Tag Archives: silicon valley

Leverage: Sprint Softbank Japan & Sumo vs Judo

Sumo: how to throw 20B of mass

You’ve probably seen the 20+ billion dollar deal that will leave Softbank of Japan owning 70 percent of U.S. telco Sprint. There are layers upon layers of rationale for any deal of that size, but here are some of the common themes:

LEVERAGE:

  • Yen to dollar exchange rate is shockingly close to a 10-year low
  • Corporate tax rate in Japan is quite high
  • Bank of Japan prime lending rate is between 0.0 and 0.1 percent
  • Japan networks and mobile user behavior is very advanced

A point that doesn’t by itself produce leverage (but creates a strong motivation for overseas expansion) is the saturation of the Japan market and the slower growth there.

This chart from Chetan Sharma (2011) reveals that Softbank is the top carrier in the world with respect to mobile data as % of total Average Revenue Per User (ARPU) and also with respect to total Data ARPU.

As you can see, the top three carriers in Japan are way ahead of the rest of the world in Data ARPU. Amazingly, Japan leads the world in how advanced their mobile user behavior is and how spendy those mobile consumers are.

 K.O. how to lose your leverage

This kind of extraordinary financial leverage has led to another Japanese invasion in mobile gaming, with Gree having acquired OpenFeint (104M acquisition) and DeNA acquiring ngmoco (303M acquisition).The Gree and DeNA acquisitions have been recently criticized for example, Pocket Gamer citing Gree’s acquisition price to be 368 times OpenFeint’s annual revenue. http://www.pocketgamer.biz/r/PG.Biz/PG.biz+Opinion/feature.asp?c=34579 Another concern that was expressed was the culture shock of the Japanese management model.

So the leverage was lost in management and operational integration as well as messy technology and product integration issues.

Judo how to throw from the hips

Good fences make good neighbors. The existence of huge economic leverage is not sufficient to create a good “throw” as we can see from the Gree and DeNA case studies, above.

The Judo throw is simply for the thrower to make the center of gravity of the system (both the thrower and the thrown) the same as the center of gravity of the thrower.

In business operations, this requires good boundaries between organizations, proper management structure and proper API contracts to enforce clean separation of technology concerns.

Kii Corporation’s recent launch of its Mobile Backend-as-a-Service, (picked up by TechCrunch http://techcrunch.com/2012/10/11/kii-cloud-opens-doors-for-mobile-developer-platform-with-25-million-end-users/) leverages some of these cross-border synergies. The operational approach
is to take a mobile backend that has been serving tens of millions customers in Asia and to open those APIs and SDKs globally. This approach does not presume that mobile user behaviors in Japan are the same as those in the U.S. Rather, it merely takes the cloud power and offers it to the developers of the world. Similarly, the investment strategy of Kii is to invest venture capital in small mobile application developers, which avoids some of the pain of heavy-handed, cross-border corporate takeovers. As with most early stage VCs, Kii gets a board seat, but the company management continues to operate the company, as it should.

But these efforts by Kii not only take advantage of simple economic leverage kept squeaky clean by API contracts and VC term sheets. Kii also adds a layer of cross-border synergy to the mix. Kii partners is a powerful distribution channel for app developers looking to partner with large carriers and handset makers.

So Kii is entering the MBaaS space as its largest provider and as an 800 lb. Godzilla, but formed from the strategic merger of a Tokyo-based company and a Silicon Valley startup. This approach leverages what is best in each region; separates out cultural issues in the apps via a
clean set of SDKs and APIs; separates out cultural issues in management by creating appropriate equity holding relationships (like venture capital); and of course, best of all, creates bona-fide operational synergies between Kii and its app maker partners. These are some of the unique
concerns about operating a cross-border concern like Kii Corporation.

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SOA 2009: gradual enlightenment

In an earlier blog post, I spoke of the style of technology leadership coming from Japan. In this post, I would like to explore how the philosophies of Japan including Zen Buddhism and Bushido can be understood as contrasting ways to adopt SOA in your organization. I’m not a religious person, but I have spent a number of hours in zen meditation at silicon valley’s Kannon Do Zen center, and feel that I have some familiarity with the traditions of my family.

The Samurai Approach to SOA
Of the principal Zen Buddhist groups in Japan, my family hails from the Sotoshū (曹洞宗, the Sōtō school). In all things, the Sōtō believe in what is called “gradual enlightenment”, which is in contrast to the Rinzai school which believes in “sudden enlightenment”.

The Rinzai believe that by concentrating on a kōan, a puzzle that escapes rational explanation (famous example, what is the sound of one hand clapping), there can be a transcendental moment from which the mind breaks from logic and achieves enlightenment.

In SOA, that kōan is “what is the business value of SOA?”

If this question were so easy to justify, then all beings would be enlightened, and all enterprises would achieve perfect architecture. The reality is that this kōan is very hard to penetrate. Is it agility? Reusability of components to build Business Processes? Dramatically lowered cost of IT operations? Each of these ideas is a kōan by itself!

