Beyers. Hey Tim.
Tim Beyers: Hey Deidre, fully caffeinated, ready to go here.
Deidre Woollard: Awesome. Yesterday we heard that Pinterest CEO, Ben Silbermann is stepping down. Why now?
Tim Beyers: That's a really interesting question because I think he's been under fire for quite some time. Pinterest has sort of been figuring itself out and growing into a somewhat different company. There have also been some personnel challenges here. There have been discrimination lawsuits. There's been some cultural upheaval at Pinterest, I think is fair to say. The business has been in transition for some time. I'm not sure but to hear the official explanation it is that the upheaval that Pinterest has been going through has reached an inflection point. Now Pinterest needs a new leadership team to move into the next phase of its growth, so no longer will this be primarily an advertising company. This is going to be a commerce company or more specifically an e-commerce/social commerce company. The new CEO, Bill Ready, coming in from [Alphabet's] Google and formerly the COO at PayPal, is going to take the commerce experience he has, apply it to Pinterest and figure this out.
It'll be really interesting to see what the model looks like from here because, and I know we've talked about this Deidre, there are some things that Pinterest has done well in this space, and I don't know exactly how you build on it, but shoppable ads have been something that Pinterest has been working on for a while. This idea that you could have pins that exist inside the Pinterest network that may be revealed to you as something you might find interesting, and you would click on that pin and it would be an ad that was shoppable, it would take you literally inside the Pinterest environment to a place where you could make a purchase. There are others that are doing this like this is new but not new in the sense that we're seeing that on Instagram. It's clear we're going to see that other places. Getting this more deeply embedded into the Pinterest environment where you essentially have, I know I'm dating myself when I say this, Deidre, but it feels like a digital version of the Sears catalogue except when you point at the picture, [laughs] the picture is like, you want to buy this? Yes, click and I bought it.
Deidre Woollard: Well, yes but Walmart is doing something similar. I thought this move was interesting because Pinterest has said recently that they were going to work on having more women in leadership and then they made this move, which they put another man at the helm. Their audience is mostly female, but the financial background here really interests me and especially because there was that rumour a few months ago that PayPal might even acquire them.
Tim Beyers: Might acquire them, yes.
Deidre Woollard: Yes, so conspiracy theory hat on, do you think that has anything to do with it?
Tim Beyers: That's really good. I should fit my tin foil hat for this one. I don't. The reason I don't think so is that Ready's coming over from Google, but I do think the board may have seen the opportunity here, and leadership may have seen the opportunity here. There's a bit of writing on the wall that says, the audience we've got, where like Pinterest doesn't have what I would consider an audience that's built primarily for an advertising type model. Because there seems to be a gate around the size of the audience. The audience is not growing at the same rate as say, some of the bigger social networks are, so it's not really built for that. It's more of a niche audience, and so how do you serve that niche audience? You pointed out that it's mostly women, that's absolutely right, and they are collecting areas of interest and pining those areas of interest visually into boards. How do you create more value for that audience that maybe it's not at its ceiling like as big as it's ever going to get, maybe it can still get bigger, but the audience growth is not what it used to be, Deidre.
If the audience growth is not worth what it used to be, then you either have to get really creative with ads, or either get much higher value ads or scrap the ad model altogether, and since they are not scrapping the ad model altogether, you have to find some other way to compound growth of that audience, and so commerce seems to make a lot of sense. Like how can you get more commercial engagement inside an audience that really does love this platform, is deeply engaged in the platform, it's just not growing at a really compounded rate that would lead to, here's our ad rate card and boy, is it expensive cause look at how big our audience is getting. That's not the story anymore, so you have to do something different.
Deidre Woollard: Yes, I think that's really true. I think what Pinterest started doing was revolutionary at the time but now even moving into shoppable ads that don't strike me as inherently different from other platforms that are growing. Something like you said, like an Instagram or a TikTok. If you could talk to Bill Ready, what one piece of advice would you supply him?
Tim Beyers: I would say invest slowly and experiment. If I were him coming in, I would listen to all the smartest people on that team. No matter where they are, particularly lower down in the organization, like what's working? What data have we got? What have we not mind and what do we not see? There's a great podcast by the way, that I recommend. You could go back and find this in previous episodes of Motley Fool Money where Chris interviewed Michael Lewis about his against the rules podcast, there was one episode they talked about during that interview called six levels down. It talks about the intelligence that exists in the expert that six levels down in the organization, I think Bill Ready should go find that six-level down expert that has data about commerce operations or commerce experiments inside Pinterest and start mining that data.
Figure out who really knows what commerce can be at Pinterest and start leveraging that expertise to build something new here. Because the temptation would be to look at the financial position of Pinterest, and start making big bets early and I don't think you should do that. I mean, let's be clear here. This is a company that has a very rich balance sheet. Well, I think it's about $1.6 billion in net cash on the balance sheet, Deidre, which is crazy. If you look at the free cash flow numbers, even if you strip out all the artificial sweetener like stock-based compensation, this is still generating, company is still generating over $200 million in real, genuine free cash flow every year. There's a lot of capital to put to work. Don't be quick to put that capital to work, find the expertise first and then start running experiments off of that.
Deidre Woollard: I love that six levels down advice and it makes me think of some of the other CEOs shifts that we have and maybe those incoming CEOs might take that advice as well. We've got DocuSign CEO Dan Springer. He's resigning, just today we heard that Bed Bath & Beyond CEO Mark Tritton is also leaving his post. It seems like we're going to see some more of these moves and how should investors be thinking about this? I mean the stock market has been very reactive with excitement in the short-term when this happens but if you're an investor you are in it for the long haul, so how should you think about it?
Tim Beyers: I think you should think about it in terms of what the actual competitive advantage is here. A good CEO can do a lot, but there is only so much that even a great CEO can do if the strategy is bad, and if the competitive advantage is weak. If the competitive advantages is weak like if customers don't really value the product, then you either have to as a new CEO coming in, you have to either change the product completely and blow up the company and do something entirely different, which is inherently difficult, or you have to start from scratch, or you may just have to throw up your hands and say, go to the board and say, you know what, this is not really salvageable. Let's start talking about how we can sell the company. A CEO may come in for very different reasons. A CEO may come in and be like the person who's in a transitional period to help find a banker who will help sell the company. That is a strategy that sometimes happens.
Other times a CEO comes in, has some really good raw material to work with and can make some meaningful changes and turn things around. I think there's a good material to work with at DocuSign, but they have not really busted out of the paper bag that is the e-signature business. They talk a really good game about the agreement cloud, but the agreement cloud isn't driving massive amounts of revenue for them, it's still an e-signature business at its core. If a new CEO comes in and figures out how to monetize this big vision of the agreement cloud, build a lot of things around it, great. It's a lot to work with there, so maybe there's a good CEO can figure that out. Tritton leaving Bed Bath & Beyond, that to me, Deidre, feels like the next person coming in is the one who says, OK, what assets have we got? What can we sell? Take this to who's a good buyer? Who's a good match for us? If a merchandising expert like Tritton can't figure it out, then what is there? I don't know.
Deidre Woollard: Yeah. There's been some talk about selling things. That they already sold the Christmas tree shops and I believe part of what they want to do is spin off the baby aspect of Bed Bath & Beyond. That seems to be the more successful part of things but, hard to know with that one. Well, let's pivot and talk about a company that's led by another relatively new CEO, which is John Donahoe, the President and CEO of Nike. So Nike had their earnings this week. Relatively strong, although the stock market didn't like some of their forward-looking stuff. But the thing that I want to zero in on was they talked about the role of their ERP and Nike's transformation from being something sold in stores to really all-in on direct-to-consumer. So they're launching their ERP in China first, then deploying to the US. Tim, what is an ERP?
Tim Beyers: [laughs] This is one of those techie terms that feels very confusing and sophisticated, and it is confusing and sophisticated software, but what it stands for is enterprise resource planning. Enterprise resource planning software is classically understood as a software suite that has a bunch of different components to it, and it's built to manage what's called back-office operations. Here is the difference between back-office and front-office operations. Front-office means everything that faces the customer. If I'm interacting with the customer, customer-facing, that's front-office. The things that I need to do to manage the business and customers supply me orders, now I need to figure out how to get the inventory to meet that demand, to build new stuff, fulfil orders, manage all my accounting, and do all of the things that actually let money flow through the business, back into building new products, back into getting things out the door. The stuff that the customer doesn't see, that's the back-office and that's what an ERP is built for.
So it's structural under the hood type business processes that allow a company to actually make money and put it in the bank, and an ERP is supposed to be designed to manage all that. So Nike's had this for years. This is not really new, but they did have a blow up back in, I think it's either 2000 or 2001, where they had some software, a company that has bounced around under the purview of other companies for years. It was bought out by JDA and then moved to IBM. It was called the I2 technologies, and that was called supply chain management software. There was a point at which that software that Nike was using sort of fudge the demand forecast. Really got that wrong. It led to some real problems where Nike had to write-off, I think it was about a $100 million worth of excess inventory. And since that time, all the way back then, going back to like 2014 they have had SAP as a provider, to provide their ERP. Now, this latest thing that they're doing is, I guess really the latest version of SAP, what's called the S/4HANA, and they're going to essentially integrate everything that they can around demand forecasting, managing their supply chain, managing their inventory, figuring out fulfilment, and running all of that through SAP. So it's kind of like the single source of truth about how they're going to balance demand from stores, but also direct-to-consumer and fulfill that globally. I think it is smart Deidre to start in China.
That's a big area of demand for them and just sort of see how this goes; experiment, fine-tune, experiment and fine-tune, instead of doing a massive global rollout. Because it's really complicated software, it generally takes a long time to customize it because everybody's business has different business processes and it's got to be customized for those very specific business processes. So experimenting in one territory makes a lot of sense to me, but I wouldn't over hype it. I don't think this is something that's going to dramatically transform Nike because they've been using SAP for a really long period of time. So I would say good on Nike for getting smart about integrating it's back-office operations under one banner in this case SAP. But it's not so new that we should expect it to have a material impact on the business. That would be surprising if it does have a material impact.
Deidre Woollard: Well, Tim, this was fantastic. Thank you so much for your time.
Tim Beyers: Thanks Deidre.
Deidre Woollard: Up next, Ali Parsa, CEO of Babylon Health joins Rachel Warren for a conversation about changing sick care into healthcare, their journey going public, and the exciting frontiers of genetic research.
Rachel Warren: Explain to our audience, how does the platform work and what is the business model? How does AI form the foundation of the business itself?
