A couple of weeks ago a Chief Digital Officer (CDO) of one of the largest mobile telecommunications companies in the world asked me how a large organization such as hers should think about organizing itself to maintain control over costs and risks while still giving their global organization the freedom to innovate.
When it comes to managing their websites and the digital customer experience, they have over 50 different platforms managed by local teams in over 50 countries around the world. Her goal is to improve operational efficiency, improve brand consistency, and set governance by standardizing on a central platform. The challenge is that they have no global IT organization that can force the different teams to re-platform.
When asked if I had any insights from my work with other large global organizations, it occurred to me the ideal model she is seeking is very aligned to how an Open Source project like Drupal is managed (a subject I have more than a passing interest in).
Teams in different countries around the world often demand full control and decision-making authority over their own web properties and reject centralization. How then might someone in a large organization get the rest of the organization to rally behind a single platform and encourage individual teams and departments to innovate and share their innovations within the organization?
In a large Open Source project such as Drupal, contributions to the project can come from anywhere. On the one extreme there are corporate sponsors who cover the cost of full-time contributors, and on the other extreme there are individuals making substantial contributions from dorm rooms, basements, and cabins in the woods. Open Source's contribution models are incredible at coordinating, accepting, evaluating, and tracking the contributions from a community of contributors distributed around the world. Can that model be applied in the enterprise so contributions can come from every team or individual in the organization?
Reams have been written on how to incubate innovation, how to source it from the wisdom of the crowd, ignite it in the proverbial garage, or buy it from some entrepreneurial upstart. For large organizations like the mobile telecommunications company this CDO works at, innovation is about building, like Open Source, communities of practice where a culture of test-and-learn is encouraged, and sharing -- the essence of Open Source -- is rewarded. Consider the library of modules available to extend Drupal: there can be several contributed solutions for a particular need -- say embedding a carousel of images or adding commerce capability to a site -- all developed independently by different developers, but all available to the community to test, evaluate and implement. It may seem redundant (some would argue inefficient) to have multiple options available for the same task, but the fact that there are multiple solutions means more choices for people building experiences. It's inconceivable for a proprietary software company to fund five different teams to develop five different modules for the same task. They develop one and that is what their customers get. In a global innovation network, teams have the freedom to experiment and share their solutions with their peers -- but only if there is a structure and culture in place that rewards sharing them through a single platform.
Centers of Excellence (CoEs) are familiar models to share expertise and build alignment around a digital strategy in a decentralized, global enterprise. Some form multiple CoEs around shared utility functions such as advanced data analytics, search engine optimization, social media monitoring, and content management. CoEs have also grown to include Communities of Practice (CoP) where various "communities" of people doing similar things for different products or functions in multiple departments or locations, coalesce to share insights and techniques. In companies I've worked with that have standardized on Drupal, I've seen internal Drupal Camps and hackathons pop up much as they do within the Drupal community at-large.
My advice to her? Loosen control without losing control.
That may sound like a "have-your-cake-and-eat-it-too" cliche, but the Open Source model grew around models of crowd-sourced collaboration, constant and transparent communications, meritocracies, and a governance model that provides the platform and structure to keep the community pointed at a common goal. What would my guidance be for getting started?
- Start with a small pilot. Build that pilot around a team that includes the different functions of local country teams and bring them together into one working model where they can evangelize their peers and become the nucleus of a future CoE "community". Usually, one or more champions will arise from that.
- Establish a collaboration model where innovations can be shared back to the rest of the organization, and where each innovation can be analyzed and discussed. This is the essence of Drupal's model with Drupal.org acting as the clearing house for contributions coming in from everywhere in the world.
Drupal and Open Source were created to address a need, and from their small beginnings grew something large and powerful. It is a model any business can replicate within their organization. So take a page out of the Open Source playbook: innovate, collaborate and share. Governance and innovation can coexist, but for that to happen, you have to give up a measure of control and start to think outside the box.
I don't usually write about the topic of investing, but it is something I enjoy, so I decided to take the jump by sharing some thoughts on MasterCard, one of my favorite companies. Although it's not an obvious technology disruptor, MasterCard is a successful technology company. When it comes to investing, boring can be beautiful. Mastercard is relevant in the context of my blog, where I often write about the digitization of the world.
