Howard Yu's Blog, page 3

How Radical Transparency Powers the World’s Largest All-Remote Company

Most of us are working remotely these days. Many of us will continue to do so permanently. Companies like Spotify, VMware, and Fujitsu have made “remote first” their workplace policy for the post-pandemic time. Salesforce announced that it’ll give employees the option of coming into the office only a few days a week. Our parents’ typical 9-to-5 is gone for good.

But here’s the thing: remote work demands radical transparency. We humans instinctively trust others when we get to meet up in person. You can best communicate your intentions face to face. You build trust by looking into someone’s eyes. With remote work, you are asked to trust your peers to deliver without meeting them in person. That’s a huge ask. Any minor deviation can become a wild game of second-guessing someone’s intention. So, what to do? You trust but verify. You build a system that makes verification easy, automatic, self-evidenced, and instantaneous.

The good news is there are companies that were not just born “remote friendly.” They were “remote complete” from day one. For them, future work already arrived yesterday.

Future Work Today

Every day, CEO Sid Sijbrandij kickstarts his morning routine by checking for time-sensitive or pressing notifications. There are few emails, however. “We do not send internal email here,” GitLab employees say. At GitLab, managers post all their questions and share information on Slack channels. Team leaders then decide what information to make permanently visible to others. Such transparency is no accident.

GitLab Co-Founder and CEO Sid Sijbrandij

GitLab began by providing web-based repository services for software programmers. It offers programmers collaboration tools to write, troubleshoot, deploy, revise, and store software code. Think of it as Microsoft Excel Online, but for geeks.

With more than 1,200 employees, GitLab possesses one the world’s largest all-remote workforces. Its remote workers span sales, engineering, marketing, personnel management, and executive roles in more than 60 countries. GitLab has no physical headquarters.

“From very early on, we started writing things down,” CEO Sid explained. “Coming to the office wasn’t needed. They weren’t getting any extra information. [People] were on Slack, on Zoom, in Google Docs, in GitLab pages, in GitLab Issues, in GitLab merge requests.”

The company prefers Slack to email for a simple reason: it allows people to document their communication and make it searchable by everyone else. In fact, GitLab prioritizes documentation over dissemination. The most elegant approach is to write down your suggestions and make them searchable in real time, before even sharing them. Why? Because a large company always needs a single source of truth.

It’s time-consuming to search for updates on a given project over the instant message history. You also don’t want communication to splinter into different versions. That only creates knowledge gaps among people. Which in turn hurts organizational alignment and creates misunderstandings. What’s needed is documentation first. And GitLab nips the silo mentality in the bud.

A radical tool at GitLab is the “team handbook.” It’s the central repository of how the company does things. If printed, it would consist of over 10,400 pages of text. It covers everything from the code of conduct to stock option performance to current marketing activities to product development in process.

Obviously, this is not some static text. It’s the central nervous system of GitLab. When an employee encounters an issue in their daily work, they immediately make a proposal for a change in the handbook. And if you don’t know who to ask for the approval, you look it up in the repository. Once you’ve submitted your requests, the approver will merge the change into the global handbook in real time. Everyone at GitLab uses the handbook every day so they are in sync with each other.

Notice that such communication is mostly asynchronous. GitLab likes it that way because people then don’t need to be on calls outside of their time zone’s office hours. It would be unfair otherwise. But to work asynchronously as a large organization, employees need to know how to get things done and get updates fast. Eliminating the need for phone calls or video conferences is key.

Workplace Transparency Is a Consequence, Not a Cause

A lot of executives I have come across believe that transparency is a cultural thing. And I would agree. It’s about how people agree to conduct themselves. But traditional companies often commission training programs in hopes of directly tackling the “cultural barriers” to transparency. They run team-building exercises. They equip people with better self-awareness. They try to build trust directly so people are more open to sharing.

But these methods don’t work. Culture is a consequence of organizational design. People won’t change after a workshop if the day-to-day environment stays the same, with the old regimes. What’s needed is to look at organizations that were born “remote first.” Because their structure and incentives are so different, they instilled radical transparency from day one.

Most people prefer a transparent workplace until we need to reveal our own secrets. But transparency isn’t a one-way mirror. Information must flow both ways to make it work. While decisions made around office water coolers may be familiar in traditional workplaces, input is limited to those present. Those who are not present are left out. You thus miss out on their diverse perspectives.

What GitLab has done is use documentation as a way to become more inclusive. By documenting everything, no one is left out of the conversation.

 

Stay healthy,

P.S., What’s your favorite practice while working remotely? Have you encountered online activities that help with team bonding and reduce loneliness? Let us know what you think!

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Two Charts That Show How China Is Using Digital Currency

This past week, people celebrated the Chinese New Year. Some 50,000 Beijing residents received digital pocket money from the government. Each one got 200 yuan ($31) in a virtual “red packet” that they could use for online and offline shopping. 