Ali Parsa: So we have a fundamental belief that what you and I call healthcare, it really isn't healthcare, it's sick care. When was the last time you had an interaction with a doctor? You waited until you got sick and you went and fixed it. Now I'm old enough and angry enough to remember that there was a time when I used to drive my car until it broke down, I took it to a garage that fixed it and then drove it again until it broke down. That's what we do with healthcare. Today, however, we bury too many sensors in my car, and it collects so much data in real-time and analyzes it and warns me if something's going wrong, and that prediction means that I can prevent or intervene. That's the fundamental for also which we built Babylon. If you'd look after you really well upfront. If you collect your data, we can monitor you, and manage you. We could avoid that crisis and emergencies that are both expensive and unwanted. Think of a root canal in your teeth, nobody needs it, it's hugely painful, massively expensive and yet if somebody monitors you teeth continuously, it will never happen. Why don't we do that with healthcare? So that's the premise on which that we're building for Babylon.
Of course, you need artificial intelligence in order to be able to take the data you take and analyze it in real-time. You need to build the infrastructure necessary for that. Just like Tesla, when they build the electric vehicle, it wasn't just the vehicle they had to build. They had to build the entire infrastructure, the software, the mechanism which it rode, that's what we're doing in our journey and you asked me, how does the business model works? Our favorite business model is to take the money out of the equation because this industry pays for sick care. Every hospital get's paid when you're sick, the doctors get paid. So what we try to do is take your budget from your insurers or your government and say now that we control the budget, you could invest heavily on keeping you healthy, rather than worrying what happens when you get sick. Therefore we take the medical losses that insurance companies believe they're going to have, and by taking that over, we can then invest heavily on avoiding your crisis, and by avoiding your crisis, we make money. Because there are savings and we take that.
Rachel Warren: I'd love to also talk a bit about the company's decision to go public. The company, as I mentioned earlier in its merger to go public last October. Can you walk me through the timeline that led you to that process and the decision to go public at this stage in your business's journey?
Ali Parsa: We went public because at the time public markets were doing very well, like every other fast-growing company you need further capital, although we're not bit wasteful in capital. If you think about that this is one of the largest industries in the world and the amount of capital in totality that Babylon has consumed so far, because we came from a very frugal system, we are very frugal with the use of capital, and in any case you still need a lot of capital, and therefore going public made sense. Now, if there wasn't a war, for the worst time going public event in the planet, I should win that award, because [laughs] we did it exactly as the public markets were falling apart. We did it through a SPAC system, and the reason we did the SPACs was very simple. If you do an IPO you can only share your previous year's performance. Now, if you're growing as we are, fourfold a year, that's 400 percent a year, then your last year's numbers are almost irrelevant. Like in 2020, we did shy of $80 million of revenue. In '21, we did $320 million of revenue. This year we're already selling '22, we will do over a billion dollars of revenue. If you're going at that trajectory, SPACs were good because you could share your future projections. Unfortunately, what happened was that most of the companies who did the SPACs, unlike other SPAC sponsors who did a great good job in due diligence, didn't do such a good job in due diligence. Most of these companies missed their numbers, didn't deliver their promises, and the whole SPAC name got tarnished, we got burdened with that, then the market completely fail, and so on and so forth. The public journey has been the only part of Babylon's [laughs] history that has not been as successful. [inaudible 00:22:38]
Rachel Warren: It's certainly exciting to think about how the healthcare industry could evolve in the coming years. I'm curious, given your insights and comments on what the healthcare industry is and what it could be, what is your vision for what the future of healthcare could look like? How does one build a more efficient, equitable, and accessible healthcare ecosystem?
Ali Parsa: I think we need to start with data. We need to create a model in which we can collect all the data from you, with your permission of course, and securely stream that data in real-time all the time. To be able to put models on that data, AI models on that data to constantly analyze what's going on with you, and be able to reward you if you're doing well, to alert you if something is about to go wrong, and to intervene if something has gone wrong. But do so super early. If we do that, we will actually save a huge amount of money by avoiding all the crisis and emergencies. Think about your home. Think about your car, it's so much cheaper to service it than maintain it, than it is to deal with it when it's broken. It's not actually hard. It's not rocket science, it's not like SpaceX when you need to send the spaceship to the outside and then bring it back. It's about doing with your body what we do with your car, what we do with the factory, what we do with everything else we got, but we have such a strong lobby in an industry that is all about sick care, and we got to just change, shift the gear. Leave that industry to do what it needs to do because you will get sick, you will have accidents, we will need to send you to a hospital, so that industry is an important industry to stay, but we need to actually create your alternative, a much more rational, reasonable way of doing things. I'm asking you what's wrong with that? I can't see why people wouldn't think that's just the right rational way of doing things.
Rachel Warren: Absolutely. In addition to AI, which you've mentioned all the potential ways this could revolutionize the healthcare space, we've heard a lot recently about how innovations like AR, VR, and even the metaverse could play a role in the future of healthcare. How do you personally see these technologies fitting in to the future of healthcare?
Ali Parsa: Technology is a tool. That's all it is. AI is a tool, augmented reality is a different way of interacting with that tool and interacting with the physical world. Hopefully, today that quantum computing comes, again, it's another tool that allows us to process that data significantly faster than I was talking about, so on and so forth. What matters is what do we do with these tools. We could use these tools in the old system and exasperate what we got that make even healthcare more expensive. Or we could use it in this preventive system that I just described, where we could actually put it to massive benefit. The question really is what we do. That's why I just think that, when you buy your Tesla, you're not thinking, does it use AI, augmented reality, sensors, this and the other, you're just thinking that it's a great car, it's a smart car, it makes every other car look dumb, and it doesn't destroy the planet like every other car does by burning petrol. You don't care about the rest of this. Is my job, our job, to use all the tools necessary that technology gives us to make that experience as wonderful for you as possible.
Rachel Warren: I think the vision here is to integrate these kinds of technologies and innovation so much into the fiber of the healthcare system that is not even something that patients think about. It's just a natural progression. Do I understand that right?
Ali Parsa: You're absolutely right.
Rachel Warren: Looking back at the digital health space and the healthcare industry, what do you think has changed over the last five years to now? We know especially in the last couple of years during the pandemic, there have been so many changes in healthcare. But I'm wondering looking back, what do you identify as being some of the most prominent shifts in this space?
Ali Parsa: We all know about all the changes in people's attitude toward telemedicine. We all know that. But actually, I think far more important changes have happened in last five years that we have not been really thought about. If the first half of the 20th century was about physics, atoms, so with Einstein and material relativity, and the second half of the previous century was all about bits, and technology. We've seen all the results of that technology and what it has done to revolutionize our work. I think we're in the middle of technology on biology, on genetics, on cells. If you just think what is happening in that world, it's insane. It's insane what we're doing. We managed to mix the gene of a bird with one of a mouse and make the mouse think like a bird, we've made a fish radiant by changing its genes a bit, we had more importantly, we had worms that can live significantly longer, two weeks ago we saw a paper being published by scientists that demonstrated they could make an old mouse young, we have got a tomato now that we stopped the process of telomeres deteriorating, therefore the tomato doesn't age. When you look at what's happening in the world of biology, I actually think that world we're doing everything in healthcare.
Of course, that world will take a very long time to pay results. We are in the verge of being able to do with human body, things that we could have never dreamt of, and that's super exciting. I'm significantly older than you, I think your generation has got a chance to live massively longer than the time span of the normal human beings' life. I think we can do now so much that we could never dream of. That should come through fruition within the next half a century.
Deidre Woollard: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Deidre Woollard. Thanks for listening, we'll see you tomorrow.
The story so far.... In 1975, Ed Roberts invented the Altair personal computer. It was a pain to use until 19 year-old pre-billionaire Bill Gates wrote the first personal computer language. Still, the public didn't care. Then two young hackers -- Steve Jobs and Steve Wozniak -- built the Apple computer to impress their friends. We were all impressed and Apple was a stunning success. By 1980, the PC market was worth a billion dollars. Now, view on.....
We are nerds.
Most of the people in the industry were young because the guys who had any real experience were too smart to get involved in all these crazy little machines.
It really wasn't that we were going to build billion dollar businesses. We were having a good time.
I thought this was the most fun you could possibly have with your clothes on.
When the personal computer was invented twenty years it was just that - an invention - it wasn't a business. These were hobbyists who built these machines and wrote this software to have fun but that has really changed and now this is a business this is a big business. It just goes to show you that people can be bought. How the personal computer industry grew from zero to 100 million units is an amazing story. And it wasn't just those early funky companies of nerds and hackers, like Apple, that made it happen. It took the intervention of a company that was trusted by the corporate world. Big business wasn't interested in the personal computer. In the boardrooms of corporate America a computer still meant something the size of a room that cost at least a hundred thousand dollars. Executives would brag that my mainframe is bigger than your mainframe. The idea of a $2,000 computer that sat on your desk in a plastic box was laughable that is until that plastic box had three letters stamped on it - IBM. IBM was, and is, an American business phenomenon. Over 60 years, Tom Watson and his son, Tom Jr., built what their workers called Big Blue into the top computer company in the world. But IBM made mainframe computers for large companies, not personal computers -- at least not yet. For the PC to be taken seriously by big business, the nerds of Silicon Valley had to meet the suits of corporate America. IBM never fired anyone, requiring only that undying loyalty to the company and a strict dress code. IBM hired conservative hard-workers straight from school. Few IBM'ers were at the summer of love. Their turn-ons were giant mainframes and corporate responsibility. They worked nine to five and on Saturdays washed the car. This is intergalactic HQ for IBM - the largest computer company in the world...but in many ways IBM is really more a country than it is a company. It has hundreds of thousands of citizens, it has a bureaucracy, it has an entire culture everything in fact but an army. OK Sam we're ready to visit IBM country, obviously we're dressed for the part. Now when you were in sales training in 1959 for IBM did you sing company songs?
Former IBM Executive
BOB: Well just to get us in the mood let's sing one right here.
SAM: You're kidding.
BOB: I have the IBM - the songs of the IBM and we're going to try for number 74, our IBM salesmen sung to the tune of Jingle Bells.
Bob & Sam singing
'IBM, happy men, smiling all the way, oh what fun it is to sell our products our pruducts night and day. IBM Watson men, partners of TJ. In his service to mankind - that's why we are so gay.'
Now gay didn't mean what it means today then remember that OK?
BOB: Right ok let's go.
SAM: I guess that was OK.
When I started at IBM there was a dress code, that was an informal oral code of white shirts. You couldn't wear anything but a white shirt, generally with a starched collar. I remember attending my first class, and a gentleman said to me as we were entering the building, are you an IBMer, and I said yes. He had a three piece suit on, vests were of the vogue, and he said could you just lift your pants leg please. I said what, and before I knew it he had lifted my pants leg and he said you're not wearing any garters. I said what?! He said your socks, they're not pulled tight to the top, you need garters. And sure enough I had to go get garters.
IBM is like Switzerland -- conservative, a little dull, yet prosperous. It has committees to verify each decision. The safety net is so big that it is hard to make a bad decision - or any decision at all. Rich Seidner, computer programmer and wannabe Paul Simon, spent twenty-five years marching in lockstep at IBM. He feels better now.
