Since January, 2006, FountainBlue has conducted monthly Connections events to cover today's business, technology and leadership issues for high-tech, clean-tech and life-science decision-makers. It is our intent that FountainBlue's events for executives 1) foster deeper relationships between fellow professionals and 2) stimulate critical thinking on leadership and business issues, which directly and positively impact a leader's decisions and results.
We are grateful for the ongoing support of Fenwick and West, who has supported our Connections series since 2006. We encourage you to consider their services. .
Through their generous support, we have held our monthly meetings have been held on the third Fridays of each month from 11:30 a.m. - 1:30 p.m. A typical agenda for our events is posted for your reference:
11:30 - 12:00 Registration, Lunch and Networking
12:00 - 12:05 Welcomes and Thank Yous and Audience Survey
12:05 - 12:40 Interactive Panelist Discussion
12:40 - 1:10 Questions from the Audience
1:10 - 1:15 Final Remarks from the Panelists, Thank Yous and Close
1:15 - 1:30 Additional Networking and Adjourn
FountainBlue sunsetted our Connections series, effective March 16, following our event on The Nearshoring Options. We had decided to sunset the series to better support the other fine organizations around the valley who are conducting quality events throughout the region, reporting on business and technology trends, and to align all FountainBlue activities more directly around leadership for decision-makers.
We are grateful to:
the dozens of people who have stepped up to participate as speakers for this series.
the hundreds of people who participated as attendees.
the FountainBlue ambassadors who have spread the word about the series.
the quality organizations around the region who have been our cross-promotion partners in the series.
Fenwick & West, for their generous sponsorship of the series since January 2006.
Our March 16 Connections event was on the topic of The Nearshoring Options.
In this month's Connections event, we described Nearshoring options, in comparison to off-shoring options, share some Nearshoring success stories from large high-tech, life science companies as well as a smaller start-up's successes. Our experienced panel of experts shared criteria they used to determine outsourcing solutions. Our attendees shared their challenges and successes with our panel:
Facilitator Matt Perez EVP of Engineering and founder of NearSoft
Panelist Stephen Gillespie, Fenwick & West
Panelist Brian Higgins, Manager at KLA Tencor
Panelist Dr John Linehan, Stanford Professor
Panelist Steve Mezak, author of Software without Boundaries
Panelist Ray Scott, CEO, Axolotl
We discussed how offshoring and Nearshoring options impact the company's business model in the long-term and in the short term.
Below are notes from our discussion for your reference.
NearShoring is an attractive option for companies that need to partner with providers outside their organizations to meet their development needs and timelines.
Educated, intelligent developers are becoming more and more available
More experienced technicians are being trained even in the United States
US citizens well acculturated into the American society are leading development firms from their native countries and can serve as interpreter/facilitator between development teams
Nearshoring addresses the time zone challenges presented by working with countries on the 'other side of the world' (of course that's all relative)
When issues arise, they may be solved more quickly when time zone factors aren't as heavily involved
Before you consider a Nearshoring partner, consider the following factors:
The education level of the country/organization/people that you're working with
The infrastructure support for the country you're considering
Your personal software development needs
The culture of your organization, and that of the country you're outsourcing to
The relationship you have with the organization
How close the Nearshoring team is to the rest of your teams
The political and economic stability of the country you're working with
The time zone question - how many time zones away are they and how would that impact yourself and others on your team? would you need to adjust to early morning or late evening hours, and which are you more comfortable with?
In general, minimize the education, communication, distance, etc., separation between yourself and your development partners in order to maximize your degree of control
To make the best use of Nearshoring relationships:
Make priorities and statements of work clear, while also communicating and adjusting as needed;
Consider whether you're using Agile method (like UML, SCRUM) which is more collaborative and iterative or Waterfall with complete specs
Use communication tools to facilitate and coordinate development efforts; these might include IRise, RavenFlow, BuyProcess (Unified Modeling Language), MS Project, Online software as a service tools such as Artifact Software, Clarison, etc.,
Build the largest pipeline for information flow between the various development players so that you can better stream video, audio and other data; real-time video tools might include Microsoft or IBM Lotus
Understand specialties for each region
Understand travel and infrastructure development limitations/constraints (there are tier 1 areas in India like Bangalore and tier 2 ones like New Delhi)
Consider copyright requirements not just for your direct providers, but also for their providers
For more information:
See NearSoft's Outsourcing Risks page
Take Accelerance's software IT readiness test
Take Accelerance's Vision Resourcessm - Outsourced Team Selection Service from Accelerance
Subscribe to the Accelerance RunTime eZine
Our February 16, 2007 FountainBlue's Connections panel was on the topic of Leadership Matters - Fostering Leadership and Innovation for Your Organization
An organization's success ultimately rides on the leadership abilities of its key decision-makers, particularly in Silicon Valley with its heavy profile of fast-moving technology companies. These organizations must innovate both their technology and business model continually in order to prosper. The fact that few organizations rise to be clear stars and long term winners is testimony to how difficult it is to create and sustain a climate of leadership and innovation. For those who have, what are they doing right and how are they doing it? What do you need to do to do to create your own culture of leadership and innovation?