The total handout of $1.5 million is latest digital currency pilot in Beijing. Unlike any cryptocurrencies, the “digital yuan” is a form of China’s fiat money. It is pegged 1:1 with the existing yuan. It’s also backed by the central bank.

Will it take off? So far, China has been the quickest adopter of digital payment systems.

But the “digital yuan” also has a new, distinct feature. Almost all mobile payment requires a third-party payment platform, like Alipay, PayPal, or Square. The “digital yuan” doesn’t. You can withdraw e-yuan via an ATM machine and load the money on your smartphone. You then pay for items by holding your phone to a point-of-sale device. The device uses near-field communication (NFC) technology. That’s how people can pay without the internet. You don’t even need to link the e-yuan with an existing banking account.

This is a huge advantage in mobile payment. Now, people from remote rural areas without steady internet can use it too. I’ve joined the BBC here to discuss the implications of this setup. 

Consider the many developing economies outside of China. They also have large populations of people without access to banks. When they deploy a similar approach to digital currencies, their “unbanked” populations will then be able to participate in the mainstream economy. It will bypass the need for expensive banking products and infrastructure.

But what about blockchain and other cryptocurrencies? 

Beijing seems to have given up on them. When we look at the daily transactions worldwide, Bitcoin barely registers in the big picture.

Meanwhile, China is working to internationalize the digital yuan. It signed a joint venture last month with Swift, the Belgium-based global system for cross-border payments. If China can roll the digital yuan out fast enough, it might challenge the dominance of the US dollar in international trade settlement. But even Chinese bankers caution against too much optimism. A director at a large state-owned bank says, “progress towards this will only be gradual.”

 

Stay healthy,

P.S., Digital payment has accelerated during the pandemic. What’s your view on cryptocurrencies? Tesla is accepting Bitcoin as a form of payment and investing in it. But the energy needed to mine Bitcoin seems unsustainable. It is reportedly consuming more electricity than Argentina. What standard of digital payment is likely to win the day?

This article is co-authored with Jialu Shan, a research fellow at the Global Center for Digital Business Transformation, an IMD-Cisco initiative.

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Remote Work Is Better For Some: Spotify And Apple Show Us Why

Spotify announced on Friday last week that it would be embracing remote work completely. It decided, after the COVID-19 lockdowns end, employees can choose to be in the office full-time, to be at home full-time, or to engage in a combination of the two. Spotify will even pay for co-working space memberships for those who need dedicated workspaces while working remotely. WeWork must be very happy. 

Meanwhile, the French luxury-goods giant LVHM is telling people to report to their offices at least a couple of days a week starting in March. JP Morgan Chase is doing the same. But their eagerness to have people return cannot be explained away easily. It’s not just because they are “hardware” companies rather than software companies. Nor is it that they have “brick and mortar” operations rather than being “online.” 

It’s worth noting that CEO Tim Cook said that Apple would not “return to the way we were.” He observed, “There are some things that actually work really well virtually.” Bear in mind that Apple is running some 500 retail stores worldwide and is manufacturing gadgets. It’s as traditional as an operation can get. So what exactly drives productivity when employees are working remotely? Why do firms like Apple and Spotify seem to like it? Why wouldn’t LVMH and JP Morgan Chase do so too? 

What Does It Mean When A Company Needs Lots of Face-to-Face Meetings? 

In theory, most knowledge work can be done remotely. The only operations that require people to come on-site are those that involve specific manipulations of physical stuff. Think about the kinds of work that are done on an assembly line, in a surgical theater, or in a specialized laboratory. You simply can’t do them at home. The same goes for frontline work among essential workers. 

When a company needs to bring its middle management back to headquarters as soon as possible, that reveals something else: The company must have suffered productivity loss due to remote work. And the only possible reason for such a loss is that managers in the company need a lot of face-to-face meetings with their colleagues. 

Zoom can’t replace human interactions. We all know that. And why these companies need so many face-to-face meetings to get their regular work done? Complexity. Here is an example. 

In one of my online executive workshops, my senior managers were tasked with developing a product vision for the company. Each participant described their viewpoint. But the team struggled to build upon its members’ collective thoughts. They tried Google Docs, PowerPoint by SharePoint, Miro, MURAL, and Chatbox. Nothing came even close to an old-fashioned flipchart with five people sitting inside a conference room. 

You can’t build out your thoughts using Zoom as effortlessly as you would on a physical whiteboard. Other people can’t react as fluidly to your inputs while illustrating their own. And then you can’t place quick Post-it Notes on top of a movable flowchart while checking whether your colleagues react with a smile or a frown. Seriously, no video conference can deliver all that. Not Zoom at home anyway. And so, for highly creative work, we have to rely on face-to-face meetings. Only such immersive, real-time, face-to-face dialogue can bring us to conceptual breakthroughs. 