Former IBM Programmer
I mean it's like getting four hundred thousand people to agree what they want to have for lunch. You know, I mean it's just not going to happen - it's going to be lowest common denominator you know, it's going to be you know hot dogs and beans. So ahm so what are you going to do? So IBM had created this process and it absolutely made sure that quality would be preserved throughout the process, that you actually were doing what you set out to do and what you thought the customer wanted. At one point somebody kind of looked at the process to see well, you know, what's it doing and what's the overhead built into it, what they found is that it would take at least nine months to ship an empty box.
By the late seventies, even IBM had begun to notice the explosive growth of personal computer companies like Apple.
The Apple 2 - small inexpensive and simple to use the first computer.....
What's more, it was a computer business they didn't control. In 1980, IBM decided they wanted a piece of this action.
Former IBM Executive
There were suddenly tens of thousands of people buying machines of that class and they loved them. They were very happy with them and they were showing up in the engineering departments of our clients as machines that were brought in because you can't do the job on your mainframe kind of thing.
JB wanted to know why I'm doing better than all the other managers...it's no secret...I have an Apple - sure there's a big computer three flights down but it won't test my options, do my charts or edit my reports like my Apple.
The people who had gotten it were religious fanatics about them. So the concern was we were losing the hearts and minds and supply me a machine to win back the hearts and minds.
In business, as in comedy, timing is everything, and time looked like it might be running out for an IBM PC. I'm visiting an IBMer who took up the challenge. In August 1979, as IBM's top management met to discuss their PC crisis, Bill Lowe ran a small lab in Boca Raton Florida.
Hello Bob nice to see you.
BOB: Nice to see you again. I tried to match the IBM dress code how did I do?
BILL: That's terrific, that's terrific.
He knew the company was in a quandary. Wait another year and the PC industry would be too big even for IBM to take on. Chairman Frank Carey turned to the department heads and said HELP!!!
Head, IBM IBM PC Development Team 1980
He kind of said well, what should we do, and I said well, we think we know what we would like to do if we were going to proceed with our own product and he said no, he said at IBM it would take four years and three hundred people to do anything, I mean it's just a fact of life. And I said no sir, we can provide with product in a year. And he abruptly ended the meeting, he said you're on Lowe, come back in two weeks and tell me what you need.
An IBM product in a year! Ridiculous! Down in the basement Bill still has the plan. To save time, instead of building a computer from scratch, they would buy components off the shelf and assemble them -- what in IBM speak was called 'open architecture.' IBM never did this. Two weeks later Bill proposed his heresy to the Chairman.
And frankly this is it. The key decisions were to go with an open architecture, non IBM technology, non IBM software, non IBM sales and non IBM service. And we probably spent a full half of the presentation carrying the corporate management committee into this concept. Because this was a new concept for IBM at that point.
BOB: Was it a hard sell?
BILL: Mr. Carey bought it. And as result of him buying it, we got through it.
With the backing of the chairman, Bill and his team then set out to break all the IBM rules and go for a record.
We'll put it in the IBM section.
Once IBM decided to do a personal computer and to do it in a year - they couldn't really design anything, they just had to slap it together, so that's what we'll do. You have a central processing unit and eh let's see you need a monitor or display and a keyboard. OK a PC, except it's not, there's something missing. Time for the Cringely crash course in elementary computing. A PC is a boxful of electronic switches, a piece of hardware. It's useless until you tell it what to do. It requires a program of instructions...that's software. Every PC requires at least two essential bits of software in order to work at all. First it requires a computer language. That's what you type in to supply instructions to the computer. To tell it what to do. Remember it was a computer language called BASIC that Paul Allen and Bill Gates adapted to the Altair...the first PC. The other bit of software that's required is called an operating system and that's the internal traffic cop that tells the computer itself how the keyboard is connected to the screen or how to store files on a floppy disk instead of just losing them when you turn off the PC at the end of the day. Operating systems tend to have boring unfriendly names like UNIX and CPM and MS-DOS but though they may be boring it's an operating system that made Bill Gates the richest man in the world. And the story of how that came about is, well, pretty interesting. So the contest begins. Who would IBM buy their software from? Let's meet the two contenders -- the late Gary Kildall, then aged 39, a computer Ph.D., and a 24 year old Harvard drop-out - Bill Gates. By the time IBM came calling in 1980, Bill Gates and his small company Microsoft was the biggest provider of computer languages in the fledgling PC industry.
'Many different computer manufacturers are making the CPM Operating System standard on most models.'
For their operating system, though, the logical guy for the IBMers to see was Gary Kildall. He ran a company modestly called Interglactic Digital Research. Gary had invented the PC's first operating system called CP/M. He had already sold 600,000 of them, so he was the big cheese of operating systems.
Founder Digital Research
Speaking in 1983
In the early 70s I had a need for an operating system myself and eh it was a very natural thing to write and it turns out other people had a need for an operating system like that and so eh it was a very natural thing I wrote it for my own use and then started selling it.
In Gary's mind it was the dominant thing and it would always be the dominant of course Bill did languages and Gary did operating systems and he really honestly believed that would never change.
But what would change the balance of power in this young industry was the characters of the two protagonists.
Founder West Coast Computer Faire 1978
So I knew Gary back when he was an assistant professor at Monterrey Post Grad School and I was simply a grad student. And went down, sat in his hot tub, smoked dope with him and thoroughly enjoyed it all, and commiserated and talked nerd stuff. He liked playing with gadgets, just like Woz did and does, just like I did and do.
He wasn't really interested in how you drive the business, he worked on projects, things that interested him.
He didn't go rushing off to the patent office and patent CPM and patent every line of code he could, he didn't try to just squeeze the last dollar out of it.
Gary was not a fighter, Gary avoided conflict, Gary hated conflict. Bill I don't think anyone could say backed away from conflict.
Nobody said future billionaires have to be nice guys. Here, at the Microsoft Museum, is a shrine to Bill's legacy. Bill Gates hardly fought his way up from the gutter. Raised in a prosperous Seattle household, his mother a homemaker who did charity work, his father was a successful lawyer. But beneath the affluence and comfort of a perfect American family, a competitive spirit ran deep.
President, The Paul Allen Group
I ended up spending Memorial Day Weekend with him out at his grandmother's house on Hood Canal. She turned everything in to a game. It was a very very very competitive environment, and if you spent the weekend there, you were part of the competition, and it didn't matter whether it was hearts or pickleball or swimming to the dock. And you know and there was always a reward for winning and there was always a penalty for losing.
CEO Corporate Computing Intl.
One time, it was funny. I went to Bill's house and he really wanted to show me his jigsaw puzzle that he was working on, and he really wanted to talk about how he did this jigsaw puzzle in like four minutes, and like on the box it said, if you're a genius you will do the jigsaw puzzle in like seven. And he was into it. He was like I can do it. And I said don't, you know, I believe you. You don't need to break it up and do it for me. You know.
Bill Gates can be so focused that the small things in life get overlooked.
Former VP, Corporate Comms, Microsoft
If he was busy he didn't bathe, he didn't change clothes. We were in New York and the demo that we had crashed the evening before the announcement, and Bill worked all night with some other engineers to fix it. Well it didn't occur to him to take ten minutes for a shower after that, it just didn't occur to him that that was important, and he badly needed a shower that day.
The scene is set in California...laid back Gary Kildall already making the best selling PC operating system CPM. In Seattle Bill Gates maker of BASIC the best selling PC language but always prepared to seize an opportunity. So IBM had to choose one of these guys to write the operating system for its new personal computer. One would hit the jackpot the other would be forgotten...a footnote in the history of the personal computer and it all starts with a telephone call to an eighth floor office in that building the headquarters of Microsoft in 1980.
At about noon I guess I called Bill Gates on Monday and said I would like to come out and talk with him about his products.
Bill said well, how's next week, and they said we're on an airplane, we're leaving in an hour, we'd like to be there tomorrow. Well, hallelujah. Right oh.
Steve Ballmer was a Harvard roommate of Gates. He'd just joined Microsoft and would end up its third billionaire. Back then he was the only guy in the company with business training. Both Ballmer and Gates instantly saw the importance of the IBM visit.
You know IBM was the dominant force in computing. A lot of these computer fairs discussions would get around to, you know, I.. most people thought the big computer companies wouldn't recognise the small computers, and it might be their downfall. But now to have one of the big computer companies coming in and saying at least the - the people who were visiting with us that they were going to invest in it, that - that was er, amazing.
And Bill said Steve, you'd better come to the meeting, you're the only other guy here who can wear a suit. So we figure the two of us will put on suits, we'll put on suits and we'll go to this meeting.
We got there at roughly two o'clock and we were waiting in the front, and this young fella came out to take us back to Mr. Gates office. I thought he was the office boy, and of course it was Bill. He was quite decisive, we popped out the non-disclosure agreement - the letter that said he wouldn't tell anybody we were there and that we wouldn't hear any secrets and so forth. He signed it immediately.
IBM didn't make it easy. You had to sign all these funny agreements that sort of said I...IBM could do whatever they wanted, whenever they wanted, and use your secrets however they - they felt. But so it took a little bit of faith.
Jack Sams was looking for a package from Microsoft containing both the BASIC computer language and an Operating System. But IBM hadn't done their homework.
They thought we had an operating system. Because we had this Soft Card product that had CPM on it, they thought we could licence them CPM for this new personal computer they told us they wanted to do, and we said well, no, we're not in that business.
When we discovered we didn't have - he didn't have the rights to do that and that it was not...he said but I think it's ready, I think that Gary's got it ready to go. So I said well, there's no time like the present, call up Gary.
And so Bill right there with them in the room called Gary Kildall at Digital Research and said Gary, I'm sending some guys down. They're going to be on the phone. Treat them right, they're important guys.
The men from IBM came to this Victorian House in Pacific Grove California, headquarters of Digital Research, headed by Gary and Dorothy Kildall. Just imagine what its like having IBM come to visit - its like having the Queen drop by for tea, its like having the Pope come by looking for advice, its like a visit from God himself. And what did Gary and Dorothy do? They sent them away.
Gary had some other plans and so he said well, Dorothy will see you. So we went down the three of us...
Former Head of Language Division, Digital Research
IBM showed up with an IBM non-disclosure and Dorothy made what I...a decision which I think it's easy in retrospect to say was dumb.
We popped out our letter that said please don't tell anybody we're here, and we don't want to hear anything confidential. And she read it and said and I can't sign this.
She did what her job was, she got the lawyer to look at the nondisclosure. The lawyer, Gerry Davis who's still in Monterey threw up on this non-disclosure. It was uncomfortable for IBM, they weren't used to waiting. And it was unfortunate situation - here you are in a tiny Victorian House, its overrun with people, chaotic.
