The Outsourcing Hot Rail

So we have a hot economy. Consumer confidence is way up. Unemployment has started to drop - it is down to 6.0% from 6.2% a few months ago, and will continue to drop, passing below the 6% barrier before 2Q04, and will probably be in the mid 5s by late next year.

So everyone should by happy, right?

You would think so, but there is an emotional minority that is all torn up about corporate "outsourcing". This is the situation where a company either subcontracts work overseas, or sets up its own overseas subsidiary to employ foreign workers at a fraction of the cost of U.S. workers. The two big areas that are getting a lot of press are manufacturing outsourcing to China (which has been going on for decades to the Far East) and call-center outsourcing to India (call-center outsourcing started happening a decade ago to Ireland, but didn't get a lot of negative press until it started going to India, so there is definitely a tinge of racism with the current anti-outsourcers).

In manufacturing, the fact of the matter is that the since WWII, manufacturing has fallen from nearly half of GDP to less than 30% and will continue to drop. Manufacturing outsourcing has been going on for decades and will continue as our economy matures.




For call-center outsourcing, the cost benefits are obvious: hire some PC tech guy in India for something like $8K a year versus a guy in the States for $35K a year (the "fully loaded" number is probably at least $40K if you include the corporate part of his social security/Medicare and some minimum health benefit). Even with the extra cost of long distance, internet connection, etc., the guy in India is a savings of 10s of thousands of dollars per year. Add that up across 100s or even 1000s or workers, and we're talking real money.

This outsourcing makes a lot of sense to some companies - costs can be passed to the consumer in the form of cheaper products (like Dell), or simply add to the profits to the company, which is good for shareholders.

But there are definitely companies jumping on the outsourcing bandwagon without thinking through all of the costs and ramifications: higher legal expenses, logistical problems, and even upsetting your customers.

In some of these cases, the company has reversed course, bringing back at least part of the outsourced area back to the States (like Dell).

This is why the whole negative focus on outsourcing is a bit extreme. Outsourcing is just one tool in a company's arsenal to control costs. It will make sense in some situations, but not all, and with a bit of stumbling and trial and error, companies will find the right mix for their particular market segment.

But the bottom line is this: outsourcing is here to stay. The world is leveling - workers here will have to compete with workers elsewhere. In the case of call centers, nothing is being "exported" or "imported", except knowledge - and the internet and communications has made communicating between two people in the world simple and practically free.

There is really nothing the anti-outsouring people can do: the government can't pass laws to turn off international phone lines and the internet. People aren't going to stop scooping up cheaply made goods from China at their nearest Walmart, or stop buying $500 PCs this Christmas from Dell in favor of the $1500 version from a more expensive manufacturer.

If the anti-outsourcing crowd really wants to do something, they can try to fill the domestic jobs we do have that can't be filled. There is a shortage of nurses - estimated at nearly half a million by 2007 - and these high-paying jobs can't be outsourced to India. Quit crying about the jobs that are being outsourced that you can't do anything about, and do something about the shortage of jobs we do have here in the U.S. which are begging for people.

Comdex Review

As I noted before, Comdex, which used to be THE high-tech trade show in North America has really fallen on hard times. Attended by over 200,000 people at its peak, it was the venue for major announcements of new products, technology trends and innovative ideas, a role now filled by the Consumer Electronics Show (CES), which is scheduled every January, also in Vegas (they have a link, but it is currently down).

Comdex, having lost the battle to CES, is now focusing on software and IT, making it less glamorous and less attended. Attendance, forecasted at 50,000 by the show's coordinators, was estimated at 30,000 by the Las Vegas convention bureau (other estimates are at 40,000). I don't know which number is correct, but I can say that it was very sparse and the number of booths were a fraction of what they used to be.

Due to the change of the show's nature, I saw no real product trends in areas I specialize in: consumer electronics, semiconductors, and wireless technologies. Those people in IT who went to the show could probably comment better than I could about announcements made in security and digital enterprise, two main themes of the show, and I recommend going to the Comdex web site if you are interested in these areas.

In short, the show was a waste for the segments I specialize in, but I saw a few things that were sort of interesting.

