The summary of an MIT Enterprise Forum’s gathering of 3 economists seemed to be optimistic, but with major caveats and concerns.  With three bubbles in our rear view mirror (dot.com, oil, and banking/real-estate), the concern has turned to a potential fourth bubble: cash (when there’s too much of it, inflation can eat away at it too quickly).

Here in Austin, a major new shopping center has opened (phase 2 of the Domain), and the tallest building in Austin is nearly complete (the Austonian, apparently the largest residential tower in Texas).  Meanwhile, Facebook is opening an office and hiring 200 people in Austin.  And co-working facilities seem to be doing well, while providing a good support network for small businesses. So perhaps the better-than-average local economy is influencing my optimistic outlook.

Meanwhile, the Senate has passed a $15B jobs bill. I don’t know if anything in the bill will affect our business directly, but we make our decisions without regard to tax effects (generally that seems like putting the cart before the horse), and from what we can see the environment is still favorable for BPM software and deployments – businesses are investing in process improvement, and BPM.  And big software companies are investing in BPM software (witness the acquisition activity of December and January).  Its a good time to be focused on BPM.

Well, after much celebration before announcing the details, we now have some (just some) facts about Appian’s 2009.

It sounds like it was a good year – as MWD reports, its license revenue was up 59% (but we don’t know from what base, much like Lombardi’s reported numbers before it was purchased), and customers doubled.  Of course, another way to phrase this is that ASP declined by 20% (if my math is right), or that revenue mix has shifted from prepay (enterprise license revenue) to either post-pay or subscription revenue.

MWD’s assessment is that international revenue will grow faster than domestic revenue.  And while this argument makes sense, having worked at more than one company Appian’s size in my career, I can attest that international revenue can be very erratic.  For a few reasons:

1. When starting from a small base, a single deal (or two deals) can dramatically affect the percentage growth internationally or in a region.  However, with so few data points, it may say next-to-nothing about going forward revenue.
2. Even off of a bigger base, international revenue has so much to do with your sales operation, and so little to do with your product.  There are other products out there.  There are big consulting shops out there. Whether you capture the money (revenue) that is being spent to solve the problems your software solves depends almost entirely on your sales and marketing operation.
3. American companies of this size rarely understand the international markets well enough, and make mistakes which cause big revenue swings up and down.  This is true because the executives usually lack field operational experience overseas, and though they may hire that experience, they may not be able to successfully evaluate those international experts and may end up throwing good money after bad.
4. I’ve seen a single sales rep bring in 30% or more of a small company’s revenue for a single year, only to bring in zero revenue the following year.  Individual sales rep performance is crucial to small enterprise software companies.

Appian may well overcome all of these pitfalls.  But revenue in both the US and Internationally is coming off of a small enough base that we should expect to see high beta for any of the smaller vendors.

The conclusions that Appian’s results really drive home:

• BPM is growing, not dying.  And growing faster than enterprise software generally. (Not just from this datapoint, but from Lombardi, IBM, Savvion, Pega reported results)
• The BPM pure plays were doing well in 2009.
• The remaining pure plays may still have legs and room to run while Lombardi and Savvion acquisitions are digested – even if those acquisitions are quite successful.

Two articles caught my attention recently because there is an interesting synergy between the two.

In the first, Mike Gammage argues that BPM is the best career move for the next decade.  He makes a compelling argument: that BPM is the key to rescuing process management from silo views and project perspectives.  Others would argue that BPM saves the business from IT (or at least, saves its processes).

Mike’s take on why BPM:

• They are owned by the business, and are in the language of the business. They embed ownership of process management and process improvement in the line, where it belongs – not with IT or the Quality team or a Process group.
• They are truly the DNA of the business. They are holistic and integrated models of the organisation, so the impact of any proposed changes are understood and can be properly addressed.
• They deliver for the end user.They combine ‘live’ business processes with real-time KPI metrics, documents and e-Learning. They are personalised and delivered to every desktop across the enterprise in the language of the end user.
• They enable change. They underpin Lean and Six Sigma programmes, and foster a culture of continuous improvement. They provide a common language for collaboration between IT and the business stakeholders.
• They are governance frameworks.They are secure and auditable. They can force acknowledgement of process change, and ensure that every process and document is properly authorised.

Not a bad list at all.  The second article I read, makes the point that we are now a white collar country – more than half of us have white collar jobs now (actually, 60%).  And that manufacturing jobs are declining globally, not just in the US.

Really, it should be no surprise that final assembly is the least valuable, and the design genius of Apple the most valuable, work that go into an iPod, iPhone, or (coming soon!) iTablet. It’s been that way all along.

And this could explain why Dell’s prowess for logistics and final assembly eventually ran its course- once the logistics and final assembly were commodotized by its competitors, they didn’t have the investment in design to retain pricing power.