So we spent the whole day in Pacific Grove debating with them and with our attorneys and her attorneys and everybody else about whether or not she could even talk to us about talking to us, and we left.
This is the moment Digital Research dropped the ball. IBM, distinctly unimpressed with their reception, went back to Microsoft.
BOB: It seems to me that Digital Research really screwed up.
STEVE BALLMER: I think so - I think that's spot on. They made a big mistake. We referred IBM to them and they failed to execute.
Bill Gates isn't the man to supply a rival a second chance. He saw the opportunity of a lifetime.
Digital research didn't seize that, and we knew it was essential, if somebody didn't do it, the project was going to fall apart.
We just got carried away and said look, we can't afford to lose the language business. That was the initial thought - we can't afford to have IBM not go forward. This is the most exciting thing that's going to happen in PCs.
And we were already out on a limb, because we had licensed them not only Basic, but Fortran, Cobol Assembler er, typing tutor and Venture. And basically every - every product the company had we had committed to do for IBM in a very short time frame.
But there was a problem. IBM needed an operating system fast and Microsoft didn't have one. What they had was a stroke of luck - the ingredient everyone needs to be a billionaire. Unbelievably, the solution was just across town. Paul Allen, Gates's programming partner since high school, had found another operating system.
There's a local company here in CL called CL Computer Products by a guy named Tim Patterson and he had done an operating system a very rudimentary operating system that was kind of like CPM.
And we just told IBM look, we'll go and get this operating system from this small local company, we'll take care of it, we'll fix it up, and you can still do a PC.
Tim Patterson's operating system, which saved the deal with IBM, was, well, adapted from Gary Kildall's CPM.
So I took a CPM manual that I'd gotten from the Retail Computer Store five dollars in 1976 or something, and used that as the basis for what would be the application program interface, the API for my operating system. And so using these ideas that came from different places I started in April and it was about half time for four months before I had my first working version.
This is it, the operating system Tim Patterson wrote. He called in QDOS the quick and dirty operating system. Microsoft and IBM called it PC DOS 1.0 and under any name it looks an awful lot like CPM. On this computer here I have running a PC DOS and CPM 86 and frankly it�s very hard to tell the difference between the two. The command structures are the same, so are the directories, in fact the only obvious external difference is the floppy dirive is labelled A in PC DOS and and C in CPM. Some difference and yet one generated billions in revenue and the other disappeared. As usual in the PC business the prize didn't go to the inventor but to the exploiter of the invention. In this case that wasn't Gary Kildall it wasn't even Tim Paterson.
There was still one problem. Tim Patterson worked for Seattle Computer Products, or SCP. They still owned the rights to QDOS - rights that Microsoft had to have.
Former Vice-President Microsoft
But then we went back and said to them look, you know, we want to buy this thing, and SCP was like most little companies, you know. They always needed cash and so that was when they went in to the negotiation.
And so ended up working out a deal to buy the operating system from him for whatever usage we wanted for fifty thousand dollars.
Hey, let's pause there. To savour an historic moment.
For whatever usage we wanted for fifty thousand dollars.
It had to be the deal of the century if not the millenium it was certainly the deal that made Bill Gates and Paul Allen multi billionaires and allowed Paul Allen to buy toys like these, his own NBA basketball team and arena. Microsoft bought outright for fifty thousand dollars the operating system they needed and they turned around and licensed it to the world for up to fifty dollars per PC. Think of it - one hundred million personal computers running MS DOS software funnelling billions into Microsoft - a company that back then was fifty kids managed by a twenty-five year old who needed to wash his hair. Nice work if you can get it and Microsoft got it. There are no two places further apart in the USA than south eastern Florida and Washington State where Microsoft is based. This - this is Florida, Boca Raton and this building right here is where the IBM PC was developed. Here the nerds from Seattle joined forces with the suits of corporate and in that first honeymoon year they pulled off a fantastic achievement.
After we got a package in the mail from the people down in Florida...
As August 1981 approached, the deadline for the launch of the IBM Acorn, the PC industry held its breath.
Supposedly, maybe at this very moment eh, IBM is announcing the personal computer. We don't know that yet.
Software writers like Dan Bricklin, the creator of the first spreadsheet VisiCalc waited by the phones for news of the announcement. This is a moment of PC history. IBM secrecy had codenamed the PC 'The Floridian Project.' Everyone in the PC business knew IBM would change their world forever. They also knew that if their software was on the IBM PC, they would make fortunes.
Please note that the attached information is not to be disclosed prior to any public announcement. (It's on the ticker) It's on the ticker OK so now you can tell people.
What we're watching are the first few seconds of a $100 billion industry.
After years of thinking big today IBM came up with something small. Big Blue is looking for a slice of Apple's market share. Bits and Bytes mean nothing try this one. Now they're going to sell $1,000 computers to millions of customers. I have seen the future said one analyst and it computes.
Today an IBM computer has reached a personal......
Nobody was ever fired for buying IBM. Now companies could put PCs with the name they trusted on desks from Wisconsin to Wall Street.
When the IBM PC came and the PC became a serious business tool, a lot of them, the first of them went into those buildings over there and that was the real ehm when the PC industry started taking off, it happened there too.
Can learn to use it with ease...
Former IBM Executive
What IBM said was it's okay corporate America for you to now start buying and using PCs. And if it's okay for corporate America, it's got to be okay for everybody.
For all the hype, the IBM PC wasn't much better than what came before. So while the IBM name could create immense demand, it took a killer application to sustain it. The killer app for the IBM PC was yet another spreadsheet. Based on Visicalc, but called Lotus 1-2-3, its creators were the first of many to get rich on IBM's success. Within a year Lotus was worth $150 million bucks. Wham! Bam! Thank you IBM!
Time to rock time for code...
IBM had forecast sales of half a million computers by 1984. In those 3 years, they sold 2 million.
Euphoric I guess is the right word. Everybody was believed that they were not going to... At that point two million or three million, you know, they were now thinking in terms of a hundred million and they were probably off the scale in the other direction.
What did all this mean to Bill Gates, whose operating system, DOS, was at the heart of every IBM PC sold? Initially, not much, because of the deal with IBM. But it did supply him a vital bridgehead to other players in the PC marketplace, which meant trouble in the long run for Big Blue.
The key to our...the structure of our deal was that IBM had no control over...over our licensing to other people. In a lesson on the computer industry in mainframes was that er, over time, people built compatible machines or clones, whatever term you want to use, and so really, the primary upside on the deal we had with IBM, because they had a fixed fee er, we got about $80,000 - we got some other money for some special work we did er, but no royalty from them. And that's the DOS and Basic as well. And so we were hoping a lot of other people would come along and do compatible machines. We were expecting that that would happen because we knew Intel wanted to vend the chip to a lot more than just than just IBM and so it was great when people did start showing up and ehm having an interest in the licence.
IBM now had fifty per cent market share and was defining what a PC meant. There were other PCs that were sorta like the IBM PC, kinda like it. But what the public wanted was IBM PCs. So to be successful other manufacturers would have to build computers exactly like the IBM. They wanted to copy the IBM PC, to clone it. How could they do that legally, well welcome to the world of reverse engineering. This is what reverse engineering can get you if you do it right. It's the modest Aspen, Colorado ski shack of Rod Canion, one of the founders of Compaq, the company set up to compete head-on with the IBM PC. Back in 1982, Rod and three fellow engineers from Texas Instruments sketched out a computer design on a place mat at the House of Pies restaurant in Houston, Texas. They decided to manufacture and market a portable version of the IBM PC using the curious technique of reverse engineering.
Reverse engineering is figuring out after something has already been created how it ticks, what makes it work, usually for the purpose of creating something that works the same way or at least does something like the thing you're trying to reverse engineer.
Here's how you clone a PC. IBM had made it easy to copy. The microprocessor was available off the shelf from Intel and the other parts came from many sources. Only one part was IBM's alone, a vital chip that connected the hardware with the software. Called the ROM-BIOS, this was IBM's own design, protected by copyright and Big Blue's army of lawyers. Compaq had to somehow copy the chip without breaking the law.
First you have to decide how the ROM works, so what we had to do was have an engineer sit down with that code and through trial and error write a specification that said here's how the BIOS ROM needs to work. It couldn't be close it had to be exact so there was a lot of detailed testing that went on.
You test how that all-important chip behaves, and make a list of what it has to do - now it's time to meet my lawyer, Claude.
Silicon Valley Attorney
BOB: I've examined the internals of the ROM BIOS and written this book of specifications now I need some help because I've done as much as I can do, and you need to explain what's next.
CLAUDE: Well,the first thing I'm going to do is I'm going to go through the book of specifications myself, but the first thing I can tell you Robert is that you're out of it now. You are contaminated, you are dirty. You've seen the product that's the original work of authorship, you've seen the target product, so now from here on in we're going to be working with people who are not dirty. We're going to be working with so called virgins, who are going to be operating in the clean room.
BOB: I certainly don't qualify there.
CLAUDE: I imagine you don't. So what we're going to do is this. We're going to hire a group of engineers who have never seen the IBM ROM BIOS. They have never seen it, they have never operated it, they know nothing about it.
Claude interrogates Mark
CLAUDE: Have you ever before attempted to disassemble decompile or to in any way shape or form reverse engineer any IBM equipment?
MARK: Oh no.
CLAUDE: And have you ever tried to disassemble....
This is the Silicon Valley virginity test. And good virgins are hard to find.
CLAUDE: You understand that in the event that we discover that the information you are providing us is inaccurate you are subject to discipline by the company and that can include but not limited to termination immediately do you understand that?
MARK: Yes I do.
After the virgins are deemed intact, they are forbidden contact with the outside world while they build a new chip -- one that behaves exactly like the one in the specifications. In Compaq's case, it took l5 senior programmers several months and cost $1 million to do the reverse engineering. In November 1982, Rod Canion unveiled the result.
What I�ve brought today is a Compaq portable computer.
When Bill Murto, another Compaq founder got a plug on a cable TV show their selling point was clear 100 percent IBM compatibility.
It turns out that all major popular software runs on the IBM personal computer or the Compaq portable computer.
Q: That extends through all software written for IBM?
A: Eh Yes.
Q: It all works on the Compaq?
The Compaq was an instant hit. In their first year, on the strength of being exactly like IBM but a little cheaper, they sold 47,000 PCs.
In our first year of sales we set an American business record. I guess maybe a world business record. Largest first year sales in history. It was a hundred and eleven million dollars.
So Rod Canion ends up in Aspen, famous for having the most expensive real estate in America and I try not to look envious while Rod tells me which executive jet he plans to buy next.
ROD: And finally I picked the Lear 31.
BOB: Oh really?
ROD: Now thart was a fun airplane.
BOB: Oh yeh.
Poor Big Blue! Suddenly everybody was cashing in on IBM's success. The most obvious winner at first was Intel, maker of the PCs microprocessor chip. Intel was selling chips like hotcakes to clonemakers -- and making them smaller, quicker and cheaper. This was unheard of! What kind of an industry had Big Blue gotten themselves into?