France has Technology?



This was surprising. Some of the products being showcased included:

SurrenderCell(TM) - A very impressive cellphone technology, this system generates surrender voicemail messages to ALL enemy cellphones any time an invader passes into French territory.

InstultAmerica(TM) - This software product takes any American policy and automatically generates insults about it. Apparently Michael Moore consulted on the project.

VacationCount(TM) - A software program created on the demand of French industry to keep count of the months of vacation time given to the average French worker. Apparently the core technology was derived from UnemploymentCount(TM), a technology created in France to keep count of unemployment rates above 10%.


Outsourcing to Armenia
You heard it here first, people. As companies lay off people to outsource to Armenia, you can bet the democrats will make this an issue in the next election. I'm just surprised that the dems didn't try to shut the booth down, but they apparently were in the area since the guy in the booth can smell them.





Warp Drive?




Introduction of a new space travel technology? Oh, wait, that's a BAR. I must be in Vegas.


I'll be back in January for CES, which should be a better show in terms of technology trends and consumer electronics and will report on it.

Marketing Supplemental: What the heck do we build?

“Hi everybody!” Rorschach here, guest blogger for the day at Window Manager. (Quick introduction: I’m a VP of Marketing for a silly-cone valley technology company. Shameless plug: I have my own totally unrelated photoblog about blade collecting, if you’re in to that sort of thing.) For this entry I’d like to delve into the process of product definition, specifically as it relates to the marketing department. How does one go about defining a “killer product”? At times it may seem like chaos theory, but you can actually minimize a lot of risks by following a simple process. Let me qualify all of this by stating that my experience is primarily in high technology: startups and large companies. I have an old graphic lying around that we can use as one possible model:



1. Know the Total Available Market Space: The whole process is an iterative cycle, and I am a big believer in understanding trends in your entire chain (end customers, brand company, system houses, component vendors, raw materials) to help identify where the most customer pain exists. Your mission is to come up with a product that has a minimally acceptable feature set (validated by end customers) and get it to market as quickly as possible. At the same time, you must play scenario-based strategy games by anticipating competitor response and planning counter-strike tactics.

In your voluminous spare time, you must voraciously consume as much relevant market data as possible, but also be aware of the end customer trends. Let me just pander to the community here and state that blogs (Indeed. Blogs.) can play a huge role in spotting trends, pain points, and possible solutions. Bloggers love to review things, complain, praise, and otherwise opine. It’s a self-replenishing natural resource for the savvy marketeer.


2. *Really* know your chosen market segment: Can you really build something for this segment? Most startups fail: not because of bad core technology, not because of bad sales/marketing, but because of poor execution. So make sure you have (or can buy) the competence to get the product to market. That having been said, customers are notoriously fickle, but you would never bring a product to market without patron customers (read:sugar-daddies) who will assuredly buy your wares as you have pre-sold them on the Specification and have their input.

3. Construct a brief analysis of your market segment: Share it with your customers. Have them edit/correct your assumptions. This requires the networking skills to have a database of market-knowledgeable people you can turn to for advice and constructive criticism.

4. Write a brief business plan for your product: this should not take months. This can be PowerPoint. More than one person should read and edit the plan. If you are agonizing over prose then you are not going quickly enough. You should have multiple revs. Stuff should be missing. Assumptions MUST be listed.

5. Write the spec => hand it off to engineering/operations => ride them for feedback until they run away screaming at your sight: Take the same spec to key customers, have them edit the details. Beg/borrow/steal enough resources to put together a simple demo to show off the main features or mockup details of your spec. Amazing deals can be won with an “ah-ha!” demo.

It may seem pedantic, but you’d be surprised how many startups skip most of these steps because some “genius” founder “knows exactly what product to make.” If you have one guy who knows all the answers, go find yourself another team. If you know all the answers, change jobs: it sucks to be the only omnipotent being in a world of losers.

