The Agile Executive

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Posts Tagged ‘Asset Inflation

Companies make shoes!

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Peter Drucker made an astute observation which is quite relevant to the current business situation during a September 1998 interview with Fortune:

Securities analysts believe that companies make money. Companies make shoes!

Readers of this blog might have said “software” instead of “shoes.” The point would have been similar to Drucker’s. Good financial management is no doubt  important for your company’s success. It is no substitute, however, to focusing on the business you are in, the technology(ies) that drives the business and the effectiveness of the underlying systems and processes.

The current macro-economic situation gives you an opportunity to soberly assess the viability of your business design (as distinct from doing a lot of financial engineering). With asset inflation corrected, measuring the effectiveness of your business model in terms of the ratio Market Value/Revenues is much more meaningful now then it used to be prior to September 2008. As pointed out by Slywotzky in Value Migration, a market value to revenues ratio lower than 0.8  indicates value outflow for your company and possibly for your industry.

For software companies, the impact of “good enough” Open Source Software should be assessed in conjunction with close examination of the market value to revenues ratio. Twitting from the recent OSBC conference in San Francisco, colleague Andrew Dailey of MGI Research reported “… ERP/CRM are viewed as least susceptible to open source disruption… due to high transaction volumes and high integration needs.” Conversely, Andrew considers office productivity software as ripe [for the picking by Open Source Software]. I am personally of the opinion numerous Application Life-cycle Management tools could be massacred by Open Source Software.

The confluence of the threads highlighted above poses a fairly unique opportunity for the Agilist to convey a major premise of Agile to his/her executives. Like a thriving Open Source Software community, a hyper-productive Agile team can pick a ripe market faster and cheaper than an old fashioned software company could. Moreover, if a company is in one of the markets that are susceptible to an Open Source Software onslaught, Agile can (up to a point) provide defense against such onslaught. Whether you choose to attack or defend, Agile software gives you the advantages of proprietary software at a fraction of the traditional cost.

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