The interesting thing about this article is that usually, when people opine about the US becoming a “knowledge worker” economy it is with some wistful regret about the jobs and ways of life lost, as well as a concern that we’re ill-prepared to compete in such a world (due to our education system, etc).  But the author takes a more optimistic view – that we will compete well in the new knowledge economy but that we’ll have our work cut out for us.  He may just be right.

Great article from the business insider here.  In it, John Mauldin makes a great case for optimism in the long run, despite a lot of short-term difficulties.  Its a long read but well worth it as we approach the end of 2009 and a time for reflecting on the year past.

A few choice quotes:

We live in a world of accelerating change. Things are changing at an ever-increasing pace. The world is not linear, it is curved. And we may be at the beginning of the elbow of that curve. If you assume a linear world, you are going to make less-than-optimal choices about your future, whether it is in your job or investments or life in general.

and :

A pessimist never gets in the game. A wild-eyed optimist will suffer the slings and arrows of boom and inevitable bust. Cautious optimism is the correct and most rewarding path. And that, I hope, is what you see when you read my weekly thoughts.

At BP3, we agree.  We’re in the game.  We’re trying to help.  And we have a dream we’re trying to achieve.  Maybe John Mauldin is right.

This week I’ve seen a few articles at the global, national, and local level about the economy.  McKinsey has a new report out with their global economic conditions survey results.  You have to register for the report.

The key finding is:

Now, for the first time in a year, more respondents expect their companies’ profits to rise than fall in the near term. Product development and long-term planning are high priorities for many companies, and most are optimistic about their prospects in the longer term.

The general sense is that panic has receded to the background, and a new cautious optimism has taken hold.  I like the phrase used in the report – “an environment less comfortable than the one they knew in the pre-crisis world” – which is pretty much exactly the way I would phrase it for many of the companies that we work with.

Interestingly – more than half of executives surveyed support government intervention to support the various economies.  This isn’t necessarily what you would expect the survey results to show if you watch CNBC or Fox News.  As is often the case, executives’ outlook for their own companies is better than their outlook for the economy generally (this is usually true in good economies as well).

The key graph for BP3’s business was “Exhibit 4: What matters most.”  It shows that Cutting operational costs is the #1 priority for executives globally.  In fact, 4 of the first 5 priorities have to do with cutting costs and business agility.  These priorities line up beautifully with what BPM can do to improve their businesses.

Also, the percentage of respondents saying that they would decrease their workforce in the next six months has dropped from 50% or so to less than 30% since March.  Also,

Respondents from almost three-quarters of the companies expect them to be in a stronger competitive position five years from now than they were before September 2008.

There is a core, underlying optimism in our global corporations that, I believe, will eventually propel the economy forward. Of course, among startups, there appears to be even more optimism, in my judgment.  Compared to last year, the tone I hear from entrepreneurs is quite a bit more positive.

Locally in Austin, it seems that we are just starting to feel the pinch of the economic turmoil. We don’t get a lot of sympathy from other parts of the US, as the local unemployment rate has now reached 7.2%, compared to 4.7% one year ago.  But unlike many parts of the country, net job losses here are only .9%, so a significant percentage of the unemployment number is likely due to growth in the available labor force.

Statewide, Texas is at 8%, and nationally the US average is 9.7%.  As with many parts of the country, Austin’s manufacturing and construction businesses have seen a lot of job losses.

Bucking these trends, we’ve added one person to our team recently, and we hope to hire another 1 or 2 employees before the end of the year – but like the McKinsey survey results, we are cautiously optimistic and we’re being careful in our approach to growth.  The market may be favoring BPM and other efficiency investments, but investments are being made very conservatively across the board.

Business week recently put out a 4-page (on the web) article entitled “The Failed Promise of Innovation in the US“.

But after reading it, I can’t help but feel the failure was in the promises more than in the innovation.  The author (Michael Mandel) takes us back to 1998, and recounts some of the great expectations of that year – across a great number of industries – and then examines reality 10-11 years later.  The author finds our progress over the intervening years to be quite wanting, relative to the promises made in 1998.

Essentially I don’t find fault with his depiction of expectations (the Promise) in 1998, nor his description of the current-state reality.  But I think his assignment of “blame” or cause, is misplaced.  He seems to be saying that, in some fashion, the US has lost its “innovation mojo”, with some not-quite-determined cause for that.  The consequences of less innovation could be severe, as he rightly points out…

Here are a couple of the aspects of the last 10 years that the author has overlooked, which I think have a profound affect on the perception of innovation on the one hand, and on the actual pace of innovation on the other.

Is Perception Reality?

First, on the perception front.  I believe that the expectations of progress (Innovation) have a tendency to outstrip what reality can produce.  The reality is, innovation takes longer than people expect it to take to go from a successful lab experiment to something that we can connect with in daily life.  And the media is particularly focused on “lab” innovation, rather than the innovations that affect our daily lives.  I think this bias is because the innovations rampant in our daily lives don’t seem as dramatic and futuristic as the innovations that are bubbling in beakers in a cleanroom.  There’s something the big media companies love about showing footage of lab-coated or bunny-suited technicians titrating liquids in a gleaming lab. There’s a tendency to overlook more gradual innovation that is, in some cases, more remarkable.