Former Head, IBM PC Division
Things get less expensive every year. People aren't used to that in general. I mean, you buy a new car, you buy one now and four years later you go and buy one it costs more than the one you bought before. Here is this magical piece of an industry - you go buy one later it costs less and it does more. What a wonderful thing. But it causes some funny things to occur when you think about an industry. An industry where prices are coming down, where you have to sell it and use it right now, because if you wait later it's worth less.
Where Compaq led, others soon followed. IBM was now facing dozens of rivals - soon to be familiar names began to appear, like AST, Northgate and Dell. It was getting spectacularly easy to build a clone. You could get everything off the shelf, including a guaranteed-virgin ROM BIOS chip. Every Tom, Dick & Bob could now make an IBM compatible PC and take another bite out of Big Blue's business. OK we're at Dominos Computers at Los Altos California, Silicon Valley and this is Yukio and we're going to set up the Bob and Yukio Personal Computer Company making IBM PC clones. You're the expert, I of course brought all the money so what is it that we're going to do.
OK first of all we need a motherboard.
BOB: What's a motherboard?
YUKIO: That's where the CPU is set in...that's the central processor unit.
YUKIO: In fact I have one right here. OK so this is the video board...
BOB: That drives the monitor.
BILL LOWE: Oh, of course. I mean we were able to sell a lot of products but it was getting difficult to make money.
YUKIO: And this is the controller card which would control the hard drive and the floppy drive.
And the way we did it was by having low overhead. IBM had low cost of product but a lot of overhead - they were a very big company.
YUKIO: Right this is a high density recorder.
BOB: So this is a hard disk drive.
And by keeping our overhead low even though our margins were low we were able to make a profit.
YUKIO: OK I have one right here.
BOB: Hey...OK we have a keyboard which plugs in right over here.
BOB: People build them themselves - how long does it take?
YUKIO: About an hour.
BOB: About an hour.
And where did every two-bit clone-maker buy his operating system? Microsoft, of course. IBM never iniagined Bill Gates would sell DOS to anyone else. Who was there? But by the mid 80's it was boom time for Bill. The teenage entrepreneur had predicted a PC on every desk and in every home, running Microsoft software. It was actually coming true. As Microsoft mushroomed there was no way that Bill Gates could personally dominate thousands of employees but that didn't stop him. He still had a need to be both industry titan and top programmer. So he had to come up with a whole new corporate culture for Microsoft. He had to find a way to satisfy both his adolescent need to dominate and his adult need to inspire. The average Microsoftee is male and about 25. When he's not working, well he's always working. All his friends are Microsoft programmers too. He has no life outside the office but all the sodas are free. From the beginning, Microsoft recruited straight out of college. They chose people who had no experience of life in other companies. In time they'd be called Microserfs.
Chief Programmer, Microsoft
It was easier to to to create a new culture with people who are fresh out of school rather than people who came from, from from eh other companies and and and other cultures. You can rely on it you can predict it you can measure it you can optimise it you can make a machine out of it.
I mean everyone like lived together, ate together dated each other you know. Went to the movies together it was just you know very much a it was like a frat or a dorm.
Everybody's just push push push - is it right, is it right, do we have it right keep on it - no that's not right ugh and you're very frank about that - you loved it and it wasn't very formal and hierarchical because you were just so desirous to do the right thing and get it right. Why - it reflects Bill's personality.
And so a lot of young, I say people, but mostly it was young men, who just were out of school saw him as this incredible role model or leader, almost a guru I guess. And they could spend hours with him and he valued their contributions and there was just a wonderful camaraderie that seemed to exist between all these young men and Bill, and this strength that he has and his will and his desire to be the best and to be the winner - he is just like a cult leader, really.
As the frenzied 80's came to a close IBM reached a watershed - they had created an open PC architecture that anyone could copy. This was intentional but IBM always thought their inside track would keep them ahead - wrong. IBM's glacial pace and high overhead put them at a disadvantage to the leaner clone makers - everything was turning into a nightmare as IBM lost its dominant market share. So in a big gamble they staked their PC future to a new system a new line of computers with proprietary closed hardware and their very own operating system. It was war.
Start planning for operating system 2 today.
IBM planned to steal the market from Gates with a brand new operating system, called - drum roll please - OS/2. IBM would design OS/2. Yet they asked Microsoft to write the code. Why would Microsoft help create what was intended to be the instrument of their own destruction? Because Microsoft knew IBM was was the source of their success and they would tolerate almost anything to stay close to Big Blue.
It was just part of, as we used to call it, the time riding the bear. You just had to try to stay on the bear's back and the bear would twist and turn and try to buck you and throw you, but darn, we were going to ride the bear because the bear was the biggest, the most important you just had to be with the bear, otherwise you would be under the bear in the computer industry, and IBM was the bear, and we were going to ride the back of the bear.
It's easy for people to forget how pervasive IBM's influence over this industry was. When you talked to people who've come in to the industry recently there's no way you can get that in to their - in to their head, that was the environment.
The relationship between IBM and Microsoft was always a culture clash. IBMers were buttoned-up organization men. Microsoftees were obsessive hackers. With the development of OS/2 the strains really began to show.
In IBM there's a religion in software that says you have to count K-LOCs, and a K-LOC is a thousand line of code. How big a project is it? Oh, it's sort of a 10K-LOC project. This is a 20K-LOCer. And this is 5OK-LOCs. And IBM wanted to sort of make it the religion about how we got paid. How much money we made off OS 2, how much they did. How many K-LOCs did you do? And we kept trying to convince them - hey, if we have - a developer's got a good idea and he can get something done in 4K-LOCs instead of 20K-LOCs, should we make less money? Because he's made something smaller and faster, less KLOC. K-LOCs, K-LOCs, that's the methodology. Ugh anyway, that always makes my back just crinkle up at the thought of the whole thing.
When I took over in '89 there was an enormous amount of resources working on OS 2, both in Microsoft and the IBM company. Bill Gates and I met on that several times. And we pretty quickly came to the conclusion together that that was not going to be a success, the way it was being managed. It was also pretty clear that the negotiating and the contracts had given most of that control to Microsoft.
It was no longer just a question of styles. There was now a clear conflict of business interest. OS/2 was planned to undermine the clone market, where DOS was still Microsoft's major money-maker. Microsoft was DOS. But Microsoft was helping develop the opposition? Bad idea. To keep DOS competitive, Gates had been pouring resources into a new programme called Windows. It was designed to provide a nice user-friendly facade to boring old DOS. Selling it was another job for shy, retiring Steve Ballmer.
Steve Ballmer (Commercial)
How much do you think this advanced operating environment is worth - wait just one minute before you answer - watch as Windows integrates Lotus 1, 2, 3 with Miami Vice. Now we can take this...
Just as Bill Gates saw OS/2 as a threat, IBM regarded Windows as another attempt by Microsoft to hold on to the operating system business.
We created Windows in parallel. We kept saying to IBM, hey, Windows is the way to go, graphics is the way to go, and we got virtually everyone else, enthused about Windows. So that was a divergence that we kept thinking we could get IBM to - to come around on.
It was clear that IBM had a different vision of its relationship with Microsoft than Microsoft had of its vision with IBM. Was that Microsoft's fault? You know, maybe some, but IBM's not blameless there either. So I don't view any of that as anything but just poor business on IBM's part.
Bill Gates is a very disciplined guy. He puts aside everything he wants to read and twice a year goes away for secluded practicing weeks - the decisive moment in the Microsoft/IBM relationship came during just such a retreat. In front of a log fire Bill concluded that it was no longer in Microsoft's long term interests to blindly follow IBM. If Bill had to choose between OS2, IBM's new operating system and Windows, he'd choose Windows.
We said ooh, IBM's probably not going to like this. This is going to threaten OS 2. Now we told them about it, right away we told them about it, but we still did it. They didn't like it, we told em about it, we told em about it, we offered to licence it to em.
We always thought the best thing to do is to try and combine IBM promoting the software with us doing the engineering. And so it was only when they broke off communication and decided to go their own way that we thought, okay, we're on our own, and that was definitely very, very scary.
We were in a major negotiation in early 1990, right before the Windows launch. We wanted to have IBM on stage with us to launch Windows 3.0, but they wouldn't do the kind of deal that would allow us to profit it would allow them essentially to take over Windows from us, and we walked away from the deal.
Jack Sams, who started IBM's relationship with Microsoft with that first call to Bill Gates in 1980, could only look on as the partnership disintegrated.
Then they at that point I think they agreed to disagree on the future progress of OS 2 and Windows. And internally we were told thou shalt not ship any more products on Windows. And about that time I got the opportunity to take early retirement so I did.
Bill's decison by the fireplace ended the ten year IBM/Microsoft partnership and turned IBM into an also-ran in the PC business. Did David beat Goliath? The Boca Raton, Florida birthplace of the IBM's PC is deserted - a casualty of diminishing market share. Today, IBM is again what it was before - a profitable, dominant mainframe computer company. For awhile IBM dominated the PC market. They legitimised the PC business, created the standards most of us now use, and introduced the PC to the corporate world. But in the end they lost out. Maybe it was to a faster, more flexible business culture. Or maybe they just threw it away. That's the view of a guy who's been competing with IBM for 20 years, Silicon Valley's most outspoken software billionaire, Larry Ellison.
I think IBM made the single worst mistake in the history of enterprise on earth.
Q: Which was?
LARRY: Which was the manufacture - being the first manufacturer and distributor of the Microsoft/Intel PC which they mistakenly called the IBM PC. I mean they were the first manufacturer and distributor of that technology I mean it's just simply astounding that they could ah basically supply a third of their market value to Intel and a third of their market value to Microsoft by accident - I mean no-one, no-one I mean those two companies today are worth close to you know approaching a hundred billion dollars I mean not many of us get a chance to make a $100 billion mistake.
As fast as IBM abandons its buildings, Microsoft builds new ones. In 1980 IBM was 3000 times the size of Microsoft. Though still a smaller company, today Wall Street says Microsoft is worth more. Both have faced anti-trust investigations about their monopoly positions. For years IBM defined successful American corporate culture - as a machine of ordered bureaucracy. Here in the corridors of Microsoft it's a different style, it's personal. This company - in its drive, its hunger to succeed - is a reflection of one man, its founder, Bill Gates.
Bill wanted to win. Incredible desire to win and to beat other people. At Microsoft we, the whole idea was that we would put people under, you know. Unfortunately that's happened a lot.
Computer Industry Analyst
Bill Gates is special. You wouldn't have had a Microsoft with take a random other person like Gary Kildall. On the other hand, Bill Gates was also lucky. But Bill Gates knows that, unlike a lot of other people in the industry, and he's paranoid. Every morning he gets up and he doesn't feel secure, he feels nervous about this. They're trying hard, they're not relaxing, and that's why they're so successful.