So what happens when you do all this stuff and it still doesn’t work? It’s not the end of the world, and rejection is truly the best mentor.
1. Downgrade the feature set: just make sure its minimally acceptable
2. Downgrade the target customers: maybe you’ve been going after prima-donna customers when what you really need are meat-and-potatoes buyers. Expand your business development to include non traditional targets. Ask your sales guys, they probably have more ideas than you expect.
3. Partner with the enemy: Do you have some of the pieces, but failed on the whole enchilada? Try going to your competitor and put together a deal that plays on both partner’s strengths.

So there you have it, and by all means, throw it all out the window when the crisis/opportunity dictates. Rules are made to be broken, and changing course in increments more frequently is still better than sailing in the wrong direction. In an upcoming post I’ll write more about doing business in Japan, which consists of an intoxicating mixture of formality, informality, and bizarre settings that may land your company profits while teaching you about life on another planet.

Observations on the Business World

Another Rice Grad writes about quitting his job:

Life is too short to do something you don't enjoy. I definitely believe that, and it's a lesson I've learned from this job. I'm making myself miserable working insane hours at an inane job where I never do anything substantive. I'd rather be a risk taker or entrepreneur than a corporate climber who has to depend on superiors' favor. This is particularly true while I'm young and can afford to take risks.

He has his situation nailed. There is no question about it, but starting at the bottom and moving up the corporate ranks just sucks. It can take literally years of mind-numbing work while you network your abilities to management so you can be considered for that next promotion, or catch the shirt-tail of someone else moving up the ladder. And these years of drudgery can end with absolutely no promotion whatsoever. I know people at one tech firm that have literally held the same job in the same cube for 20 years. The people who get the promotions don't have the same experience or ability of these cube dwellers, but somehow they do the right networking and politicking.

It's hard coming to the reality that in large corporations promotions are not based on ability. In my first position I won the "most outstanding" marketing award three out of my first four years. This award was voted on by the marketing and sales organizations - my peers. Despite this recognition, I received absolutely no promotions. I then found out that after four years and three awards that I was barely making more than new-hires coming out of college.

That's when I quit to join a start-up.

That was some years ago. Two large companies and one more start-up later I am back at a megacorp spending time looking out a window, but with a comfortable title and level of pay.

So what has my experience taught me? Here are a few rules that I have observed:

1. Corporations value people outside the company more than inside the company (this is usually true, but doesn't hold for organizations like UPS that only promote from within). Generally speaking, I have found that the unknown candidate outside the company usually gets a job over promoting the internal guy who's been slogging at it for half a decade. There is something mysterious and sexy about the external guy that the internal guy just can't provide (sort of like getting a mistress after years of marriage). I think this issue is also a reason why consultants who know nothing about an organization are listened to more closely than people who know the internal workings after years of experience.

So, I have found that changing jobs and companies moves you up the corporate ladder faster than slogging your way up (exceptions: if you are the son of the chairman or a "golden child", which I will post on another date).

2. It's Okay to Toggle Between Corporate and Start-Up - I actually learned this one from an MBA professor. Keep in mind that the vast majority of start-ups fail. His advice was to get the corporate job and get your financial bearings for a few years. Then spin out to a start-up. Repeat as needed.

This particular professor was in his 60s and had been doing this strategy for decades. He had worked in all sorts of large corporations and had started dozens of companies. He had been rich and broke numerous times, but he kept at it (he finally hit the big time and quit a few years ago).

This strategy won't get you inside companies that promote from within or take a dim view of company hopping, but I have found that most large companies want that "entrepreneurial edge" and are willing to hire start-up refugees. On the other side of the coin, most start-ups are usually started by people trying to escape the corporate dungeon, so there are usually no issues getting hired there (ideally, start your own).

3. Sometimes you have to grin and bear it - Unlike Rice Grad, I am older and have a family to support, so no matter how much I can't stand my current job, I am going to keep doing it and kiss the right @#$ to keep it until something better comes along. This sort of goes hand-in-hand with observation 2 above: you are going to work in large organizations so make the best of it: Say the right things to the boss. Politic with the right people. Even if your company is like Dilbert's, don't hang around the water cooler complaining since it gets to be known who's a whiner - post anonymously on a blog instead. You really don't know how long you are going to be there, so work the job like it has to last you 20 years. This means doing things that are boring and pumping up the ego of people you don't like, but just remember that sometimes a job is about paying the mortgage and putting food on the table and not "self fulfillment".