Let’s take an example.  Look at Google’s iPhone and Android applications… you pick up your phone, ask it a question, it interprets your voice to understand what you’re searching for, and returns to you locale-based results, followed by more general results.  So if you pick up the phone and say “Italian Restaurants” the Google phone app will find Italian restaurants that are near you based on GPS coordinates.  The concept that SEARCH would yield this kind of innovation, in 1998, was unthinkable.  It certainly wasn’t part of our expectations for phones or for search at the time.  And so this kind of innovation gets short shrift from the author of the article.

The author spends a lot of his column discussing biotech – an area that requires an enormous amount of clinical trials before going to market.  In other words, regardless of how fast the “innovation” part of the engine is churning, there will be an enormous lag time between the lab and the real world.  Why?  Because of safety concerns.  Because we had some unfortunate drug safety mishaps with a whole category of drugs (pain relievers) that had side effects that could be deadly (heart problems primarily).   As the author points out toward the end of the article, there is a glut of biotech drugs about to hit the market – so it may appear that the next few years have an unusually high degree of biotech innovation, but in reality most of that work happened over the previous decade…

Another example from the author was Apligraf, with a skin replacement tissue that seemed groundbreaking.  Apligraf had problems with delivery, despite the fact that the product worked:  getting production ramped up, getting delivery of live tissue right, and getting costs down to make it competitive.  What the author failed to point out is that, during this same timeframe, another company, Lifecell, was achieving quite a bit of success with its products, in particular with AlloDerm and Strattice.  Lifecell was sold to KCI, but not before having a successful run as a public company (I should know, I made a little bit of money off of my Lifecell stock, thanks for the recommendation, Dad). The point here, is that even in specific categories we can cherry pick our data to argue either that innovation was great or that innovation was slow…

Other examples of how perception may not match reality?  Most Americans probably believe that American manufacturing is on the wane.  Employment in manufacturing is down year after year after year.  That part is true. But what most people don’t realize is that the US still is the largest manufacturer in the world… And that we actually manufacture more “stuff” now than we did in 1998.  We’ve just gotten less labor-intensive in our manufacturing businesses.

Even so, why wasn’t the reality of Innovation better?

Returning to the “actuals” front… to the extent that more innovation didn’t happen, why is that?

The author points out several valid reasons.  However, I think he overlooked something really important, specifically as it relates to one of the “innovation metrics” he uses: productivity.  Historically, innovation and improvement in productivity is a reaction to pressure.  The pressure that drives increased productivity might be competition- the company with the lowest cost often wins in the long run – and lower cost is either achieved by having cheaper labor or a more efficient (productive) operation.  When labor is scarce, companies focus on improving productivity.  But something happened between 1998 and 2009.  Large US-based multi-nationals discovered that, rather than improving internal processes and investing in productivity-enhancing capital equipment or software, they could move massive numbers of jobs from the US to Asia (India and China, largely).  A certain amount of innovation was enabled by the opening of labor markets overseas in combination with better (cheaper) telecommunications and internet connectivity – outsourcing of callcenters, IT, radiology, etc.

But it also stymied innovation at large corporations.  Largely they outsourced swaths of business (often IT), that were previously sources of innovation.  The quick win was to swap out expensive personnel for less expensive personnel (taking advantage of exchange rates, cost of living, etc.). This was true for skilled labor and for manufacturing.

However, we’re now seeing the glut in labor overseas evaporating.  Exchange rates are working against offshoring as the US Dollar gets weaker.  Skilled labor costs in India and China are considerably higher than they were in 1998, while labor costs in the US are relatively flat. Shipping costs are going up with higher prices of oil and gas.  All of this makes local production more important, and regardless of locale, a lack of additional units of cheap labor means that efficiency starts to look more important (as an aside, the author noted that lack of productivity improvement might have been a factor in why wages didn’t rise – but wages didn’t rise primarily because of a change in the supply/demand ratio more than because of a lack of productivity growth, in my opinion).

From where I’m sitting, BPM is the right way to focus our attention on where the efficiencies will come from.  Other technologies may be the keys to unlocking some of the efficiencies (for example, new capital equipment), but BPM techniques and process improvement techniques generally, can help us focus on the keys to the ROI kingdom.

Impressive sounding title to this article on BPM.com by Terry Schurter.

Terry gives a good background to bring new arrivals to the BPM market up-to-speed, and then dives into dividing the commercial BPM market into 4 segments:

1) Executable BPM software:
Software that is executable, meaning it moves data (in one of a number of forms) from interaction to interaction (between any combination of systems and people).