Obviously, this is a very high-cost set-up, requiring tremendous time and effort to coordinate. It is far more expensive than other asynchronous methods like email, Slack messages, newsletters, company websites, intranets, and extranets. So how do smart companies reduce high-cost coordination? 

The Common Features Of Companies Who Love Remote Work

What the pandemic did was reward companies that could minimize the high-cost coordination. Then you had companies that couldn’t do so because of the complexity of their operations. And complexity has nothing to do with the size and scope of a company. Apple and Google are enormous in size but elegantly simple in their setups.

Photo by congy yuan on Unsplash

Consider how it looks like when a task is dependent on the inputs of others. An executive of an old fashion manufacturer once told me that, every time his company prepared to launch a new product, he will dial in to a briefing from headquarters. He would then call up his team to parse out the responsibilities. Each member, in turn, would find their counterparts—the freight forwarders, the retail stores, the advertising agents—all the while keeping headquarters updated on every milestone. With Excel spreadsheets flying everywhere, everything was done manually.

This is complexity. It’s a sprawling operation where anything can affect everything else. As a result, managers working in such a company need a lot of face-to-face meetings to coordinate and strategize. It’s an enormous task to “connect the dots.” It’s really hard work. But it’s the sort of internal work that doesn’t help external customers at all. Nor do the customers care how hard insiders work on their internal challenges. 

Here’s the thing: All companies that have achieved simplicity have, in fact, gone through near-death experiences. They were all been hobbled by complexity at some stage. But they restructured to pay down their complexity debts. As I wrote here before, Google, Facebook, LinkedIn, Netflix, eBay, Twitter, and Etsy have all rebuilt from the ground up. Communications between different teams are standardized via APIs (application programming interfaces). 

Let me use Amazon as a concrete example. When Amazon started in 1996, it was built as a single-application entity. It ran a web server that talked to a database on the backend. Over time, it sprawled into a monolithic architecture of a million lines of code.

CEO Jeff Bezos specifically observed that Amazon’s application developers were in a constant struggle with the hardware server team. So he made them develop some standard application programming interfaces (APIs) for accessing and allocating computing resources. 

Bezos was adamant about this. His instructions for creating internal APIs were written in an email that ended with the characteristic signature: “Anyone who doesn’t do this will be fired. Thank you; have a nice day!” But with the new directive, there was no more face-to-face meetings or email communications. Instead, the big functional system — in this case, IT — was broken down into smaller service modules called microservices. Each microservice would communicate with others through the APIs. 

The end result is that a small team of software programmers can now launch a new feature on Amazon.com independently. It’s similar to how a small merchant runs a Facebook campaign. They don’t call up Facebook customer service to schedule a campaign by phone. It’s all self-serviced, and the execution is automatic.  

As for the Amazon engineers, launching a new product offering was not so much like coordination across departments. Rather, it was like assembling LEGO bricks, mixing and matching capabilities for new offerings that fit the changing marketplace. That’s complex made simple.

The Future Of Work and Organizational Design

People have been saying that the pandemic acts an accelerant: It has accelerated many business trends. I agree. But, with Sportify and Apple and many fast-moving organizations, the acceleration is not limited to the marketplace. It also changes how companies need to architect themselves. 

Forward-looking managers always ask themselves these questions: 

In my current role, what percentage of my weekly meetings are about status updates? How many of these routine updates can be automated, making the process completely transparent for other stakeholders? In my department, how many services that I provide to others can be switched to the “self-service” mode? How can I package work into an easy-to-use interface so that I don’t need to attend its daily operations but can focus on the underlying improvement instead? 

 

Stay healthy,

P.S. In your observation, what practice have companies successfully deployed to reduce complexity? If remote work is to extend beyond the current pandemic, in what type of tasks do you think it will remain critical to have face-to-face collaboration or colocation? Share your thoughts with us. Join the discussion below. 

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Two Charts That Show How Microsoft Got Smarter When Making Deals

Companies merge and split. They do that to pool resources, divest businesses that are no longer interesting, or simply increase efficiency. Microsoft, for example, bought up a lot of companies over the years. 

Here are the five biggest deals Microsoft has ever made.

That doesn’t mean LinkedIn has been the most expensive deal. When you acquire a company, you are, in effect, buying that company’s revenue stream. Microsoft paid 26 billion for LinkedIn in 2016, when LinkedIn was making 3.6 billion. That’s 7.2x revenue. 

Using this method, the ranking looks quite different.

What’s this outlier called GitHub? Those who are software nerds know it well. It’s a code-sharing website. Think of it as a social networking site for programmers. GitHub’s open-source approach has made it the Library of Alexandria for code examples. 

Software programmers from Netflix, Google, Amazon and Apple, all use GitHub. You are likely to find everything you need to build new software there. 

Microsoft didn’t buy GitHub for the immediate financial payback, obviously. It would be too expensive to justify such reasoning. Instead, the company paid to gain access to the legions of developers who use GitHub’s code repository products on a daily basis. 