4. Network - I have already posted on this. This will land you the next job or the next round of funding for your start-up, so make it a priority.

Good luck to Rice Grad - I hope he finds what he is looking for.

Justifying my Existence: Marketing 104 - Sales Support

There are several epic battles that endure the eons: good and evil, God and Satan, Marketing and Sales. This battle is also referred to as "Field versus Factory" and is seen in a lot of old business sayings:

Sales Saying: "The toughest sale is the Factory"

Marketing Saying: "I wish sales would work for us instead of the customer"

Part of this issue is that there really isn't a hard/fast line between the sales and marketing functions. The line is fluid and can move depending on industry, customer, design cycle, or even between products at a single customer. This chart is a general overview showing this dynamic:



The vast area in the middle between marketing and sales is what can create conflict, confusion, turf wars, you name it (note that the far right side is covered under business development). But the bottom line is this: sales support is an important component of the marketing function.

So, what tasks should one do in marketing to support sales?

1. Know your salesforce - that personal connection can go a long way to resolving conflict.

2. Support your salesforce - Salesperson wants a presentation? No prob. Free sample? Okay. They are the warriors on the front line, so don't pull a Black Hawk Down and deny them the weapons they need. Marketing also has the job of creating "collateral", which includes brochures, data books, or any other materials that a salesperson puts in a customer's hands. Don't be stingy on your collateral budget, since all salespeople want a reason to call/go see their customer ("I thought I would stop by and give you the newest brochure out of the factory").

3. Don't keep the salesforce in the dark - This is one of the biggest complaints of the field to the factory. I have been in situations where the field is selling an item at a customer the same day an announcement is made that obsoletes the product the salesperson is pitching. (You want to see some pissed off people, try this). If you want to have productive, happy salespeople, pull them in periodically and let them know what is going on - or ideally include them in your strategy formulation. Some companies don't like to do this since they want to sell off old inventory, want to sell what they have today, etc. This sort of thinking doesn't give the salesforce credit. If you communicate what you need (and incentivize them appropriately), these sorts of issues won't be a problem.

4. Drink Heavily - Okay, this is somewhat tongue in cheek, but has an element of truth in it. A lot of sales is conducted through entertaining and wining/dining your customer. This means great meals in great restaurants all over the country or even the world, but also means a lot of late nights of heavy drinking with your salesman and customer followed by business meetings with bad hangovers (yes, I have pitched to senior executives while wondering if I would heave in front of them).

This aspect is especially true in Japan, where business is NOT done at the meeting - it is done later at the "hostess clubs" and karioke bars. Rorschach has agreed to do a post at a later date on doing sales in Japan, and I think it should be pretty interesting, as well as funny.


Note: I skipped Marketing 103 - Branding - since there are books and books written on branding out there and I really have nothing to add to the discussion.

Marketing 102 - Business Development

Business Development, or "biz dev" requires an understanding your product, your market, your competitors, your suppliers, your customers and everything else you learned from doing your market analysis. Once you get an understanding of where your market is heading, you can figure out what types of activities will enhance your company, hurt your competitors, grow your customer base, cut costs, and all the other things that companies try to do to maximize profits. These activities might include joint development projects (even with competitors), investments in promising technologies, mergers and acquisitions (M&A), and similar sorts of strategic business moves.

While it is important to understand what activities will benefit your company, the real key to business development is networking. For doing biz dev I have talked to venture capitalists, presidents of 5-person start-ups, VPs of major public corporations, analysts, you name it. Sometimes the job consists of coming up with a business concept and knowing who to call (in order to talk to the VP of one company I called someone I once worked with who once worked at that company, who connected me to another person, who got me the secretary's name of the man I needed to talk to). Other times, people call you and you have to be prepared to act (an analyst once called me once asking if I would be interested in buying one of my competitors' divisions. "Yes" is always a good response to this kind of question, even if you're not really interested, but the important thing is that the analyst knew to call me with the opportunity).

So networking is the key to business development. And as everyone knows, networking is the key to finding a new job. Therefore, Business Development is one of the best ways to land a new and better job!