2) Non-Executable BPM software:
Software that is used to plan, manage, architect, analyze and visualize “processes.”

3) Technical Consulting services:
Services that design, manage, implement and maintain executable BPM software and/or other software to achieve a similar result.

4) Process Consulting services:
Services that help organizations address problems from a “process” perspective; deal with the change requirements associated with “business” changes, and lead improvement initiatives.

Hard to argue with this part.  BP3, for example, provides services to the latter two categories, because we feel there is a gap in offerings in the BPM space that address both technical consulting and process consulting adequately, with appropriate experts in both (there are services companies that are experts in one and novices in the other).

However, I found the overall tone of the article to be a bit negative- perhaps to counteract vendor “hype” which he refers to at several points in the article.  For example, he posits that BPM does not address human processes well.  But of course, when making such a statement, one has to follow with “as compared to what?” – because the bar that any software should be judged against is not an abstract concept of perfection, but rather that of its peers.  If, for example, BPM executable software suites represent human processes 50% to 100% (picking arbitrary range here) better than existing application integration software, that may well be “good enough” for now. In another part of the article, he points out that executable BPM vendors don’t address more dynamic/ad-hoc processes.  I would agree that they don’t address these well -but in my experience the factor holding us back from addressing these processes is the creativity of the process author (consultant, in many cases), rather than the underlying technology.  Technical consultants want to see order out of a chaotic process and try to fit the square peg in a round hole.  Process consultants don’t understand how they can parameterize the underlying software to make it more dynamic and responsive to the individual user’s personal process.  Both types of personalities need to be experts in their software of choice, and creative with their application thereof.

At one point in the article, Mr. Schurter mentions that BPM vendors have been frustrated by the space not “popping” as they hope or expect.  But I didn’t feel like he directly addressed why.  My personal opinion:  First, any software that is focused on real ROI, and delivering it, is training customers to not buy all at once, but to buy piecemeal and prove the value.  Second, BPM requires an intersection of skillsets that are hard to come by in one person’s body.  So what’s the good news?  I don’t believe there will be a popping of a BPM bubble either.  In several other spaces, the market grew faster than the vendors’ ability to mature and provide quality software to a bigger and broader set of audience needs.  The vendors ossified around narrower technology offerings faster, and sold them like hot-cakes. But when it came time to extend and branch out, it wasn’t in their DNA, and the growth stopped or stalled dramatically.  I believe BPM’s growth rate has afforded vendors the time to invest in new features, and mature their platforms, considerably.  The growth rate is also giving the market time to provide the skilled practitioners needed to deliver these solutions.

Mr. Schurter also offers several lessons learned:

1.  The Need for Individual Process Orchestration

2.  Workflow Queues are Extremely Limited

3.  The need to “Capture” Reality

4.  Unstructured or Free-forming Processes

Its hard to argue with these on the face of it, but I found myself looking for more prescriptive solutions rather than just acknowlegment of the problems (lessons).  The part I wanted to learn from the article was how he suggests to address these issues.  For example in discussing alternates to workflow queues, he says the “means by which this is accomplished is highly variable”, but I was looking for examples:  RSS feeds?  simpler integration to email?  How does one provide the work to the right people without introducing new work?  How do you measure without interfering? For Capturing Reality and Free-forming processes, Terry rightly points out there are vendors scratching the surface of these ideas now.  But Unstructured processes isn’t really a technical problem (as I pointed out earlier) – it is much more a problem of creativity of representation.

Maybe to sum it up, the state of the union for BPM in 2009 has as many questions as answers.  My take, however:  the ROI from BPM projects is real, and companies are going to keep investing in BPM as a result.  Nothing in 2008, or early returns from 2009, convinces me otherwise.

Earlier Appian reported results, and on the heels of the Gartner Magic Quadrant, Lombardi put out its 2008 announcement.  I’m interested to see announcements from the other vendors – luckily, estimates of BPM financial results will be available at www.itinvestmentresearch.com after march 1, 2009 (thanks for the tip from ebizQ).

Overall, it looks like Lombardi grew faster than the software market in general, which is consistent with the results from other BPM vendors (reading between the lines of course, since actual numbers aren’t reported by the firms that are still private).  The good news is that the BPM market overall appears to be relatively healthy.  47% Growth in software licensing is robust, and Lombardi has several other statistics to tout.

Previously I believe Appian announced Q4, which was covered on Sandy’s blog here (forgive me if there is coverage of more specific numbers elsewhere).

Sandy has a new post about Gartner’s latest webinar on emergency cost cutting in IT.  The webinar is over but likely they’ll probably allow replay of the webinar soon with registration on their site (if they haven’t already).

I think Sandy does a fantastic job of summarizing the call however, along with some excellent color commentary.