Rinzai Zen has long been associated with the Samurai warriors. The philosopy of Ichi Geki Hissatsu (to kill with one stroke of the sword) is compatible with the idea of sudden enlightenment, the single blow of the katana during warfare or a blow from the kyôsaku during sitting meditation is enough to awake the warrior from the bonds of earthly torpitude.

This type of samurai SOA is the kind that predominated 2007-2008 and is seriously being questioned at the moment. Some call this “Big Bang” SOA and it requires a great deal of budget, very large SOA Competency Centers and a command-and control infrastructure only a Shōgun could love.

The Farmer’s Approach to SOA
The Sotoshū are not associated with Samurai at all, although there certainly were famous Samurai amongst the ranks of the Sōtō. They have been traditionally associated with humble farmers.

Farmers are patient. They cultivate. They are aware of the cyclical rising and setting of the sun, of the seasons. It’s appropriate to be mindful of the right season and to cultivate the right actions in the right seasons. Don’t try to plow the earth in the winter! Farmers have a great sensitivity to their environment and understand the interconnection of all beings in nature.

Think Globally, Act Locally
There’s a well-known saying from the environmental movement called “Think Globally, Act Locally”. This means thinking about the impact to the environment, but not trying to change the world all at once, but trying to change what you can–the local environment. Please recycle that soda can in your hand, that sort of thing.

And a terrific mandate from the perspective of Enterprise Architecture. Enterprise Architects by their nature think globally, and in 2008, many architects too their global thinking across the whole Enterprise. This was a natural effort, because achieving awareness of the “global” situation in IT, you become aware of the inefficiencies of siloed organization.

Tribes dont have to be business units. They can be accumulated around a single software vendor’s “platform”. They can be accumulated across geographic boundaries. They can be by employer if you have multiple companies working together such as with System Integrators. Tribes can be across ministries or departments.

One of the first things you notice is the inefficiency of tribalism and the “good for me, bad for you” practice that comes with it. This is one of the key themes in my book, SOA Adoption for Dummies, which will be launched in japanese language in the spring. This is a global idea, perhaps not the size of the whole planet, but at least the size of your whole enterprise.

Overcoming these natural human tendencies to form warring tribes is the zen of creating perfect organization. Organization that is in harmony with technology and in harmony with one another.

Perfect organization *can* be achieved through the stroke of the sword, through military might. However, 2009 is not the season for this. Budgets are cut, organizational will is lowered and people are in a “recession” mindset.

2009 is the season for “gradual awakening”–the realization that all parts of the enterprise contribute to the survival of the whole. A realization about the interconnectedness of things and our part in the whole of society. A realization that “Service” orientation does not just mean component orientation, but in fact the human desire to be of service is an integral part of the cybernetic system of the enterprise–and how tribalism gets in the way. The ability for your Enterprise as a whole to serve the outside world is no longer a matter of increasing margins, it is a matter of absolute survival.

Cultivate mindfulness of your karma
A way to sow mindfulness is to look closely at the costs of behavior. In economics, an Externality is defined as an impact on any party not directly involved in an economic decision. A classic example is how some manufacturing processes can cause pollution that puts a terrible cost onto your neighbors.

Study how tribal behavior in your organization puts pollution into other organizations within your enterprise. You can begin by measuring these costs and showing these measurements to the upper management.

In Buddhism, the concept that we are all interconnected and our actions have repercussions that come back to us is the law of Karma (Sanskrit: कर्म). Thus if we pollute our organizations with political infighting and me-first behaviors, we are sickening our own environment and lessening the ability of our Enterprise to provide service to the outside world. This will surely come back to haunt your peace of mind and possibly result in adverse consequences to your organization. Some organizations respond to this by becoming even more political and these siloed organizations fight each other even more fiercely. This type of vicious cycle can result in the “death spiral” of organization, and the eventual collapse of your company.

In order to manifest the change we need in 2009, we need to create virtuous cycles, not vicious cycles. Taking the spirit of Kaizen (改善, Japanese for “continuous improvement”, a business philosophy), we can first become aware of the externalities, the toxic pollution in our organization caused by tribal behavior. We can raise business awareness of these toxins by measuring them. By showing these measurements to decision makers, we can help restore harmony to our Enterprises. And this will improve the way in which our Enterprises can serve the outside world, thus truly achieving an enlightened form of service orientation.

My 2 cents (or 2 yen),
Miko

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What I learned from Woz

Miko and Woz

So I had the great benefit of having breakfast with Steve Wozniak, keynote speaker at our Innovation World conference in Miami Florida, then of course listening to him speak.

This was a great occasion as I have long been a fan of Apple Computer (and an occasional fan of Apple Inc., but that’s a different story). Although I learned computing on the Atari 400 computer (yes with the cheezy keyboard), this 6502 processor based wonder owed a lot to the origins of the home computer and yes to Steve Wozniak, designer of this and many other computers.

Woz talked about how he designed the first “One player version of Pong” using 44 chips (or some variant of that, my memory fails me) which was of course the original and venerable “breakout” game, based on a contract negotiated by none other that Steve Jobs, the other Apple Computer cofounder and also Silicon Valley legend.