And I remember, I was talking to Bill once and I asked him what he feared, and he said that he feared growing old because you know, once you're beyond thirty, this was his belief at the time, you know once you're beyond thirty, you know, you don't have as many good ideas anymore. You're not as smart anymore.
If you just slow down a little bit who knows who it'll be, probably some company that may not even exist yet, but eh someone else can come in and take the lead.
And I said well, you know, you're going to age, it's going to happen, it's kind of inevitable, what are you going to do about it? And he said I'm just going to hire the smartest people and I'm going to surround myself with all these smart people, you know. And I thought that was kind of interesting. It was almost - it was like he was like oh, I can't be immortal, but like maybe this is the second best and I can buy that, you know.
If you miss what's happening then the same kind of thing that happened to IBM or many other companies could happen to Microsoft very easily. So no-one's got a guaranteed position in the high technology business, and the more you think about, you know, how could we move faster, what could we do better, are there good ideas out there that we should be going beyond, it's important. And I wouldn't trade places with anyone, but the reason I like my job so much is that we have to constantly stay on top of those things.
The Windows software system that ended the alliance between Microsoft and IBM pushed Gates past all his rivals. Microsoft had been working on the software for years, but it wasn't until 1990 that they finally came up with a version that not only worked properly, it blew their rivals away and where did the idea for this software come from? Well not from Microsoft, of course. It came from the hippies at Apple. Lights! Camera! Boot up! In 1984, they made a famous TV commercial. Apple had set out to create the first user friendly PC just as IBM and Microsoft were starting to make a machine for businesses. When the TV commercial aired, Apple launched the Macintosh.
Glorious anniversary of the information...
The computer and the commercial were aimed directly at IBM - which the kids in Cupertino thought of as Big Brother. But Apple had targeted the wrong people. It wasn't Big Brother they should have been worrying about, it was big Bill Gates.
We are one people....
To find out why, join me for the concluding episode of Triumph of the Nerds.
...........we shall prevail.
21st Century paces of change in technology and rational behavior (not of emotional reactions) seriously disrupts the commonly accepted productive investment strategy of the 20th century.
One required change is the shortening of forecast horizons, with a shift from the multi-year passive approach of buy&hold to the active strategy of specific price-change target achievement or time-limit actions, with reinvestment set to new nearer-term targets.
That change avoids the irretrievable loss of invested time spent destructively by failure to recognize shifting evolution like the cases of IBM, Kodak, GM, Xerox, GE and many others.
It recognizes the progress in medical, communication and information technologies and enjoys their operational benefits already present in extended lifetimes, trade-commission-free investments, and coming benefits in transportation utilization and energy usage.
But it requires the ability to make valid direct comparisons of value between investment reward prospects and risk exposures in the uncertain future. Since uncertainty expands as the future dimension increases, shorter forecast horizons are a means of improving the reward-to-risk comparison.
That shortening is now best attended at the investment entry point by knowing Market-Maker expectations for coming prices. When reached, their updates are then reintroduced at the exit/reinvestment point and the term of expectations for the required coming comparisons are recognized as the decision entry point to move forward.
The MM's constant presence, extensive global communications and human resources dedicated to monitoring industry-focused competitive evolution sharpens MM price expectations, essential to their risk-avoidance roles.
Their roles require firm capital be only temporarily risk-exposed, so are hedged by derivative-securities deals to avoid undesired price changes. The deals' prices and contracts provide a window to MM price expectations.
Information technology via the internet makes investment monitoring and management time and attention efficient despite its increase in frequency.
Once an investment choice is made and buy transaction confirmation is received, a target-price GTC sell order for the confirmed number of shares at the target price or better should be placed. Keeping trade actions entered through the internet on your lap/desk-top or cell phone should avoid trade commission charges. Your broker's internal system should keep you informed of your account's progress.
Your own private calendar record should be kept of the date 63 market days (or 91 calendar days) beyond the trade's confirmation date as a time-limit alert to check if the GTC order has not been executed. If not, then start your exit and reinvestment decision process.
The 3-months time limit is what we find to be a good choice, but may be extended some if desired. Beyond 5-6 months time investments start to work against the process and are not recommended.
For investments guided by this article or others by me target prices will always be found as the high price in the MM forecast range.
"PPG Industries, Inc. manufactures and distributes paints, coatings, and specialty materials worldwide. The company's Performance Coatings segment offers coatings, solvents, adhesives, sealants, sundries, and software for automotive and commercial transport/fleet repair and refurbishing, light industrial coatings, and specialty coatings for signs; and coatings, sealants, transparencies, transparent armor, adhesives, engineered materials, and packaging and chemical management services for commercial, military, regional jet, and general aviation aircraft. The company was incorporated in 1883 and is headquartered in Pittsburgh, Pennsylvania.."
Source: Yahoo Finance
These growth estimates have been made by and are collected from Wall Street analysts to suggest what conventional methodology currently produces. The typical variations across forecast horizons of different time periods illustrate the difficulty of making value comparisons when the forecast horizon is not clearly defined.
The risk dimension is of actual price draw-downs at their most extreme point while being held in previous pursuit of upside rewards similar to the ones currently being seen. They are measured on the red vertical scale. Reward expectations are measured on the green horizontal scale.
Both scales are of percent change from zero to 25%. Any stock or ETF whose present risk exposure exceeds its reward prospect will be above the dotted diagonal line. Capital-gain-attractive to-buy issues are in the directions down and to the right.
Our principal interest is in PPG at location , at the right-hand edge of the competitor crowd. A "market index" norm of reward~risk tradeoffs is offered by SPY at . Most appealing by this Figure 1 view for wealth-building investors is PPG.
The Figure 1 map provides a good visual comparison of the two most important aspects of every equity investment in the short term. There are other aspects of comparison which this map sometimes does not communicate well, particularly when general market perspectives like those of SPY are involved. Where questions of "how likely' are present other comparative tables, like Figure 2, may be useful.
Yellow highlighting of the table's cells emphasize factors important to securities valuations and the security PPG of most promising of near capital gain as ranked in column [R].
(used with permission)
Figure 2's purpose is to attempt universally comparable answers, stock by stock, of a) How BIG the prospective price gain payoff may be, b) how LIKELY the payoff will be a profitable experience, c) how SOON it may happen, and d) what price draw-down RISK may be encountered during its active holding period.
Readers familiar with our analysis methods after quick examination of Figure 2 may wish to skip to the next section viewing price range forecast trends for PPG.
Column headers for Figure 2 define investment-choice preference elements for each row stock whose symbol appears at the left in column [A]. The elements are derived or calculated separately for each stock, based on the specifics of its situation and current-day MM price-range forecasts. Data in red numerals are negative, usually undesirable to "long" holding positions. Table cells with yellow fills are of data for the stocks of principal interest and of all issues at the ranking column, [R].
The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions to protect firm capital required to be put at risk of price changes from volume trade orders placed by big-$ "institutional" clients.
[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. Prior forecasts like the present provide a history of relevant price draw-down risks for buyers. The most severe ones actually encountered are in [F], during holding periods in effort to reach [E] gains. Those are where buyers are emotionally most likely to accept losses.
The Range Index [G] tells where today's price lies relative to the MM community's forecast of upper and lower limits of coming prices. Its numeric is the percentage proportion of the full low to high forecast seen below the current market price.
[H] tells what proportion of the [L] sample of prior like-balance forecasts have earned gains by either having price reach its [B] target or be above its [D] entry cost at the end of a 3-month max-patience holding period limit. [ I ] gives the net gains-losses of those [L] experiences.
What makes PPG most attractive in the group at this point in time is its ability to produce capital gains most consistently at its present operating balance between share price risk and reward at the Range Index [G]. At a RI of 1, today's price is at the bottom of its forecast range, with all price expectations only to the upside. Not our expectations, but those of Market-Makers acting in transaction support of Institutional Investment organizations building the values of their typical multi-billion-$ portfolios. Credibility of the [E] upside prospect as evidenced in the [I] payoff at +18% is shown in [N].
Further Reward~Risk tradeoffs involve using the [H] odds for gains with the 100 - H loss odds as weights for N-conditioned [E] and for [F], for a combined-return score [Q]. The typical position holding period [J] on [Q] provides a figure of merit [fom] ranking measure [R] useful in portfolio position preferences. Figure 2 is row-ranked on [R] among alternative candidate securities, with PPG in top rank.
Along with the candidate-specific stocks these selection considerations are provided for the averages of some 3,000 stocks for which MM price-range forecasts are available today, and 20 of the best-ranked (by fom) of those forecasts, as well as the forecast for S&P500 Index ETF (SPY) as an equity-market proxy.
Current-market index SPY is not competitive as an investment alternative. Its Range Index of 26 indicates 3/4ths of its forecast range is to the upside, but little more than half of previous SPY forecasts at this range index produced profitable outcomes.
As shown in column [T] of figure 2, those levels vary significantly between stocks. What matters is the net gain between investment gains and losses actually achieved following the forecasts, shown in column [I]. The Win Odds of [H] tells what proportion of the sample RIs of each stock were profitable. Odds below 80% often have proven to lack reliability.
(used with permission)
Many investors confuse any time-repeating picture of stock prices with typical "technical analysis charts" of past stock price history. These are quite different in their content. Instead, here Figure 3's vertical lines are a daily-updated visual record of price range forecast limits expected in the coming few weeks and months. The heavy dot in each vertical is the stock's closing price on the day the forecast was made.
That market price point makes an explicit definition of the price reward and risk exposure expectations which were held by market participants at the time, with a visual display of their vertical balance between risk and reward.
The measure of that balance is the Range Index (RI).
With today's RI there is 18% upside price change in prospect. Of the prior 43 forecasts like today's RI, 40 have been profitable. The market's actions of prior forecasts became accomplishments of +11% gains in 47 market days.. So history's advantage could be repeated five times or more in a 252 market-day year, which compounds into a CAGR of +72%.
Also please note the smaller low picture in Figure 3. It shows the past 5 year distribution of Range Indexes with the current level visually marked. For PPG nearly all exact past forecasts have been of higher prices and Range Indexes.
Based on direct comparisons with SHW and other Paint producers, there are strong wealth-building reasons to prefer a capital-gain seeking buy in PPG Industries, Inc. (PPG) over other examined alternatives.
Inspired by Unilever’s sustainability slogan, “Small actions can make a big difference,” workers at the company’s PG tips tea factory in Trafford Park, England, had a bright idea. In Britain, most tea comes in paper tea bags. By reducing the end seals of each tea bag by 3 millimeters, 15 huge reels of paper could be saved every shift. Since its launch in 2015, this factory-floor suggestion has resulted in savings of €47,500 and 9.3 tonnes of paper (about 20,500 pounds).