If I can sum up Sandy’s cautionary notes:

1. Be careful that your cost-cutting doesn’t cost you your long-term organizational learning and viability.  Some of the recommendations from Gartner will help you survive this year, but leave you wounded heading into the recovery.  If you’re company is strong enough, be prudent about what you cut and retain your ability to fight when the economy turns.
2. Be careful about abandoning SLA’s to the business -they’re your customer and if you aren’t living up to their expectations they may decide they can get bad service at a lower price… (Most people will believe that good service costs more… but if the service is already bad, they won’t see as much downside in trying something cheaper).

I’d add a couple of my own:

1. Make sure the projects you DO take on can be tied to ROI – real cost cuts in IT, or real business benefits that the business is signing up for (usually operational savings).
2. Make sure you bite off manageable projects – projects you can complete this year start earning a return for the business this year.  Simplify the big projects, figure out how to get 20% of the benefit this year, rather than getting 100% of it in 18 months.  Then get the next 20%, etc.  (Some call this, continuous process improvement or iterative development… I call it putting money on the table).
3. Eliminate non-essential positions if you can,
4. Do not create additional bureaucracy for your employees, for example, to get reimbursed for legitimate business expenses.  This is only going to hurt your productivity as a company – but it is a very much hidden cost.  It won’t show up as a bottom-line cost, it will show up overall as less revenue per head though… Instead, a better strategy would be to be more clear about what is reimbursable, and to take longer to reimburse (say, 30 days instead of 15).
5. Don’t stop going to conferences and consulting with experts.  These may provide just the ideas you need to save your project, team, organization, company.  In this kind of environment we need our creative energy fed.
6. Figure out how to help the business with the real problems they are faced with.  They’re your customer, figure out how to do more of what they really care about, and less of what they don’t.

We have all heard about how difficult the banking situation is on folks holding a mortgage who maybe at risk of foreclosure. Last night I happened to catch this segment on ABC News: Nightline.

The more I watched the more irritated I became, and it didn’t even affect me!  Why? Because it is SO unnecessary. This is the result of process failure, pure and simple and has nothing to do with how complex any given mortgage may or may not be.

How do I know this? Because folks couldn’t get to any given department to begin the process of ascertaining complexity! Bank Of America, IndyMAC (now bankrupt), Countrywide, and most others should be embarrassed to no end in their lack of ability to serve their customers. You see, it’s not just mortgages albeit that was the topic of this televised segment, it’s almost any customer interaction anymore that is not a point-of-sale transaction. These companies and most others have spent the lion’s share of their capital in removing friction to capturing revenue, and reduce whatever costs possible to increase the margin. That’s expected by and large, but here’s the rub. They have lost site of the value of a customer and as such have no idea what areas are acceptable to refactor and what areas should be considered competitive, value-added differentiators on the operations side.

Simple enough image, companies for the most part do everything from poor to excellent in just getting their good or service out the door. It’s in that other arrow – “information flow” – that a lot of companies out there do a horrendous job. Requests come back into the organization from a customer and depending on their nature it can be a deal-killer for a customer.

In today’s world, you need quality in delivery AND in information flow to really be a serious, long-term competitor.  That paradigm is increasing in potency and speed a lot quicker than many organizations are able to determine strategies to deal with it. Ask yourself, will the next generation of customers/buyers be as forgiving as we have been in the past decade? I don’t believe they will be, because as time marches on, these next round of customers will have even more choice in who they do business with.  The implicit bet that these banks mentioned above are making is that their customers have no choices in today’s economic environment.  In the short-term that may be true – but it only takes one experience like this to lose a customer for life.  And it only takes handling this customer process really *well* to win a customer for years to come.

Folks, it is about process and even more important than the execution of process is knowing what and which processes matter. Companies have to stop with investing in every link in a chain whereby every link is continuously fed resources (that will not scale, it just burns money) and understand instead where is my WEAKEST link in any given chain; don’t forget the whole point of process improvement. Develop a superior relationship with a customer at the lowest possible cost.  When there are such glaring opportunities to differentiate your business without having to compete on price, one is hard-pressed to find a better investment in terms of ROI.  If you’re not doing process improvement with an eye on the customer then as our new President said, “you are on the wrong side of history”.

After reading through Phil Gilbert’s CIO article and writing about it, what do I find via the magic of Google Reader, but an article that tells me that (potentially) all is not lost… (as if by magic)

In Dennis Byron’s post on ebizQ, he recaps the latest Gartner release, its 2009 Executive Programs CIO survey.  In which, he points out that perhaps all is not lost.  The #1 business priority in the survey, for the 5th year in a row, is “Improving Business Process”, and Business Intelligence is the top technology priority for another year.

The good news: these sound like good first-priorities.  The bad news: IT hasn’t (quite) gotten on the bandwagon with Business Process being the top priority.  And after these first two, the lists diverge pretty alarmingly.  Why alarmingly?  Because the IT list doesn’t appear to hew closely to the business needs.  The IT list doesn’t appear to hew closely to business value.  I’d like to see IT listing Business Process Improvement as the first priority as well, and I’d like to see IT focusing on improving its own processes as well…

As Dennis notes at the end of his piece:

I think I have avoided the trap of saying business process management (BPM) is key to recovery from the current recession. It definitely will not be as long as CIOs think they can accomplish BPM with ERP and standalone BI.