It's true. Take a look at this post here where I called up the exec VP of a company for a joint business opportunity and the call ended with him asking for my resume. Once you get up to middle management, advancement to the next rung just isn't listed on Monster.com.

So, the bottom line: if at all possible work your way into Business Development to get your name out there and network your way up in the corporate ladder. It's one of the best ways to help yourself while you help your company.

Ex-colleague Rorschach worked in this area and could also add a few comments (hint, hint).

Update: Rorschach has left some great business tips and insight in the comment section, so go read it (maybe I can talk him into being a regular contributor?). I will be expanding on some of his points tomorrow with a section on sales.

Marketing 101 - Market Analysis

One of my jobs as a Marketing Director is Market Analysis, which consists of collecting and analyzing data - or more accurately, having a cube dweller actually collect the data and have it magically appear for analysis. A big portion of this job consists of sitting in front of the computer and visiting web sites, so it is a perfect way to hide the fact I am really blogging (clever, huh?).

Market analysis consists of collecting data from everything from the external economy to my customers' market segments. The post I did here is a perfect example. Another good analysis is a Porter Model (named after Harvard Professor Michael Porter) to understand the "five forces" impacting your market. Note that a "sixth force" - government regulation - should be considered for most industries, and should be a part of normal market intelligence.

Based on market data, Porter analysis and other tools, you can present a forecast for your company, its market share, competitive structure of the market, etc.

So you present your analysis, forecasting all sorts of good things to come to your company. Worried you're wrong? Well, don't be. Here are the key points to keep in mind for Market Analysis:

1. An organization values analysis over data collecting - in other words, if the company believes you are a good analyst, even if you're not, you're golden. Data collectors are interchangeable cogs. So move out of data collecting into analysis as soon as possible. How do you become a "great analyst"? That brings up the next point.

2. Analyses can be faked, but data cannot - You can fit data to any sort of analysis (economy is up means revenue will be rosy next year; economy is down is proof things will improve and bring rosy numbers next year). So your analysis can be anything. What should it be? That's the next point.

3. No one complains about a rosy forecast, but they do complain about bad ones - I once brought a forecast to a CEO that showed high competition, falling prices and probable consolidation in the market. The CEO said it was wrong and told me to do it again. I brought a rosy forecast showing that we would lead the market. CEO was happy, and I was deemed a good analyst. So NEVER worry that you're wrong. Why? That brings up the last point.

4. People double-check data, but they don't back-check analyses - The data has to be right, but if you forecast a rosy picture, two years later no one remembers or cares - they are worried about the forecast two years from now. Another case in point - the analysis I mentioned above where the CEO told me to redo it - three years later everything I originally forecast was correct - but it doesn't matter since that company I worked for is no longer around and that CEO is doing something else. The incorrect rosy picture is what kept me "in" with the CEO; the correct market forecast showing consolidation benefited no one, including me (there was no way to invest or buy/short stock based on my analysis).

So, the bottom line: if you analyze a rosy forecast, show it. If you forecast a horrible forecast, redo it to make it look positive. You will be judged a superior analyst and move up in the corporate world.

More sections to come tomorrow.

MBA Reunion - Good for Friendships, Not Networking

So I'm back from my MBA 10 year reunion this past weekend and had a good time. My biz school just added a new building, and the reunion consisted of a reception one evening in the new building, along with a tour (with the subtle message to please donate to help pay for this thing). A BBQ was held the next day before the big homecoming game (my MBA school is part of a larger university).

Unfortunately only about a third of the class showed up, despite the fact that probably 50% of the class is living within driving distance (four of us flew in). Those that were there included friends that I stay in contact with through calls and email and it was good to talk to them in person after not seeing them in a year or two (or three). I reconnected with a few people I was good friends with during school, but haven't seen or talked to in a decade, so that was good.