Imagine this: You can monitor what is being posted, who is downloading what, and what software coding is “trending.” This real-time data can then guide what your research lab should focus on. You don’t need to fly blind when innovating anymore. 

This strategy is the one Microsoft used, and it’s more common than you think. 

When Netflix decides what original shows it’ll make, it does so by looking at what’s trending on its platform in real time. That’s also how Costco and Walmart decide what products to launch under their own private labels. They look at what items P&G and Unilever are selling well through their stores. Such is a “frenemy” strategy, in which you are friends and enemies with other companies at the same time.

The only difference is Microsoft saw the importance of this thinking so clearly. It was willing to pay top price for GitHub, and won. That’s how smart Microsoft has become when making deals. 

 

Stay healthy,

P.S. It was reported last week that Nvidia is trying to purchase ARM, although the deal is likely to get blocked. What have been some of the mergers and acquisitions that have captured your imagination—recent or historic? What’s the outcome? Join the discussion below. Share your thoughts with us.  

This article has been co-authored with Angelo Boutalikakis and Iulia Calota, researchers at the Center Of Future Readiness.

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Here’s What You Need to Know About the Biggest IPO Since Uber

The bubble keeps getting bigger. Every initial public offering (IPO) since the pandemic is becoming larger than the last. Kuaishou, a Chinese social video app similar to Tiktok, went public last Friday. It raised some US$5 billion in the process, making it the world’s biggest internet IPO since Uber. On its first day of trading, Kuaishou stock nearly tripled. That gave the company a market capitalization of about US$160 billion. That’s bigger than IBM and Citigroup. How did that happen?

The market enthusiasm for Beijing-based Kuaishou, or “quick hands” in Chinese, is understandable. It rode on the rising tide of China tech stocks. Yes, there’s been talk about cracking down on Alibaba and Tencent. But Kuaishou is still far smaller and less likely to attract attention than the tech giants.

Then there’s the positioning of the app. Founded in 2011, Kuaishou started out as a short-video app targeting teenagers in China’s smaller cities. Today, it bills itself as a platform for grassroots users outside of cosmopolitan centers. You see more people dancing in the mountains, and singing in vegetable plots. It differs considerably from its bigger rival, Bytedance, which owns TikTok. There, you more often see  hip urban users from Beijing and Shanghai. 

This market differentiation is noteworthy. Inequality has soared in China for decades. There’s been massive discontent against Jack Ma and the entire billionaire class. The Economist observes that even Marxist rhetoric is gaining traction on the internet, especially among the young, over-working class. 

I joined Bloomberg TV last week to unpack the story last week. You can watch the segment here. 📺

One enormously popular feature of Kuaishou is virtual gift-giving. You can tip your favorite live performer a virtual flower for 5 yuan (80 cents). Or, if you feel generous, you can give away a virtual space rocket for 500 yuan. 

Such gift-giving is a big deal. Almost ten years ago, Tencent launched WeChat Pay. At the time, Alibaba’s Alipay was the dominant platform for mobile payment. But WeChat decided to gamify payment for people during the Chinese new year. Users could give their friends virtual red packets with a random amount drawn by the app. The feature was so popular that it broke Alipay’s stranglehold over mobile payment. Coincidentally, Kuaishou is backed by Tencent, the owner of WeChat too. History has repeated itself. 

Source: The Financial Times, www.tinyurl.com/1l3huqj1

But the popularity of this IPO also reflects the pent-up demand for investment. As I wrote here, given that Ant’s IPO was halted by the government, the money already earmarked for it has to go somewhere now. 

So Kuaishou came at a very fortunate time. Its revenue for the first nine months of 2020 stood at about $6.3 billion. That implies the company is trading at about 16 times last year’s revenue. Applying that same multiple to ByteDance—which is still privately held—would put its value at $592 billion. That, of course, would be ridiculous. At that level, even Walmart and Visa would be smaller than a video-streaming firm. 

But then, with all the fiscal stimulus coming from every major economy, the market is awash with liquidity. As long as the music is playing, you’ve got to get up and dance.

 

Stay healthy,

P.S. At this point, S&P 500 has fully recovered from the pandemic. But the stock market also disproportionally favors companies that seem to be “fit for the future.” Think Tesla, Amazon, or the recent IPOs like Airbnb and Doordash. What’s your viewpoint? Are we heading for a bubble in general? Or the eventual correction will hit hard, mostly in the tech sector?

This article has been co-authored with Angelo Boutalikakis, a researcher at The Center of Future Readiness at IMD.

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One Chart That Explains How American Express Has Lost Its Charm

Digital Transformation Doesn’t Always Work — Here’s How American Express is Failing

Travel has been hit hard. And that means American Express has been seriously damaged. It’s hard to imagine that many would sign up for a platinum card during the pandemic. American Express charges you a USD $500 annual fee for the card, in exchange for access to airport lounges and personal concierge services. But when you are mostly ordering food delivery at home, there’s nowhere for you to show off your black card.

