Newsmaker: IBM's anti-control freak

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That's an interesting point. Recently (Sun Chief Executive) Scott McNealy has been on a tear complaining about the switching cost, the "barrier to exit," for companies trying to move off of Windows PCs and IBM mainframes. Do you think that it's actually pretty easy to switch off of an IBM mainframe?
Sanford: I do think that a lot of what we had done over the years was to allow (the mainframe) into an open server environment. For example, you can run a partition with Linux and therefore get the portability of applications from one environment to another. But to your point, I do think there needs to be a lot more standardization happening. Quite honestly, sometimes the biggest sinners are the best repenters, and I think we learned our lesson. While we enjoyed it in its heyday, at the end of the day, it probably inhibits you from the growth you're looking to achieve in a sustainable way. So we are, as strong as we were on the mainframe way back, we are equally strong now on open industry standards.

So what is the role of proprietary lock-in today? A world of standards and commodities is contrary to the idea of proprietary lock-in, but you argue companies should adding proprietary technology or products or processes on top of standard stuff. It certainly seems to me proprietary lock-in is a very important part of a lot of business models.
Sanford: This space is being rethought right now, and IBM is in forefront of this issue with this potential conundrum that you've described. The world more and more believes that innovation in the 21st century is going to come from collaboration. It won't necessarily reside all within the four walls of the single company or within the head of a single individual. How do you encourage and create an environment where both collaborative innovation and proprietary innovation can co-exist? Because while you need to connect things and collaborate in an open way, you still need to differentiate yourself. You need to find the right balance. The way we've looked at it is to look at some base capabilities being defined through the open, standards approach with collaborative innovation. Companies who then build on top of that open base bring their own value-add that will help differentiate them in the marketplace.

Do you think the world of proprietary lock-in is relevant, or is it doomed to fall by the wayside?
Sanford: No. But the reason I use the term value-add (instead of "proprietary") is because I think quite honestly if it is value-add, whether it's open or proprietary, customers are going to go for it.

Let me ask a related question then. Microsoft Windows: Is that proprietary or a standard? To a certain extent it's a standard because it's very widely used. There's a large ecosystem of other technology that goes along with it because people can safely assume that Windows is going to be there on PC. But on the other hand, it's not a standard in the sense of somebody else being able to offer Windows the way, for example, you can get x86 processors from Intel or from AMD.
Sanford: Let me go back maybe a step or two to define innovation, because I think that's important here. I believe innovation is a marriage of invention--the next new techno-whiz thing--plus insight. It's the application of technology. The theme I write about is more on how you enable innovation in a way that delivers more value to your customers. Innovation in the past had been thought of more and equated to invention--the next new iPod, the next new Mac, the next new Windows operating system. I don't think it's going to come from there. It's going to come from how we apply technology to reinvent what we do.

So what would your advice be for Microsoft in dealing with Windows? Is that something that they should let go of? A lot of what you're saying certainly sounds good in theory, but what would you advise Microsoft to do itself?
Sanford: What I'm advising our clients on is taking a look at their core business, where the value-add is, and what they need to continue to do themselves, versus what they need to partner with others on. It's not so much advising a technology company on how to necessarily focus on proprietary versus opening. Obviously IBM supports open industry standards--we are a leader in that initiative. Microsoft's got to decide what Microsoft's got to do based on what they see as a market opportunity--and not only based on history, but more on the future.  

More Newsmakers

[ogman]

companies lose responsibility, consumers lose quality

More and more companies are farming out various tasks within the compnay. The major problem with consumers of their products is that the responsibility for the quality of the end product is diluted. While the bottom line may profit from lower cost, in the end, if the consumer finds the product infedrior and moves on to another provider, the company will lose money due to lower sales. I have not heard anyone claim the outsoursing has increased the quality of a product, and my personal experience indicates that the opposite is actually true.

[IDIGITAL]

Not true..

I believe some customers said something similar in 50´s when GE starts do change metals to plastics. Nowadays nobody will ask for a metal toaster and nothing can argue that something was lost.
Of course we need always suffer a development cycle that on IT offshore outsourcing is just now quite complete. Thats no doubt that this trend is strong. GM is proving that.Companies that not can satisfy these changes will close.
Customers need ask for better SLA conditions, better quality/price ratio and improved information.
For sure thats no other way&
Even here in Brazil with much low cost of people work we need to outsource IT Services to INDIA&

[slahiri]

A New Paradigm?