I would say, BPM could be the key to recovery, but it is up to our CEO’s and CIO’s to get the train out of the station.

Phil Gilbert, President and CTO of Lombardi, recently wrote an article for CIO.com, where he argues that the melt-downs in banking and in the automotive industries were primarily from a lack of visibility to crucial data and processes, rather than the common bogeymen of Unions and Greed.  Well sure, Greed may have been part of the problem on Wall Street, but Phil makes a persuasive argument that lack of understanding and visibility led to underestimating risk. He also explains why Detroit’s problem has been primarily a white-collar problem rather than a Union problem.

Phil goes on to take a shot at off-shoring:

Ironically, the off-shoring, which was the first response to the symptoms of the artisan-economy-on-steroids, served to increase risk and darkness even as it hid behind the allure of cost savings.

Because the growth in the service workforce was not easily scalable (costs went up in a linear fashion as heads were added), CEOs found it easier to fire local workers and hire distant ones who were paid a fraction of their U.S. counterparts. These executives took the easy way out, often-times they actually added headcount to an already-unwieldy process and boasted about their “savings.”

So now our U.S. companies are in increased peril: white collar tasks are more opaque than ever, while customer and product risks are on the rise.

I think this is a truly concise way to capture the very real risks of off-shoring.  I’ve tried to express the same risk-reward equation to others in the past, but Phil has hit upon a much better way to explain it and relate it to current events.

About 10 years ago, the company I was working for was persistently trying to sell services to GE, with mixed success.  One thing we learned was that GE had some really deeply ingrained principles around business, and if you ran afoul of them you would not get the sale.  At one point I remember a GE exec telling us that GE would not let another company get between itself and its customers on the Internet.  Its a good policy:  you have to have an ear for the voice of the customer to react to the market effectively.  I think too many companies have lacked this same policy with respect to their processes:

Let no company come between us and visibility into our core processes.  You cannot effectively off-shore or implement processes in remote locations without better process management so that you retain visibility to the big-picture data about the process as well as the internal workings  of the process as needed.  As a company, you have to be able to fine-tune your processes to react to market forces depending on the environment, in order to increase customer satisfaction, reduce waste, reduce response time, etc.

Without BPM, the discipline as well as the technology, our service economy might well become bloated and inefficient – Phil makes the case quite well.

I track Gartner’s Blog on Business Process Improvement, which on occasion has a good read, and on Wednesday David McCoy posted about their strategy vis-a-vis BPM for 2009:

Everyone knows that BPM can reduce costs. So, BPM should be a hot topic and investment area during 2009’s brutal reign, right? Well, we at Gartner think so. Elise Olding, Jim Sinur and I are going to be driving a full-court press on BPM and Cost Management this year and we are all excited about the prospects. We are so excited, we have established an internal working group to make this a weekly research topic. In fact, I am shifting my own research attention to this topic – it will be my top research focus for 2009. BPM has so much to offer. You know this. We are going to make it clear to the rest of the world.

Perhaps it shouldn’t be surprising that they are making this shift in focus, and attempting to amp up the level of coverage given to the BPM space – but I did find it refreshing disclosure of a decision made behind the four walls of the Firm.  At BP3 we welcome the full-court press on BPM because we are absolutely sold on the benefits of BPM for our customers. Perhaps some additional research and marketing support from Gartner and other analyst firms will help build the consensus and momentum around BPM and its benefits vis-a-vis cost containment.

Gartner has a couple BPM conferences coming up – the BPM Summit in London in February, and the BPM Summit in San Diego in March,  website here.  Early Bird registration ends January 30th for the San Diego event.  I expect we’ll be there – if you are going to be there and want to connect in person, drop us a note here in the comments or at info@bp-3.com (which gets forwarded directly to me, by the way).

(I should add, there are links to webinars leading up to the event here, that look pretty interesting.  )

In Jason Stamper’s blog “What are the 10 most recession-proof IT sectors?“.  He has some interesting calls, and for the most part, I agree with him.  The point isn’t so much, which sectors will grow, its which sectors will perform well relative to the “average” for IT in 2009.

Some of the calls are pretty easy:  Virtualization and Open Source Software for example (everyone likes more software running on the same hardware in a tough environment, or better yet – free software!).

Mr. Stamper makes a great case for why cloud computing (and SaaS) will do well, and why they are, essentially, merging as a concept or market.  I think he’s right, and that this space will grow in 2009, but there may be a shakeout among some of the nascent players, in my opinion.  And the *real* leverage on these technologies is probably further out than just the next year…

Mobile computing is another easy putt.  With the iPhone selling in the millions, and the android-based market for phones picking up steam, there will be a much greater number of phones that can run mobile applications that are not directly controlled by the telecommunications providers (finally!).