And so, Amex has resorted to throwing in new perks. It’s giving customers cash credits, up to $220 each, on dining and telephone bills. Any prestige is effectively gone.

But not that long ago, American Express was a darling of digital innovation. It was on the forefront of social media marketing.

In summer 2016, Amex partnered with Buzzfeed to create the “Epic Everyday” campaign. That campaign, featuring Tina Fey, used Facebook to engage the younger generation. Then the company experimented with a Facebook messenger bot. It also let people pay their friends through Facebook. All these efforts were getting Amex customers to spend more and stay loyal.

The problem is that everything digital stayed on the marketing side. Just like a better coupon campaign wouldn’t have saved Blockbuster, nothing at Amex had changed the fundamentals of its business model. Meanwhile, Mastercard and Visa were forging digital partnerships everywhere.

Fintech is now all the rage. At IMD’s Center For Future Readiness, we have been tracking how prepared financial companies are for a changing landscape. You can read our 2021 ranking of selected players here.

American Express does possess big advantages. It has a closed-loop operation. It issues credit and processes its own transactions, and thus earns both interest and transaction fees. And unlike Mastercard and Visa, Amex doesn’t need JP Morgan Chase or HSBC to underwrite its cards.

By controlling everything in-house, American Express is effectively pursuing the Apple end-to-end strategy in the payment sector. American Express cardholders are also more affluent than the industry average. So why hasn’t it work out better?

My research team decided to download every report published by the standard-bearers of business news —the Wall Street Journal, CNBC, and the Financial Times—along with the corporate press releases. Data from the last 10 years was all fed to an algorithm. We wanted to see how companies talked about themselves and how business journalists understood their actions.

Specifically, we want to look at how digitally obsessed these companies were, and to what extent the business community had come to understand how digitally savvy each of these players were. Such “textual analysis” may not be the perfect measure of digital capabilities. But it should give us a rough gauge of where things stand.

What you are seeing is the cumulative score over the year. Amex isn’t becoming less digital over time. In absolute terms, it is improving. But its relative position is declining. The company has been falling further behind its rivals, especially in the last six years.

Here’s the main lesson: Just because you are improving, it doesn’t mean that you are improving enough. You need to make progress at the same speed as the industry evolves, if not faster. Amex’s transformation simply isn’t drastic enough. You can read here how Mastercard and Visa reinvented themselves by de-emphasizing their own plastic cards.

Coincidentally, in 2015, Amex lost one of its crown jewel partnerships, the Costco card, to Visa/Citi. That same year, JetBlue, a card partnership that Amex had for ten years, also pulled the plug in favor of a deal with Barclays and MasterCard.

These were huge client losses, accounting for 10 percent of Amex cards, 20 percent of its loans and a substantial portion of its annual volume. With less revenue, it became even harder to invest in technologies beyond mere digital marketing. A downward spiral began.

Amex once had a big first-mover advantage. It has a full, direct overview of its customers’ real-time transactions—where people spend, how much they spend, and what their repayment habits are. In contrast, Mastercard and Visa don’t run any banking operations. They can’t, in theory, tailor offerings and create precise marketing. But ironically, it’s the low-hanging fruit that has Amex trapped in its legacy business model, and eventually becoming outmoded by the industry.

 

Stay healthy,

P.S. What has been your observation in industries where early success turns into burdens? How can leaders make tough choices ahead of time rather than postponing them? Tell us your thoughts. We’d love you to join our discussion below.

This article has been co-authored with Lawrence Tempel and Angelo Boutalikakis, both researchers at The Center of Future Readiness at IMD.

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Subscribe or Advertise: Here’s How a Safe Internet Will Not Be Free

CEOs are out on a personal crusade. That’s when you know the future of their companies is at stake. For months, Facebook has been building a lawsuit against Apple over its App Store policies. But the dispute between Tim Cook and Mark Zuckerberg is reaching a boiling point. And it’s no exaggeration to say that the fight will also determine the future of our internet.

Zuckerberg blasted Apple last Wednesday for its new privacy policy. One change resulting from the policy is that the upcoming iOS 14 will ask iPhone users if they want to share their information for ad-tracking purposes. The tracking confirmation looks like this:

A mockup of the tracking confirmation that Apple included in its company blog

Yes, Apple will ask if you want to let Facebook track your online activities on other websites. Those are your “Off-Facebook” activities. Just in case you thought Facebook hasn’t been tracking you enough, you can click here to see what the company already knows about you.

I did my experiment. And to my horror, Facebook’s record was almost identical to my browser history in Safari. Facebook has no business knowing all that, was my reaction. Who in their right mind would click the “allow” button from now on? Especially when Apple has cleverly placed acceptance as the second rather than the first choice by default.