I find Ms. Sanford's viewpoints very refreshing besides being bold and "non-intuitive". This seems like a new paradigm that has tremendous potential and advantages over the old command-and-control paradigm. The dynamics of business has changed and the leaders should heed Ms. Sandford's advice very seriously. Working in a consulting world I have a suggestion however - there should be a strategy of outsourcing/ partnering. Thus, just because another company is doing something a lot well, I think, we should not partner with this company blindly. Instead, we should ask how strategically important is this skill in my field? If this is a mundane and already commoditized item like HR it is ok to outsource it and gain efficiency and cost savings in return. But otherwise I would rather fix my shortcomings and try to be a market leader. Now I can partner with other companies who can help me realize this but I would never let a third party take control. Because then the other company will accumulate the valuable intellectual capital that I need on my money. I then lose a valuable control point that I can leverage in my marketplace. I think Ms. Sanford actually provides an example of this in her IBM Microelectronics example.

[pdiamond]

Aren't words wonderful?

Just look at how this might change if instead of saying: "That's an interesting point. Recently (Sun Chief Executive) Scott McNealy has been on a tear complaining about the switching cost, the "barrier to exit," for companies trying to move off of Windows PCs and IBM mainframes"...the author had said: "That's an interesting point. Recently (Sun Chief Executive) Scott McNealy has been talking about a very similar topic, the "barrier to exit," for companies trying to move off of Windows PCs and IBM mainframes"

One sounds like a cranky CEO, the other sounds like someone who "gets it" - wonder what the author thinks of Scott?

[BogusName]

Question about this blonde's theory

If you start outsourcing your essential functions to increase profit, what happens when the new shop gains the core compentency and realizes that you are just the profiting taskmaster?

I don't think they are going to be satisfied with that arrangement for long.

Start shipping your strategic advantages elsewhere and see how long you last.

[IDIGITAL]

Survival requires adaptation ...

If we see IBM past history, we can conclude that they are changing profoundly their essential functions since Mainframe era. Do you know that they started adapting paper cards to clocks for workers control? Big Corps have information that we cant get, because their enormous size. It isnt coincidence that GM and now Volkswagen are taking same path. Survival requires adaptation since Darwin, noticed in nature, psychology and also in business...

[alx359]

Agree

Distributing or "sharing" core competency is a dangerous approach in the long-term, until global politics is still in its dark age (what really means China and India/Pakistan as the next Japan or Taiwan?). Also getting core business outsourced is diluting identity in a pure money-filtering exercise. See what happens to the clothing business. As with anything else, who's not adding (or controlling) *real* value into the production chain is going to fade.

End result: more weakening of the Western world and dissapereance of the middle-class in 30 years.

Possible fix: The Coke approach and regulation, i.e.:
a) Corporations should control the key process while only sharing partial and different pieces with alien entities.
b) Similarly as WMD, competitive edge should be a national security matter.

[deeplyaware]

Essential/Nonessential

"Outsourcing lets a company whittle away >>nonessential<< work.

But the handoff to an outside partner isn't easy. "Of the biggest
inhibitors, the hardest element is really around culture," Sanford
said: It's tough for companies to let others handle >>essential<<
work they're used to running"

[BogusName]

???

OK, interesting comment.

[IDIGITAL]

Agree

This is the problem. Cultures that cant adapt themselves to this reality will perish. If this little self confidence that we see here, USA minds need to change...

[IDIGITAL]

Survival isnt anti-customer attitude

Mark, I can understand that some customers could be with this same opinion than you. If its significant or not its a marketing research question, but isnt much more a feeling that a reality. Each dollar invested in offshore outsourcing returns 1.12. This is a fact all Corps knows, not a felling. Corps in US need stay making profits, with a lot of shareholders that will get money to spend and stay growing economy. Do you think better get break Corps like GM and IBM to new ones like hypothetical General China Motors and International Pequim Machines?