Similarly, in early 2015, at the Unilever factory in Khamgaon, India, six employees approached the factory manager with the idea of starting a beauty and hair care course in their village to help local women get a job or start a business, while at the same time promoting Unilever’s personal care products. In March 2015, management gave the green light, and the training center was launched. To date, 825 women have been trained, and 610 are working in beauty parlors or have started their own business.
Were these high-profile moments in Unilever’s quest for sustainability? No. Even if you are a regular follower of sustainability news, you probably have never heard about them. That is exactly the point. What these stories show is the extent to which Unilever—along with other companies such as IBM, Marks & Spencer, and BASF—is integrating sustainability into every employee’s job and turning a sustainable business model into business as usual.
As notable as the actions of these global companies are, they are much more the exception than the norm. In our experiences (as CEO of a global company and an educator and consultant), we have been struck by the lack of personal involvement, and at times even acknowledgment, by business managers of the importance of sustainability, particularly at large, publicly held companies. The typical reaction at many of these firms is: “Yes, it’s important, but it’s someone else’s job, and I have more important things to do.”
There are, however, a handful of companies where we see significant personal engagement by employees in sustainability issues. Take the clothier Marks & Spencer, for example, which has sustainability champions in every one of its 1,380 stores to ensure that each store performs the best it possibly can on all sustainability targets. Or the financial services firm Old Mutual Group, which created a training program for its future leaders that includes sustainability as a core component. The presence of such champions goes a long way toward making sustainability relevant and palpable throughout the company.
Besides the financial benefits that sustainability practices like energy conservation provide, studies have found that employee retention, productivity, and overall engagement all go up.1 Nevertheless, it is hard for companies to operationalize sustainability goals, even when the people working for these companies, including their leaders, care about sustainability in the world. The problem is that not enough companies have yet figured out how to link their employees’ values and support for sustainability with the employees’ daily work and the company’s operations. In other words, it’s not in the why but in the how of embedding sustainability where the gap lies.
What have companies like Marks & Spencer done to make sustainability personally relevant to their employees such that business decisions at every level of the company are conducted through the sustainability lens? And what can leaders of other companies do differently to overcome apathy and instill the same sense of passion and urgency in their workforces to make sustainability part of their day jobs?
This article shares what we have learned about how leading sustainability companies approach these problems, and how they succeed in making a stronger link between the values of their employees and their daily work for the company. We also offer eight important practices for embedding sustainability internally and making it relevant to the entire employee base.
Most employees use a rational cost-benefit calculus (what’s in it for me) to decide how to act and please their superiors. In a business world dominated by maximizing profit, this calculation often leads employees to behave in ways that their organizations support but that run counter to the values employees use to conduct their personal lives. A study of young employees found that in several instances, employees suspended their own values temporarily in the belief that laudable ends justify questionable means. Rarely did these employees have the support from others within the company to voice their values and question the work they were being asked to undertake.2
Such a reciprocal relationship between organizations and their employees (i.e., sensing superiors’ desires and acting in accordance) has also been noted by management scholar Paul Strebel, who found that employees and organizations have reciprocal obligations and mutual commitments that define their relationship. Those agreements are what Strebel calls “personal compacts,” and corporate change initiatives (such as a transition to a sustainable business model) require changing the terms of these compacts and fundamentally reconciling personal and corporate values. Unless leaders define new terms and persuade employees to accept them, “it is unrealistic for managers to expect employees fully to buy into changes that alter the status quo,” writes Strebel.3
Personal compacts have three dimensions: formal (job descriptions, employment contracts, performance agreements), psychological (rewards, recognition, expectations, and commitment), and social (perception, culture, and values). Successfully integrating sustainability into a business requires management to reconcile the gap between personal and corporate values in all three dimensions. In the formal dimension, employees observe whether sustainability is integrated into job descriptions and training programs and whether sustainability targets are tied to employees’ variable compensation. In the psychological dimension, employees observe whether sustainability performance is rewarded and recognized and whether superiors set performance expectations that align with sustainability. And in the social dimension, which is key, employees observe whether there is consistency between what the company says about its values in its mission statement and what it practices.
Perceptions about the company’s goals are tested when employees evaluate the balance between financial and nonfinancial objectives, and when they determine whether management practices what it preaches. That is why it is so important that leaders get involved, and are seen to get involved, in sustainability initiatives both inside and, as important, outside the business.
It is particularly important for company executives to lead by example in sustainability initiatives because research shows that stakeholders, including employees, are often skeptical about a company’s motivations for getting involved in sustainability initiatives.4 Some are persuaded to put aside their skepticism and embrace such initiatives only when they are convinced that the company is sincere about making a positive difference. In other words, when it comes to sustainability, leaders’ actions speak louder than words and play a huge role in signaling company values to employees.
A company can implement eight practices to help bridge the distance between an employee’s personal values and a company’s business practices, in order to create a sustainable company. Each practice is detailed in the sections that follow.
The first way to erase the conflict that people can feel between their work duties and their personal values is to stress the long-term interests of the company, which are undoubtedly more aligned with the good of society and the planet. Unilever, for example, defines its purpose as “making sustainable living commonplace” (an update of its 19thcentury founder’s purpose of “making cleanliness commonplace”).
To put this purpose into practice, in 2010 the company introduced the Unilever Sustainable Living Plan (USLP), a blueprint for the company’s sustainable growth strategy that spells out how the company’s success is ultimately tied up with the success of societies and the planet. The USLP has three main goals: improving the health and well-being of more than one billion people by 2020, reducing the company’s environmental impact by half by 2020, and improving the economic livelihoods of millions of women and smallholder farmers in Unilever’s supply chain by 2020. An important way in which Unilever brings its purpose to life is through its brands, which are also the engine of its growth. The company is in the process of helping all of its brands—including Dove, Lifebuoy, Domestos, Knorr, and Vaseline—identify and activate their long-term sustainable living purpose.
Take, for example, Domestos, a toilet cleaner sold in 35 countries whose social purpose is to enhance people’s health and well-being by reducing open defecation and improving sanitation. The Domestos business unit has committed to help 25 million people around the world gain access to toilets by 2020 and has founded the multisectoral Toilet Board Coalition to pursue these goals. Unilever’s philosophy has always been to make products that meet social needs, and to do so profitably, so it is no coincidence that building more toilets potentially means more Domestos sales. It is also no coincidence that Domestos is one of Unilever’s fastest-growing brands.
All companies should strive to have a clear long-term purpose built into their business strategy and bring it to life through their brands and products. A company’s purpose should, of course, take account of its business model and value chain, but also build on its products’ benefits, the company’s scale and influence, its core competencies, and its stakeholders’ concerns and aspirations. Thinking about the social purpose that a company and its brands serve enables employees to latch onto the higher purpose and use the company as a means to express their values, which in turn, creates meaning in and at work.5 More than ever before, people today have a yearning for purpose, which companies have a great opportunity to tap into.
Helping employees see the economic case for operating in a more sustainable way is not always easy, but it is crucial; otherwise, people will think that sustainability is just about “doing good” and not also about “doing well.” General Electric’s Ecomagination program to develop cleaner technology solutions, for example, has grown in 10 years from a $700 million R&D commitment to a $15 billion-ayear business. And Marks & Spencer’s Plan A sustainability program generated a net benefit of £160 million in 2014-15.
How does a manager make the economic case for sustainability to employees? At IBM, environmental goal setting has long been an integral part of the company’s overall planning process. The company uses the process to engage its business units and employees in addressing environmental challenges. The process begins with the corporate staff completing an in-depth analysis of the ways in which IBM’s businesses intersect with the environment. Draft goals are then developed, considering the company’s environmental objectives and its commitment to be a leader in the area of environmental sustainability. The specific goal recommendations and underlying analysis supporting the goals are then reviewed with business units to secure their buy-in. Through this process the business units gain an understanding of the environmental drivers and objectives behind each goal as well as the business and societal benefits. IBM has observed that this understanding helps garner and sustain support from business unit leadership and increase employee engagement.
Take the case of IBM’s pursuit of energy efficiency. Through its decades-long energy conservation program, IBM has demonstrated that smart energy management is good for the environment and good for business, because each kilowatt of electricity not consumed avoids greenhouse gas emissions and improves IBM’s bottom line.
When discussing proposed goals with business units, IBM’s corporate staff also identifies opportunities that support top-line revenue growth, not just cost savings. For example, consolidating multiple computer servers that operate at low utilization rates into one larger and more energy-efficient computer server not only reduces energy demand and greenhouse gas emissions, but also reduces the number of assets needed to execute a given workload and frees up space, electricity, and cooling capacity to support new business.
These types of analyses and interactions with business units are essential to IBM’s practice of embedding environmental and energy management across its global business. The information that business units gain in the goal-setting process helps them evaluate and select individual energy-efficiency projects that offer the greatest environmental and business benefits. “In 2014 alone, IBM’s business units implemented over 2,200 energy conservation projects at 341 IBM locations globally, avoiding 325,500 megawatt-hours of electricity and 267,200 MMBtu of fuel oil and natural gas,” says Wayne Balta, IBM’s vice president of corporate environmental affairs and product safety. “These projects delivered annual savings equal to 6.7 percent of IBM’s total energy use, surpassing the corporate goal of 3.5 percent, and drove savings of $37.4 million. IBM’s fact-based goals for environmental sustainability drive employee engagement, action, results, and leadership.”
Sustainability cuts across all aspects of a business, from energy consumption to procurement. To bolster the “can do” belief and attitude among employees, it is important to invest in educating employees about sustainability as well as to create systems and processes that make it easier for employees to integrate sustainability into their business decisions. Many sustainability initiatives require specialized knowledge and expertise—such as talking to suppliers about sustainable sourcing or using an eco-efficiency tool to evaluate a new product. No wonder, then, that companies as diverse as BASF, IBM, Marks & Spencer, and Nestlé have invested heavily in training and development, as well as systems and processes, that enable sustainability decisions to be made at a large scale.
At Unilever the company’s top 500 managers go through an intensive leadership development process. The first step in the process provides the managers with 360-degree feedback and benchmarking on their impact as a leader, and supports them in identifying their personal leadership purpose to enable them to become an authentic leader. Next, the managers are encouraged to serve as mentors for those coming through subsequent leadership programs to deepen that impact. Then the 500 managers go through Unilever Leadership 2020, which provides them with the leadership skills they need for the future, including resilience, systems thinking, empowerment, adaptability, and results orientation. To bring those skills to life, the leaders deliver a “Purpose Into Impact” project that draws on their personal purpose to deliver societal and business impact.
It’s not just the top managers at Unilever who receive sustainability training. Unilever has also integrated sustainability into existing training. New brand managers, for example, spend a week on a sustainability marketing challenge.