An investor who invested $10,000 in MasterCard around the time of its IPO in 2006 would have seen that investment grow to $200,000 today. MasterCard has significantly outperformed the S&P 500, since a $10,000 investment in the S&P 500 would have returned less than $20,000 over the same 9.5 year time frame. I was not fortunate enough to buy at the IPO; I only got into MasterCard 18 months ago.
MasterCard, along with its rival Visa, has one of the most lucrative business models I've seen. MasterCard and Visa enjoy a virtual duopoly in payment transaction processing. Unlike other credit card companies like American Express, MasterCard and Visa don't assume any of the credit risk; the customer's bank takes on the risk of its customer not being able to pay the bill, and either the merchant or their bank takes the risk for charges that are fraudulent or unrecoverable. What makes MasterCard and Visa so lucrative is that they simply act as "digital tollbooths" that take a small interchange or "swipe fee" on every credit or debit card transaction that goes through their network, without assuming any of the risk.
When you pay $100 with your MasterCard, MasterCard takes about $2.60 in interchange fees and the retailer collects the remaining $97.40. MasterCard has a net profit margin of an astounding 52%. So of that $2.60, MasterCard gets to keep $1.30. Now consider that MasterCard processes many billions of credit card "swipes" each year, and you start to see the beauty of their business model. Because MasterCard has minimal capital expenses, it is able to generate enormous free cash flows and maintain a pristine balance sheet with virtually no debt. It can then invest the retained profits toward new technology, advertisements, share buybacks, dividends, etc.
As someone living in the United States, I take my credit cards for granted and use them to pay for almost everything; at the grocery store, at Starbucks, my utility bills, train and plane tickets, etc. I almost never use cash.
But that is far from the norm; MasterCard cites a global credit card penetration of just 15%. Cash usage has declined to 59.4% in developed markets, while it is still 92.7% in emerging markets. This means that MasterCard is likely to have years of growth ahead, as 85% of global transactions are still cash-based. For example, at present, the Chinese market is dominated by state-backed UnionPay, but China recently opened its domestic transactions to foreign companies like MasterCard. The company claims it is already seeing double-digit annual growth in cross-border credit card transaction volume in China, primarily fueled by e-commerce. Beyond China, the ecommerce market is growing 25% year-over-year globally, opening up even more opportunity. All things considered, I believe MasterCard is poised to continue to see tremendous revenue growth. In addition, MasterCard continues to buy back stock (3-5% of the float per year) which further adds to their earnings-per-share growth.
Technology disruption seems like the biggest risk to MasterCard. While MasterCard and Visa currently play prominent roles in both Apple and Google's digital wallet as the processing "middlemen", that could change. If Apple or Google creates a more secure payment infrastructure, there might be no need for a MasterCard or Visa. Furthermore, technologies like the Blockchain could render companies like MasterCard and other middlemen in the payments value chain obsolete. Merchants are more likely to adopt new technologies if they get some sort of benefit in the form of reduced interchange fees or risk. What better way to reduce fees than cutting out the middleman?
While emerging markets do represent the largest areas for growth for a company like MasterCard, in some countries, it will be extremely difficult to set up the same level of banking infrastructure that the US or Europe has. That is why we're seeing mobile payment technologies like M-PESA take off in Kenya, enabling the easy transfer of cash over an alternative to credit card rails. There is a chance that technologies like M-PESA could leapfrog traditional credit card infrastructure entirely.
There are also some big legal and regulatory risks. Since Visa and MasterCard operate a near-duopoly, they have a lot of government eyes watching them on behalf of merchants. For example, in 2010, the US passed the Durbin Amendment, which forced Visa and MasterCard to lower interchange fees on credit card transactions. Also, both Visa and MasterCard are being investigated for price-fixing and possible collusion in a near $6 billion settlement lawsuit with merchants. Each of these legal and regulatory hurdles could become a significant hit to MasterCard's bottom-line.
Despite these risks, MasterCard isn't going anywhere anytime soon. The strong growth drivers, the relative lack of immediate competitive threats, and their profitable business model make me believe that MasterCard will keep outperforming the market. There are a few things to dislike about MasterCard; at 0.65% the dividend is low and at 30 the price-to-earnings ratio is high. The high price-to-earnings ratio makes MasterCard somewhat risky, as stocks with a premium valuation are more vulnerable to a steep corrections. I think MasterCard is a buy-and-hold, as long you buy into it at the right price point ...
Disclaimer: I'm long MasterCard. Before making an investment in any of the companies mentioned, you should do your own proper due diligence. Any material in this article should be considered general information, and not a formal investment recommendation.