So Mark Zuckerberg is angry. The new Apple iOS is bout to cut off one of Facebook’s most potent advantages. Without tracking, you can’t send targeted ads. Less effective ads mean less money spent by advertisers on Facebook. This will ultimately hurt the corporate bottom line.

In a display of twisted logic that only people inside Facebook headquarters would understand, Zuckerberg said, “This impacts the growth of millions of businesses around the world… many small businesses will no longer be able to reach their customers with targeted ads.” Come on, Mark.

Why Apple Cherishes User Privacy

Of course, Tim Cook is not doing all this entirely out of altruism or moral responsibility. Apple has its own profit motivations too. The blowout quarter has delivered Apple some $100 billion in total sales. In particular, its services revenue has grown by 24% compared to the year before. And its services delivered an outsized profit of 34% to Apple’s overall operating margin. Apple needs more growth in this area.

Investors love services that are sold as subscriptions. When customers enter a recurring revenue relationship, the company no longer needs to rely solely on those risky, make-or-break hardware launches to drive growth. Subscription services thus provide more predictable, recurring revenues. Netflix, Spotify, Salesforce, Amazon, and Microsoft have all jumped on the trend and benefit from it.

You can see how hard Apple is pushing in the same direction. Since last fall, Apple One has been made available in over 100 countries. Subscribe to Apple One, and you’ll get Apple Music, Apple TV+, Apple Arcade for games, Apple News+, Apple Fitness+, and iCloud storage.

Here is the thing: Consumers who opt for subscriptions usually prefer fewer ads and zero marketing distractions. They see themselves as paying customers who are being served, not as products whose attention is sold to the highest bidder in an ad exchange.

So this is the real quarrel between Tim Cook and Mark Zuckerberg. They are battling for the future design of our internet. Because Apple doesn’t run an advertising operation and its more affluent customer base, it is becoming similar to Netflix and Spotify of the world. People expect to pay a premium for excellent content and safe services. Apple Maps doesn’t store your location. Apple News doesn’t share your reading habits with anyone else. This operating model is a market differentiation for Apple.

It is a stark contrast to YouTube, Android, TikTok, and Facebook. They are all free. But you’ve got to put up with all the nasty stuff and the data mining.

Can Apple Destroy Facebook?

I am not saying the advertising model is all bad. Google has democratized information search for everyone. No universities can organize knowledge as well as Google. Even Harvard isn’t close. We would be at a loss if Gmail or Google Maps were suddenly yanked out tomorrow.

But as tech giants grow bigger, the bad stuff—misinformation, hate speech, privacy invasion—is becoming more consequential. So consequential that Apple can start a countermovement. And Tim Cook is standing on the moral high ground.

“If we accept as normal and unavoidable that everything in our lives can be aggregated and sold, then we lose so much more than data. We lose the freedom to be human,” he warned without naming Facebook. Who knows, maybe Apple will gang up with Microsoft to make Bing the default search engine and promise users they will store no search data? You’ll pay for a highly secure search engine via, again, the Apple One subscription.

It won’t be one side wins all. Google, Facebook, Android, YouTube, and WhatsApp will not disappear. There is a significant segment of the population who simply can’t afford Apple’s pricing. And that’s sad. Because the digital divide will not be based on access itself but access to high-quality information without distraction. This gap simply entrenches inequity further.

The telling sign will be what other tech giants do next. Amazon is making its earnings announcement this week. It’s been sitting on the fence by offering Amazon Prime and other subscription services as well as a booming ad business. So what will the Alexa privacy setting look like? CEO Jeff Bezos might need to take a stand sooner than he’d like.

Stay healthy,

P.S. What are your thoughts about the future of our internet? Should it be free for all with the burden of advertisement and disinformation? Are subscription models sustainable for society at large? What’s the role of government in all this? Join the discussion below. We’d love to hear from you.

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Two Charts That Explain How Mastercard And Visa Have Become Future-Proof

Originally published on  Forbes

Disruption is everywhere, and that includes the world of finance. 2020 was a year for fintech innovation, and Covid-19 was the accelerant. When people shop at home, electronic payments take off. When people stop visiting banks, they manage their finances online.

Square and PayPal are the obvious winners here. But incumbents like Mastercard and Visa are also faring well. Both incumbents are making their earnings announcements this week.

At IMD’s Center For Future Readiness, we have been tracking how ready financial institutions are for a changing future. Here’s a glimpse into our latest 2021 ranking of selected players.

We’ve only used hard market data to calculate the overall composite score. The data we used is publicly available and has objective rules. We’ve avoided soft data, such as polls or surveys. We measure fundamental drivers that fuel innovation, including the health of a company’s current business, the diversity of its workforce, its governance structure, the investments it has made against its competitors, and its speed of new product launches.

An obvious question: How did Mastercard and Visa prosper when the “plastic card” has been deemed irrelevant in the age of Apple Pay and Google Wallet? This brings us to the idea of “frenemies.” That is, if you can’t beat your disruptors, let them join you.