In answer to an email inquiry from one of my readers, this was not like a ten year high-school reunion, which everyone I know seems to have nightmares about (we actually talked about this at the MBA reunion, and as someone put it: a ten-year high school reunion just ends up ruining years of therapy). High school has a lot of emotional baggage, cliques and the like. My experience at biz school was that everyone was there to learn something, improve their career and get ahead and while cliques certainly existed, they were nothing like the hateful, polarizing ones in highschool (my experience at the 10 year high-school reunion was that those cliques STILL functioned, even after a decade). And since people taking their MBA ranged from their mid 20s to the early 40s, everyone acted like adults instead of kids.

While the reunion was good for seeing old friends, I wouldn't say it was good for "networking" for the following reasons:

1. Non-industry Specific - We had people there working in energy, government (lobbying as well as congressional aides), tech, medicine, banking, etc. While it is certainly interesting to hear about these industries, I just won't have a business need to call up the VP of an oil and gas exploration company since that is totally foreign to what I do or the industry I work in.

2. Regional Differences - I am on the Left Coast and most of the people there were not. So being in totally different industries and totally different parts of the country, I had nothing in common with a lot of people except we hold diplomas from the same university.

3. Different Business Models - The talk did turn to business deals, investment opportunities and the like. Those in tech talked about emerging markets (see below) and tech start-ups on the Left Coast , while those in energy talked about investing in 3-D seismic technology and drilling opportunities in the Gulf of Mexico. These two topics have nothing in common except money. The types of people, companies or venture capital that invest in each are different and how the investment done is totally different (I actually understand "third for a quarter", which is a common investment technique for oil and gas, but would bring blank stares at a tech venture capitalist).

So from a business point of view, it was a bit of a bust, but very worth it from a personal point of view. I am glad I went and will go to the 15 year - who knows what everyone will be doing in half a decade.

Searching for Emerging Markets

One of my jobs as a Window Manager is to look for "emerging markets". There are, I think, two basic ways to do this:



One way is to look at the technology coming out of the lab and figuring out what to do with it. The second way is to take a close look at what users and businesses want, and figure out how technology can deliver it. Since I am not a technologist (although I do have a technical degree), I usually use the second method to look for new markets.

However, as a great posting at the Venture Capital blog Due Diligence pointed out: The Next Big Thing sneaks up from behind while you're trying to do your work, kicks your ass, walks over you, and either rifles your pockets or drops gold into your hands. If it's gold, they write a story about it one day. The others you never hear about, unless you live here and know them personally . As they say, Go Read the Whole Thing.

Keeping that theme in mind - that the Next Big Thing really isn't predictable - here are a few of many trends I am currently looking at anyway:

1. Demographics - The U.S. will soon experience a large increase in the older population, creating more demand for healthcare and nursing facilities. Two areas that might benefit are medical delivery systems and robotics, which are already being tested in nursing and elder-care environments.

2. Entertainment - Entertainment consumption is going nowhere but up, and how entertainment is delivered is one area I am looking at, such as wireless connections between the TV and PC, and how users control and interact with their entertainment (3D control systems that use MEMS gyroscopes, for example). I also throw gambling into the entertainment mix, and that is another area where our children will do it in ways we never imagined (such as gambling via cellphone).

3. Security & Safety - The 9-11 disaster and aftermath has already produced a flurry in funding for security technologies, although this area is probably over-subscribed by venture capitalists at this time. This area ranges from biometrics - identifying people on anything from fingerprints to DNA to face recognition - to secure printing technologies for passports.

4. Supply-Chain Control - Following leaders such as Dell and Wal-Mart, U.S. companies are looking for ways to closely link and monitor their supply chain, which is one of the largest drivers of Radio Frequency Identification (RFID) technology today. I could write pages on what is going on in RFID, its implementation, and those that oppose it, but suffice to say that this is a technology that will be everywhere in 10 years, replacing the bar codes on all the items at the grocery store, tracking your luggage through airports, and tracking packages through our private and public delivery systems.

Those are the "high level" trends. Then there are industry specific trends, such as the write-up I did about the car, which is changing from a mechanical system to an electrical system, and other industry specific areas which are driving emerging markets.

These are only just a few - there are a lot of other demographic, societal and industry specific trends driving emerging products that I don't cover - I just look at those areas where my company has a core competency, giving me a market scope which is digestible. Otherwise I could spend years analyzing all sorts of trends, just to see the Next Big Thing pass me by.