We couldn’t agree more about integration and BPM.  We’re obviously biased, but we see this space as critical for companies to cut costs in a long-term, sustainable way.  Not to mention, to cut costs in an intelligent way.  Of course, only time will tell if Mr. Stamper’s predictions (and our own) will bear out.  We’re doing our best to prove him right in the spaces we play in.

For those companies out there who are not employing the “ostrich strategy” and are thinking in terms of longer than 12 months, there are some real opportunities which may be worthwhile to consider, outside of just cost reduction or revenue protection objectives. In fact, it would likely be a good time to take a moment and re-discover what your business value drivers really are. Keep in mind that selecting projects or otherwise making decisions with the center of gravity being “reduce cost”, “improve profit” are really only effects; these are not projects in and of themselves. The only way you can ensure you are chasing the right possibilities is by understanding the company’s value-drivers and the “what, which, and how much” of each; find the game changers in essence. Those things which can not only help in the short-term but catapult a company over the long term (+12 months) to be more competitive, more profitable and deliver better to what your customers actually want.

Some of the really potent game changers that you may want to consider pursuing in a downturn would be in designing new processes or products, reducing operational complexity, and certainly doing work to understand what your customer’s (former and current) and your competitors customers are really seeking from your organization.

Designing new processes or products/services in a downturn is a great way to employ your assets and since you likely will have cut in other areas, put your money back to work for the future. Business process management methods and tools can help accelerate time-to-market and just as important validate that you are delivering solutions that will truly matter. Getting something out there fast is good but not if nobody wants it or cares. There is a very prescriptive way to generate these new designs and equally important process-centric tools which will help create a foundation to actually sustain these innovations.

Reduce complexity, not just reduce your workforce. “We just need to do more with less”, for some organizations they seem to believe that the laws of physics can be defied in their conference rooms. The rest of the universe is at the mercy of said laws, but not the organization. If we assume your company is a tad more realistic, then now is absolutely the time to refactor areas of the business.

Here is a great area to look at first: in most businesses there is the notion of sales configuration and there is the back-office functions to support or fulfill those various customer order permutations.  A lot of businesses try to make the back office support functions more efficient (read: “cheaper”) and they do this through automation, consolidation, etc.  As we all know, this is a never ending fight….never ending. One option here is to begin to rationalize those order configurations with the support functions. In almost all cases they are decoupled from one another and that is a problem. Until that notion is embraced, you’ll just be bailing water forever. Again, now is the time to use resources to see what can be done to harmonize these functions, this will promote process flow; and flow is exactly what we need in core processes.

Another area is doing work to get better intelligence in what current, former, and potential customers are really after. Too much of the time reactive data alone  is used to make decisions on what a company needs to improve on or even offer as a good or service. Reactive data is data the company doesn’t seek out. Proactive data is information that the company solicits from its customer and prospect base. If you do not have a solid voice of customer program that addresses aggregation of both reactive and proactive data, strong analysis capability of that data, and the right vehicles to get that information transformed into projects, then again now would definitely be the time to invest.

Any rate, these are a few examples of some game changing initiatives that could really provide a platform for future capability that can be had much cheaper than when the organization is operating at capacity. Think of this as a hedge, once the volume turns up again in the business how fast will you be able to respond, compete, lead? Chances are you have cut deep, and recouping that prior organizational capability is going to lag significantly; longer than the downturn lasted as a certainty.

Well, the new unemployment number is out today, and it’s a tough one: 533,000 jobs lost in November, which is the most since before I entered the workforce.  Sandy Kemsley just posted on building your social network before you get laid off – and I couldn’t agree more with what she wrote.  I’ll re-emphasize a couple points here…

1.  Facebook is not for professional networking (Its fun, but that’s not the same thing!).  In fact, as far as I’m concerned, for most white-collar workers, the only social networking services worth their salt are LinkedIn and Plaxo (Plaxo does a good job of keeping your contact information up to date, and keeping others’ contact information up to date in your database, but I don’t think it is a good site for networking, compared to LinkedIn).

2.  Don’t wait til you get laid off to start this process.

3.  It doesn’t take too much time, but it IS an investment.  There’s no immediate payoff, but it can pay off years down the road, even if it doesn’t pay off next month.

4.  It may allow you to help someone else find a job.  Be a good friend, help out!

If you do get laid off, look for smaller startup companies that might need help but can’t commit to hiring full-time – perhaps they’ll take some help on a contract basis to get them through a busy season, and that might be just the bridge you need to get a good full-time job.  Be creative and be flexible and you may just find a job, even in this environment.

