Compound Interest and BPM
- May 15, 2009
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I read a blog post recently by Mick Liubinskas on first-mover advantage. But the underlying analogy he uses is compound interest, arguing that the advantage of being “first-mover” is the chance to start accumulating learning and experience earlier than others, and to let that learning compound year after year. In this context, being “first-mover” isn’t that important – but learning from your experience and customers, and then growing from it is.
I can’t say for sure how well the analogy applies to startups generally, but it applies to the BPM space quite well. How? Through luck or by plan, most of the BPM plays have been slow-developing. They’ve grown quickly by enterprise software standards, but not so fast when compared to the growth rates that many software companies enjoyed in the late 90’s. That growth rate has been manageable enough that the companies have organizational learning, and actually benefit from it, rather than being spread so thin that the organization isn’t earning that compound interest on experience.
Similarly, I think companies deploying BPM could do well to consider the power of compound interest. In early months on the first project, the benefits of experience for your core BPM team aren’t quite so obvious, but as you are able to grow your capability by an increasing amount in each turn of the BPM project crank. You can speed the learning curve by hiring or contracting expertise to your team, but it takes investment over time to make BPM a part of your team’s, or company’s, DNA.
This notion of compound interest in learning is part of the fundamental principle behind the consulting business as well – by having learned from so many BPM projects, we look to lend our expertise and experience to our customers to help them achieve a “second-mover advantage” – moving faster by skipping some of the dead-ends or detours that we might have experienced in our own journeys. Regardless, this article reinforces something I’ve always believed in – a steady consistent investment usually performs better in the long run than big changes up and down over a short period of time. There’s a cost to starting up, and a cost to shutting down, and with steady investment you start to earn that “compound interest” on your investment that is increased efficiency and organizational knowledge.