The thing that fascinated me about what Steve Wozniak kept emphasizing is how innovation comes out of “lean” environments–how trying to design systems with the fewest number of chips makes them mass production ready and how changing the world relies on making really lean systems design. This is really innovation for the age of recession 101.

It’s interesting because people talk about lowercase “i” innovation and capital “I” innovation. Now lowercase “i” innovation includes such ideas as Kaizen, or Continuous Process Improvement. This is the idea that small incremental improvements can lead to serious transformation. The company that is often heralded for this approach is Toyota. The thing that is fascinating about this is how Toyota came up with the Prius, which actually disrupted the market in a manner that most people expect to see from Capital “I” innovators–or the kind of market disruption that you typically get from silicon valley startup companies like Tesla Motors, Better Place, and other such companies.

If you look at nature, it’s almost infinitely inventive–and it uses energy (pretty much solar energy other than those wierd geothermal vent worms) and converts it into structures of many many types. Nice job evolution.

But if you really look at what’s happening in evolution, yes there are quantum leaps such as the first organism to fly (which they say might have been archaeopteryx) or the first animal to crawl up onto land and breathe air… but the interesting thing about them is that the environment was not being kind to these animals as they underwent their transformations. The environment was being cruel to them, squeezing them. They innovated because they had to. Neccesity is the mother of invention. Using fewer chips means you can manufacture at volume. Breathing air means you can get out of the shrinking pond. Flying means you wont be eaten by the savage predators.

Sounds like a bit of a grim view of it, but when people talk about “evolutionary steps” they really are missing a point, they think evolutionary is incremental to the point where you dont even ever get a great leap forward–but you do! There is a point at which lowercase innovation becomes capital letter innovation! This would explain how something as simple as Continuous Process Innovation at Toyota would end up generating a completely disruptive product such as the Toyota Prius (I drive a prius and love it, thank you very much).

So I learned a lot from talking to and listening to Steve Wozniak, and owe a debt of gratitude to him for such deep insights. Hopefully i’m not doing anything bad by sharing his picture with you here on my blog, I’m just happy to have done so…

My 2 cents,
Miko

PS, the person taking the picture is my boss, Dr. Peter Kuerpick who runs R&D at Software AG, and the person off to Steve Wozniak’s right is Karl-Heinz Streibich, the CEO of Software AG. Pictured in the background of the picture is Ivo Totev Chief Marketing Office who was nice enough to invite me to this breakfast…

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Japanese technology leadership: a view from Silicon Valley

After speaking at the Business Innovation Forum in Japan, I did some thinking about the unique form of technology leadership found in Japan.

Japan has been going through some tough times economically… but it’s important to reflect on the unique strengths of Japan with respect to the digital age and the emerging global network culture. If you study the “hits” that have come from Japan from a Silicon Valley perspective.

One of the biggest “hits” from Japan lately is the Nintendo “Wii” console. I’ve been playing with the Wii Fit balance board this weekend and find that it’s quite an amazing extension of the immersive technology first seen in the Wii console. This goes beyond the kind of early-90’s “virtual reality” goggles immersion and gets closer to haptic and cybernetic interface that maps to an understanding of kinesthetics. How can kinesthetics impact the human/technology interface? Yoga is a “technology” that has been developed in Asia for at least 5000 years. Yoga explores the connection between the body and mind–so what can computer add to this? The Wii Fit console provides instruction, guidance and tracking of goals that stretch from weeks to months to years–a personalized experience of your own body. The quality of the yoga instruction isnt comparable to, say raviana.com, but this is for beginners working on basics.

What’s uniquely japanese about the Nintendo Wii? A great many things, including the connection to the fantasy universe of Nintendo designer Shigeru Miyamoto. But the distinguishing feature that I think is both exportable worldwide and deeply japanese is the harmony between human nature and the machine world.

One of the roots of Western thought is the philosophy of Descartes, whose philosophy proposed a separation between the mind and the body (mind-body dualism). Another separation that is fundamental in western thought as documented in the Old Testament is the position of humans as distinct from animals–made in God’s image and assigned to rule over the animals of the earth. The philosophy that illuminates Japanese theology is Shinto, which is animistic–in which spirit occupies humans and nature in equal measure. Now I’m only highlighting these differences because I believe the combination of the human and the natural is reflected in the Japanese approach to technology.

Japan has leadership in climate modeling supercomputers. The robot dog, Aibo was born and bred in Japan. The Toyota Prius, the worlds most popular hybrid car. The ability to blend the technological, the natural and yes, the spiritual aspects of human experience is part of Japanese technology leadership.

One aspect of Japanese technology that is hard to export is the social aspect. Whether it’s the famous shinkansen high speed rail system or the iMode cell phone ecosystem–it’s hard to separate technology adoption from technology invention.

The ability to blend the world of technology with the world of nature gives me confidence that SOA Governance will take root in Japan… The ability to combine an understanding of human nature, tribalism, organizational behavior and advanced technology will be a key driver in the adoption of these technologies in Japan.

My 2 cents,
Miko

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