In addition, Unilever’s finance team has created a valuation tool that assesses the revenues, growth, and profit margin of products and brands against targets, and tracks supply-chain savings, capital expenditures, manufacturing avoided costs, and incremental turnover of goods associated with sustainability-led initiatives. Embedding this analytical capability in the business enables Unilever to increase performance across markets and decide where to prioritize investments and marketing to focus the portfolio on delivering Unilever’s purpose.
Every successful company shares one thing in common: strong leadership. And nowhere is that more important than in creating a sustainable company. As John Brock, CEO of Coca-Cola Enterprises, put it in the context of setting a sustainability agenda: “Frankly, the single most important thing in my view is leadership. You’ve got to have somebody who believes in it [sustainability]. It’s the CEO. That’s the number one. And then you’ve got to have an executive leadership team that is equally committed to it.”
At Unilever, as part of leadership development, the most senior executives are encouraged to identify their personal purpose in life to help them shape their future career at the company. They are then invited to choose one of Unilever’s biggest sustainability challenges linked to business growth—such as water scarcity, sustainable sourcing, or women’s empowerment—and work in groups to develop solutions to present back to the top leaders in the business.
Getting senior executives personally involved in sustainability issues not only eliminates the distance between people’s personal values and what they perceive to be in the best interests of the business; it also helps people find new ways of tackling strategic issues. For example, to expand sales of Unilever’s biggest brand, Knorr, in Africa, a team developed a new purpose for the brand that integrates the previously separate issues of food fortification, help for smallholder farmers, and selling products in underresourced rural areas.
It’s not enough to have sustainability champions at the top—they must be cultivated at all levels and geographies of the organization. At Unilever, the attention to sustainability training has led to widespread adoption of sustainability among company employees. In fact, 76 percent of Unilever’s 170,000 employees feel their role at work enables them to contribute to delivering to the sustainability agenda, and about half of all new employees entering the company from university cite Unilever’s ethical and sustainability policies as the primary reason for wanting to join. In a world where fewer than 20 percent of people go to work and feel happy6, a workforce like Unilever’s, where almost 80 percent of people feel engaged, is a competitive advantage.
Another important way of embedding sustainability in a company is to engage employees in the cocreation of sustainable practices. And a way to do this is to act on employee initiatives. Company executives can start by making it clear that funding for sustainability projects is available and readily applied when an employee develops a good idea. The former chief supply-chain officer at Unilever, Pier-Luigi Sigismondi (now executive vice president Unilever South East Asia), says that a typical employee reaction to sustainability programs is: “Are they really serious about this? Where is the capital to do this great sustainability project?” To which he or his team answers: “Here’s the capital—show the business case, and then you will have the funds.”
Companies get more and better ideas when they bubble up from the bottom. A great example of this is Marks & Spencer, which now has clothes-recycling boxes in its stores that provide income for the international nonprofit Oxfam. The boxes were an employee’s idea that received support from the board and achieved great success.
Once company employees begin to see the positive impact and economic returns on social and environmental investments that they helped create, they start believing that they do have a role to play, and the ideas start to flow. It is essential for a large company to provide the framework for people to play within, and then things happen almost by magic.
Unilever’s manufacturing operations have a Small Actions, Big Difference Fund that receives hundreds of ideas from employees every year. In 2015, it invested €16.5 million in 186 of the best energy and emissions reduction projects globally, which are expected to reduce global CO2 emissions by 4.6 percent and energy use by 2.3 percent within one year.
An effective way for an organization to embrace a new set of goals and foster an “I should do it” spirit throughout the company is to create a culture of healthy competition among employees. Competition stimulates creativity, and the skills that spur competition—a willingness to push boundaries, trust group members, and collectively solve problems—are the same skills needed for innovating on the sustainability front.
Connected to Care, an initiative launched by BASF in 2015, is an example of healthy competition. The chemicals company provides every employee with an opportunity to join a team, develop a corporate volunteering project in one of three core BASF areas—food, smart energy, and urban living—and submit the project to Connected to Care. In 2015, more than 500 project ideas were received from about 35,000 employees across all BASF regions worldwide. All employees worldwide are able to vote for their favorite projects.
From these, 150 were selected. Winning projects included providing clean drinking water in Africa, supporting female refugees in Sri Lanka, and beekeeping in North America. By connecting employees to both the company’s core business areas and nonprofit organizations, Connected to Care reinforces the employer value proposition and the social purpose of business, and consequently it helps embed sustainability in the company.
At Unilever this kind of peer pressure was used to eliminate nonhazardous waste from the company’s factories. Inspired by an ambitious zero-waste target, thousands of teams from 240 factories in 67 countries around the world combined to achieve this goal in 2014. When it was announced in 2013 that 75 percent of factories had achieved this target, it spurred the remaining factories to make an even bigger effort, as no factory wanted to be the one preventing the company from achieving its global goal.
Unilever also fosters healthy interregional competition. The company’s US operations were the first to achieve zero waste, prompting Unilever Europe to take the lead in becoming the first region to achieve 100 percent renewable energy usage.
Another way of nudging behavior is by “naming and faming” people in the organization who have made a difference. One of Unilever’s important annual company awards goes to the team that has made the biggest difference in encouraging sustainable living. Another annual award, called Unilever Heroes, is presented to employees who have been nominated by other employees.
Several social cognition models point to the important role that visibility and salience play in changing people’s beliefs and attitudes and influencing behavior.7 Measuring and communicating progress on key sustainability indicators always attracts people’s focus. People want to succeed in the dimensions that they are measured on. No wonder, then, that leading companies develop indicators to track the progress of their sustainability agenda, which they share with external stakeholders and employees.
Unilever, for example, has an annual review of USLP progress with stakeholders around the world and produces an internal sustainability scorecard that is updated every quarter. Senior management’s performance-related remuneration is based in part on progress against sustainability targets. Indeed, the company has moved beyond simply reporting progress to engaging external stakeholders to cocreate potential solutions to social and environmental issues.
But metrics aren’t the only attention-getting device. Symbols and signage are also important. Marks & Spencer has signs galore encouraging employees to take the stairs rather than an elevator, if only for a few floors. At Unilever, notices in washrooms and WCs are used to engage employees in the social purpose of Domestos on the United Nations’ World Toilet Day and in Lifebuoy’s social mission on Global Handwashing Day. In Unilever staff restaurants on World Food Day, employees are served the same meals that children in developing countries receive who benefit from school meals provided by Knorr in partnership with the UN’s World Food Programme. Unilever also runs several employee well-being programs (such as mental health awareness) that further demonstrate the company’s commitment to sustainability in the minds of its employees.
To keep visibility high and reinforce the idea that achievements in sustainability are meaningful for the company, it is also important to celebrate success when goals are reached or awards won (such as category leadership in the Dow Jones Sustainability Index). Employees need to feel they have played a part in achieving goals and recognition. It reinforces their resolve and strengthens their identification with the company.8
While external engagement is a critical component of transitioning to a sustainable business, it is also key to building credibility and legitimacy, and consequently pride and identification, with employees. Unilever set audacious targets and made them public, so it is incumbent on the company to communicate progress and motivate employees to deliver them.
Leading sustainability companies have another thing in common: they want to make a bigger impact by influencing and working with other companies, whether in their value chain or among competitors. Doing this fosters a sense of unity among employees because they see that achieving sustainability is not just about themselves, or even their own company, but rather a societal issue with global implications, all of which inspires them to join in.
To help tackle deforestation, for example, Unilever and Tesco led the global Consumer Goods Forum—an industry network of about 400 retailers, manufacturers, and service providers with a combined turnover of €2,5 trillion—to announce a moratorium on deforestation. This laid the groundwork for the formation of the Tropical Forest Alliance—a broader global umbrella partnership bringing together governments, the private sector, and civil society organizations—which launched its commitment to eliminate deforestation in the palm oil, beef, soy, and pulp and paper industries. The work of these coalitions culminated in 2014 in the UN’s New York Declaration on Forests, which pledged to end global forest loss by 2030.
Achieving these commitments requires companies to innovate new ways of doing business. Unilever, for example, has shared the technology it developed to create compressed deodorant cans with a lower environmental footprint by making it available to its competitors through open sourcing. Similarly, the company has started crowdsourcing sustainability ideas from consumers through its Foundry IDEAS platform. This openness creates profound cultural shifts within the organization and helps to unite employees around the higher social purpose.
We should all aspire to leave our world a better place. For an individual, that means behaving in a sustainable manner in his or her personal life. For a company, that means having a meaningful and strategic purpose and finding ways to tie that purpose into the values and day-to-day work of individual employees.
Every person wants his or her working life to have a higher purpose that goes beyond doing a job and earning an income. Yet too many people spend most of their waking hours in workplaces that fall short of providing that higher social purpose. Companies that can resolve the tension people feel between their personal values and the best interests of the business will benefit by having a highly engaged and productive workforce—proud to play a part in bringing positive change to communities around the world.
Read more stories by Paul Polman & CB Bhattacharya.
Nucleus Research Releases 2022 Content Services & Collaboration Technology Value Matrix
The evolving workforce structure powers investments in collaboration, automation, and security as top leaders Box, Laserfiche, and M-Files deliver on usability and product innovation.
As the physical environment of the workforce changes, more organizations have started to seek out modernized content services and collaboration technology. By providing solutions that manage the complex requirements of industries such as healthcare and the public sector, leading vendors increase value delivered to users.
“The CSC market has consolidated over the past two years, and vendors are turning their attention to how their solutions can be differentiated from others in the space,” said Research Manager Evelyn McMullen. “Moving forward, leaders will have to focus investment on innovations in collaboration and automation to remain competitive.”
Over the past 12 months, leaders in the space have largely focused their investments on building out functionality gaps in areas such as collaboration and automation. Nucleus expects leaders to continue prioritizing R&D and partnerships to attract prospective customers and build out niche functionality in order to distinguish themselves from competitors.
Leaders in this year’s Value Matrix deliver advanced functionality without sacrificing ease-of-use at scale. These include Box, Digitech Systems, Epicor ECM, Laserfiche, and M-Files.
The Experts in this year’s Value Matrix are organizations that deliver value to customers with complex use cases through deep functionality and industry-specific capabilities. These include DocuWare, Hyland, and OpenText.
Facilitators in this year’s Value Matrix deliver value through greater ease of use and quick implementation. These include IBM Content Services, NewGen OmniDocs, and Zoho WorkDrive due to their ease of use.
Core Providers deliver core capabilities for those organizations looking for a straightforward solution with quick time-to-value. This year’s Value Matrix Core Providers are AODocs, Micro Focus, Microsoft SharePoint, and Oracle.
To download the full 2022 Marketing Automation Technology Value Matrix, click here.
About Nucleus Research
Nucleus Research is the recognized global leader in ROI technology research. Using a case-based approach, we provide research streams and advisory services that allow vendors and end users to quantify and maximize the return from their technology investments. For more information, visit NucleusResearch.com or follow our latest updates on LinkedIn.
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