The web has done wonders to make government more accessible to its citizens. Take the State of New York; NY.gov is a perfect example of taking a people-centric approach to digital government. The site lets people easily access state government news and services, including real-time public transit updates, employment resources, healthcare information, and more.
One year ago, The State of New York redesigned and relaunched their website on Drupal in partnership with Code and Theory and Acquia. Today, one year later, they’ve nearly tripled the audience to more than 6 million users. The most-visited part of the site is the services section, which aligns well with the governor’s priority to provide better customer service to state residents. Annual pageviews have quadrupled since launch to a record high of more than 17 million and mobile usage has increased 275 percent.
For more details, check out the press release that the State of New York published today.
The Industrial Revolution, started in the middle of the 18th century, transformed the world. It marks the start of a major turning point in history that would influence almost every aspect of daily life. The Industrial Revolution meant the shift from handmade to machine-made products and increased productivity and capacity. Technological change also enabled the growth of capitalism. Factory owners and others who controlled the means of production rapidly became very rich and working conditions in the factories were often less than satisfactory. It wasn't until the 20th century, 150 years after its beginning, that the Industrial Revolution ended creating a much higher standard of living than had ever been known in the pre-industrial world. Consumers benefited from falling prices for clothing and household goods. The impact on natural resources, public health, energy, medicine, housing and sanitation meant that chronic hunger, famines and malnutrition started to disappear and the life expectancy started to increase dramatically.
An undesired side-effect of the Industrial Revolution is that instead of utilizing artisans to produce hand-made items, machines started to take the place of the artisans. Before the industrial revolution, custom-made goods and services were the norm. The one-on-one relationships that guilds had with their customers sadly got lost in an era of mass-production. But what is exciting me about the world today is that we're on the verge of being able to bring back one-on-one relationships with our customers, while maintaining increased productivity and capacity.
As the Big Reverse of the Web plays out and information and services are starting to come to us, we'll see the rise of a new trend I call "B2One". We're starting to hear a lot of buzz around personalization, as evidenced by companies like The New York Times making delivery of personalized content a core part of their business strategy. Another recent example is Facebook testing shopping concepts, letting users browse a personal feed of clothing and other items based on their "likes". I'd imagine these types of feeds could get smarter and smarter, refining themselves over time as a user browses or buys. Or just yesterday, Facebook launched Notify, an iOS app that pushes you personalized notifications from up to 70 sites.
These recent examples are early signs of how we're evolving from B2C to B2One (or from B2B2C to B2B2One), a world where all companies have a one-on-one relationship with their customers and personalized experiences will become the norm. Advances in technology allow us to get back what we lost hundreds of years ago in the Industrial Revolution, which in turn enables the world to innovate on business models. The B2One paradigm will be a very dramatic shift that disrupts existing business models (advertising, search engines, online and offline retailers) and every single industry.
For example, an athletic apparel company such as Nike could work sensor technology into its shoes, telling you once you've run a certain number of miles and worn them out. Nike would have enough of a one-on-one relationship with you to push an alert to your smartphone or smartwatch with a "buy" button for new shoes, before you even knew you needed them. This interaction is a win-win for both you and Nike; you don't need to re-enter your sizing and information into a website, and Nike gets a sale directly from you disrupting both the traditional and online retail supply chain (basically, this is bad news for intermediaries like Amazon, Zappos, clothing malls, Google, etc).
I believe strongly in the need for data-driven personalization to create smarter, pro-active digital experiences that bring back one-on-one relationships between producers and consumers. We have to dramatically improve delivering these personal one-on-one interactions. It means we have to get better at understanding the user's journey, the user's context, matching the right information/service to the user and making technology disappear in the background.
At Acquia Engage, our annual customer and partner conference held last week, Cisco's Jamal Haider spoke about the tremendous savings ($400 million USD!) that came from building its support community on the Acquia Platform and Drupal. The company transformed its support organization into a valuable self-service portal for customers, leading to a 77% deflection rate for customer service calls.
Using Cisco's support community, customers can access detailed, multilingual technical information on all of the company's products and services, including advice from experts, events, documents and videos. The site boasts more than 38 million visits a year and 600,000 active users. It is faster, more flexible and more user-friendly than ever before. In addition to massive cost savings, Haider cites Drupal's feature velocity as a main reason for the company's move away from Jive.