Mastercard and Visa were quick to realize they can’t outrun other fintech upstarts or tech giants. Instead, they must partner with their rivals. Make your own infrastructure useful to your enemies so when they prosper, you do too.

That’s why Mastercard and Visa are working with PayPal, Apple, Google to create new market opportunities. As I’ve argued here, they make such collaboration easy by investing in a wide range of application programming interfaces (APIs). And they make sure these APIs are both secure and easily accessible. This way, tech giants like Apple and cryptocurrency exchanges like Coinbase can both find valuable partners in Mastercard and Visa.

But you can have another type of analysis. As a second step, my research team downloaded every annual report available in the last 10 years, together with all the transcripts of investors’ earning calls. These were all fed to an algorithm. We wanted to see how companies write about themselves and how CEOs and CFOs defend themselves against tough questions from Wall Street analysts.

Specifically, we want to look at how digitally obsessed these companies are and to what extent executives describe ideas and concepts related to digital technologies in public.

Of course, just because a company talks a lot about digital technology doesn’t mean it’s meaningfully bringing digital innovations into the marketplace. If a company spreads its investments everywhere and doesn’t focus on a few targeted areas, its money and resources get wasted. Without making tough choices, a team ends up making a millimeter of progress in a million directions.

So, we added a second dimension. We want to see how focused and committed these companies are. Are they merely open-minded and exploring everything? Or are they committed to exploiting a few chosen areas to their full potential and rigorously monitoring their progress?

Here’s how it looks when we combine this exploit–explore spectrum with digital technology on a two-by-two grid. The figures below are the rankings from the first chart.

Here are the takeaways: In finance, you have to be digital to win. There will be no banks going forward—just tech companies that happen to lend you money or process your payments.

Second, preparing for the future means striking a balance between exploring new areas and exploiting existing opportunities. Keeping an open mind is important in the early phases of innovation. But to win in the digital realm these days, you can’t keep running prototypes and taking on new pilot projects forever. Success requires the targeted allocation of resources, and that demands a strong focus to scale up early successes that have already been validated. It demands the rigorous tracking of new progress. You need commitment.

In short, an organization must align itself with a single viewpoint about the future.

 

Stay healthy,

This article is first published in Forbes and co-authored with Angelo Boutalikakis, a research associate at the LEAP Readiness Project, and Jialu Shan a Research Fellow at The Global Center for Digital Business Transformation.

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Here’s How Smart Companies Are Making the Invisible Visible and Why You Should Too

The world fails all the time. Even a well-run company can miss quarterly earnings. Accidents can happen inside factories. Customer data may leak. Computer servers crash. Obviously, what separates top-performing companies from the rest is their ability to learn from past mistakes. They avoid making the same mistake twice.

But here’s the thing: an organization is not like a person. Unless it’s a catastrophe, the daily lessons don’t transmit beyond your immediate team members. People in other parts of the company simply receive your learning. So we must resist storytelling that makes us feel good. We need to build systems that help us see reality as it is. Or else the entire organization will keep repeating the wrongs.

These are the differences between a feel-good story and reality:

Feel–good storyRealityHuman error is the cause of failure.

 

“Someone messed it up!”

Human errors are caused by the systemic vulnerabilities deep inside the organization.

 

“With our current setup, incidents are bound to happen no matter who’s in charge.”

 

Saying what people should have done is a satisfying way to move on.

 

“They should have act ed differently, my god!”

Saying what people should have done doesn’t explain why it made sense for them to do what they did.

 

“That w a s a reasonable assumption the team made at the time. Yes, the outcome was bad, and the assumption proved wrong. Still, the decision made was a high – quality one, given the kind of information people had.”

 

Telling people to be more careful will make the problem go away.

 

“Al l right, let’s pay more attention t o this next time.”

Only by constantly seeking out vulnerabilities can a company reduce errors.

 

“We will start with this new drill monthly.”

 

Once we accept the realities as they are, then we’ll be able to take steps to expose the vulnerabilities lurking in the dark. We need to make the invisible visible. Two steps are involved. One is done through technology; the other, through culture.

You Can’t Improve What You Can’t See

In the world of IT, service outage is the worst nightmare. Website down, forgone revenue. But you don’t often hear about crashes happening at Google, Netflix, Amazon, or Facebook. These websites, despite their vast functionalities, rarely go down. That’s because of painstaking work. Telemetry helps a big deal.

Telemetry is like using a cardiac event monitor that records heart activity. Such a device identifies abnormal heart rhythms. It records and warns us about symptoms so you can seek help at a hospital before the worst arrives.

Tech companies apply the same principle to achieve smooth functioning of their apps. Software developers constantly add telemetry to programs they write. They create enough telemetry to monitor their software in action. Etsy, an online marketplace for all things artisan, is one example.

Back in 2011, Etsy had already been tracking some 200,000 production metrics. They monitor every layer of the software stack. They include application features, application health, database, operating system, storage, networking, and security. By 2018, tracking went up to 800,000 metrics.