It’ll be interesting to see what the BPM vendors report in for Q3.  Its clearly a challenging sales environment in general, right now, but we’ve been hearing from a couple of folks in the business that sales have been brisk in Q3 and into Q4.  Since I don’t have access to raw #’s, I don’t know if “brisk” is relative to lowered expectations, or whether its relative to possibly more optimistic plans made at the beginning of the year.

Sandy captured some notes from the Lombardi conference call here, and Dennis captured additional notes here.  They both do a good job capturing the gist of the call -maybe we’ll get invited one of these days :)

One thing Dennis points out from the call is fewer pilots, just diving in and doing it.  This makes sense in a rough economy, as the pilot process is expensive.  A long selection process is expensive.  If you can get the right product and skip some of the expense of a pilot, so much the better.  I’ve heard similar points made by other folks in the business lately.

Sandy points out that while she believes BPM is well positioned in a tough market, that she thinks the real spending will be on projects with customers who have already swallowed the capex to buy software.  We’ve definitely observed this phenomenon in the market – expanding on old solutions, building new ones on existing infrastructure.  Its good to be a BPM consultant in this environment, and really see the yield that customers can get on this process improvement investment.

I’m looking forward to seeing if some of the other vendors in the space will do these calls as well, and see if the trend of good news is across the market or localized with just a couple of the vendors.  I think the big news was continued growth of license revenue, and the fact that they are profitable for 2008.  Given the funding environment right now, it seems like A Very Good Thing to be profitable.

Ok, back to work on processes now…

UPDATE (11/24/2008): Since making this post I had several people write me privately to tell me that things are tougher than what I described here – and I didn’t mean to sound oblivious to the real strain on major segments of the economy and on companies that have previously been at the forefront of BPM adoption.

A couple of vendors had layoffs in the last 3 months, for example, and more generally, it seems the financials and the northeast are really locked up right now as they get through this difficult time.  I think for the BPM vendors that are heavily (over?) exposed to the financials, they are going to have a rough Q4.  The more diversified vendors are going to find demand down in financials (if not non-existant), but demand up most everywhere else.  I also think it is worth noting that Insurance companies may behave differently than banks and investment houses, as they (typically) have a different level of exposure to the market issues, AIG notwithstanding.

We still see the economic climate increasing the level of scrutiny companies are giving their processes, and increasing the level of interest in projects that are driven by ROI first and foremost.  That said, even the best-positioned company, technology, or person, can find themselves swept up in the wave of bad news.  Positioning well with respect to these trends still doesn’t guarantee a positive economic outcome – its just giving that outcome a fighting chance.

Jim Sinur, VP at Gartner, gave a talk in the morning session about the economics of Business Process (or BPM).  The basic contention was that BPM is something that will do well in up markets, and well in down markets.  The argument basically is that at the micro-economic level, when the economy is tough, you have to do more with less – achieve results with limited resources.  Constrained systems tend to reward those with better processes.  One example not mentioned in the presentation is that if you’re in a deflationary system, you don’t want to hold inventory.  The company with the shortest inventory turnover time generally has an advantage.  In the 90’s and early 2000’s that was Dell… Until the other players figured out how to either catch up or change the game.

In addition, BPM is a good fit for tight economic times because BPM projects produce reliable returns from relatively small investments, generally increasing productivity and quality at the same time.  As I mentioned in a previous post about BPM growth in this economy, companies are still able to take down BPM purchases, and BPM deployments.  In particular, BPM deployments allow for incremental improvement in short-order rather than big-bang deployments of ERP and other large systems.  If we needed more support of this, check out this article on SAP warning that their earnings will miss based on just the last couple weeks of the quarter having big transactions fall through.  This might be convenient posturing but I suspect its true: that those companies that might have otherwise made massive software purchases have put those off.  But I don’t see the same thing happening to BPM efforts at this point.  I don’t think we will unless potential customers move from caution and concern to panic.  So far reason is prevailing in terms of running the business.

I thought the most interesting point Jim made was about productivity.  Indexing productivity per hour of labor, if I read the chart right, the index was 100 for the US, and 140 for Luxembourg, and about 41 for South Korea.  So, the good news is, we don’t have to do a moonshot to improve our GDP by 40% without working any extra hours – Luxembourg already demonstrates that you can be 40% more efficient with the hours you have!  And if you look at countries like South Korea, potentially that could be a 3-4x improvement.  So, while some might focus on the shortcomings we have with respect to some of the European nations, and some might focus on the dangers to our economy if all the Eastern/Asian countries dramatically improve their productivity, I tend to focus on the positive here.  There is lots of opportunity for improvement, and no doubt much of the improvement in the US will come from process improvement.

In the Q&A Session at the end, Derek Miers brought up a great point that the opportunity for BPM is not just other IT-managed system replacement, or IT-managed processes… it is actually a space defined by the # of Excel, Database, and Sharepoint sites out there in the corporation (or at least some significant number of them!).  Good start to the day…

Once again, best coverage of the event as a whole is on Sandy’s blog -