Tracking everything is key to moving fast without risking the whole system going down. Etsy, Netflix, Amazon, and Facebook don’t just collect business data like user sign-ups or churn rate. Their telemetry also collects data on application latency and transaction time. They then tally up with data on infrastructure, such as disk space and network bandwidth. It also looks at feature updates already scheduled in the pipeline and the real-time clash reports occurring in your iPhone.

They do all these because no programmer would dare to roll out new features quickly if there’s constant worry over system crashes. Good telemetry allows engineers to see if things are working as intended. The best telemetry illuminates the entire operation so that everyone can see how their actions are affecting other portions of the system as a whole.

This rapid feedback loop about the entire system is crucial. It ensures that problems are detected early and thus corrected quickly. It also prevents the same problems from occurring again in the future. That’s why pervasive telemetry boosts innovation. Only when people feel safe about their own actions will they then innovate more.

How Transparency Supercharges Learning

Of course, an organization can’t truly see what’s going on unless information is shared transparently. But to share data across silos is also to eliminate the culture of corporate secrets.

Booking.com, one of the world’s leading travel aggregators, runs hundreds, if not thousands, of concurrent experiments at any one time. Daily changes can be as small as the color or placement of a button, or they can be about different color headlines for online ads. But they are all subject to A/B testing.

With more than 1.5 million room nights booked on its platform each day, Booking.com saves all the experiments—successes and failures—on its IT platform. They are all searchable to anyone in the company. Every engineer gets access to all experimental protocols and data, regardless of which division they are from.

That’s why at places like Netflix or Google or Booking.com, production metrics on web pages are generated by a centralized sever. For all the data generated by telemetry, data needs to be easy to get and sufficiently centralized to make those metrics highly visible to anyone. This is how smart companies identify all the production vulnerabilities.

This is, of course, not just about technology. This is about the culture an organization is willing to accept. So we ask ourselves:

1. At your company, how much communication is done using email or PowerPoint or a “sanitized” Excel spreadsheet? To what extent can the senders “control” the narrative? Alternatively, how many of the adopted recommendations made by managers are using verifiable data that can be easily retrieved by others?

Coincidentally, Jeff Bezos has long outlawed PowerPoint presentations at Amazon to stop executives from “bluffing their way through the meeting.”

2. Can you encourage a culture of transparency within your team by agreeing to share data sources or contacts with one other? Within a team or a department, data points should be generated to as many as possible, and all team members are encouraged to try out their own analyses. Why? Because sunlight is the best disinfectant.

You don’t need high tech to see the realities clearly. What’s needed is a culture of transparency that forbids information hoarding, or worse, letting problems hide in the dark.

Stay healthy,

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One Chart That Shows How China Controls the Future of the Auto Industry

This week we saw Tesla deliver its first Model Y compact crossover. It’s the company’s second made-in-China vehicle, after the Model 3.

Investors have loved Tesla for a while now. It’s worth more than Toyota, Volkswagen, Daimler, and Honda combined, making it the most valuable car company in the world.

But this comparison with other traditional carmakers is also misleading. It misses the fact that the market disproportionately favors companies that make electric vehicles.

That’s right: the world’s first, fourth, and fifth most valuable car makers are all “electric first.” Tesla, BYD, and NIO didn’t begin building internal combustion engines. They started with batteries. And BYD (backed by Warren Buffett) and NIO (listed on the New York Stock Exchange) are both headquartered in China.

So how exactly is China propelling these companies? Consider these figures. 

Tesla’s Shanghai Gigafactory, which can produce 150,000 Model 3 sedans a year, was completed in 168 working days. It took two years to build the Tesla Gigafactory in Nevada. To get hold of enough batteries, Tesla has been working with the Chinese supplier CATL.
BYD makes more than passenger cars. It’s the world’s largest electric bus supplier, holding the #1 position in the US, Latin America and Europe. It’s also the world’s second largest battery manufacturer, ahead of Japan’s Panasonic and behind only Korea’s LG. Electric engines on average may have something like 20 parts, whereas the traditional combustion engines may have more than 2,000.

All these means only one thing. China has controlled the supply chain of electric vehicles (EVs). 

To build an EV, you don’t need the craftsmanship that the German and the Japanese have mastered over decades. It’s simpler assembly process like that of a computer and a mobile phone. China has been assembling gadgets for Apple and HP and Dell for years. 

The most important component of an EV is batteries, and the leading players are all in Asia. Then you need cheap land to build factories, and more importantly, abundant workers, who stand on the assembly lines. And that’s how China is leading the EV revolution. 

What’s added inside a car today is software. The self-driving algorithm. On that front, Silicon Valley might still have a chance. But time is ticking away fast. 

 

Stay healthy,

This article is co-authored with Angelo Boutalikakis, a research associate at the LEAP Readiness Project.

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