Our panel represented the HR, Strategy and Executive Management perspective on what it takes to foster that dynamic, engaging and exciting culture which attracts and retains the best and the brightest.
Facilitator Linda Prowse Fosler, Linda Prowse-Fosler and Associates, has served in executive management roles in HR, marketing, technology and business development at HP and other large and small high-tech organizations across the valley. Linda will frame the discussion by sharing her perspective on how the organizations she has worked with have successfully and sustainably fostered that rich culture of leadership and innovation.
Panelist Barrie Novak, Director of Organization Design & Development, Global Technical Services at Cisco Systems
Panelist Donna Novitsky, partner from MDV
Panelist Ramon Nunez, CEO of MetaLINCS
Each panelist spoke on:
The cardinal rules of leadership and why leadership is more important now than before
What your organization is doing to maintain its competitive talent and maintain their edge in innovation
Advice and suggestions on how to foster leadership and innovation
In the meeting, we thought deeply about their recruitment, retention and development strategies and also the overall about developing a corporate culture centered around innovation and leadership. Below are notes from our session:
Thoughts on Leadership
Have a vision you are passionate about
Focus on the needs of the customers - ask them what they want and adapt your business strategy based on customer needs
Communicate it clearly, passionately and often. Seek buy-in.
See clearly who can contribute to the vision in what specific ways - even if they don't see it themselves
Empower others: Give people the room, space and time to innovate in their own way
Affirm your people; be proud of who they are and what they do, and communicate that to them regularly
Adopt a common mindset of empowerment rather than 'victim' or 'blame' as empowerment helps people focus on how they are involved with the situation, what can be changed and how their perceptions might be skewed.
Distinguish between when alignment is important and when agreement is important. Alignment means everyone buys in even if it isn't their first option and agreement means that the choice is everyone's first option.
Assess three areas of trust within a relationship: competence, reliability and motive. Consider what makes your assessment of the relationship as high/low as it is and what needs to be done to change that assessment from both sides.
Thoughts on Innovation
Develop a process for taking ideas and transferring them into commercial value
Communicate the process and be transparent about the process
Ensure that the process is within the parameters of the law (employment laws and IP laws, for example), but don't let legal compliance issues be an obstacle to innovation
Leverage hiring and layoff discussions as opportunities to manage your IP. This sets the expectation up front and also at the end of an employment agreement without infringing too much on day-to-day innovative activities of the typical employee.
Make it part of the organization's culture to innovate - communicate innovation at all levels of the organization
Treat everyone as an innovator
Believe that everyone has the best interest of the company in mind
Have an 'open kimono' perspective on communications: Communicate the successes and challenges for the organization and engage others in addressing challenges and leveraging successes
Find ways to say 'yes' to someone's ideas
Welcome creativity and innovation in start-ups; don't squelch that natural tendency in start-up employees by enforcing too much process, discouraging out-of-the-box thinking, etc.,
Spend more time with the early adopters of change, and less time with the resistors. The early adopters will help turn around the mind-sets of those who are in the middle of the bell curve.
Separate innovation from implementation
Allocate the funds and resources for innovation
Ensure that innovation is in alignment with business goals
Innovate in all areas, from technology to business models to HR, etc.,
Balance resource management/bottom line with need for continual innovation.
See also an article about Barrie Novak's leadership alignment project at Cisco by visiting an HR Forum article available at .
FountainBlue's January 19, 2007 panel on Business and Technology Trends in 2007 featured John Verrochi, marketing executive and strategist and founder for the HP and Sun Alumni Associations; Steve Bengston from PriceWaterhouseCoopers; Rick Ellinger, Founder and Board Member, Wireless Communication Alliance; Tom Foremski from SiliconValleyWatcher.com; Fred Greguras, Of Counsel, Fenwick and West.
The beginning of the year is a time of optimism and promise, a time for planning ahead, reflecting on the past, leveraging the learnings into the future. As you consider plans for the new year, we invite you to attend this month's Connections event, where we've assembled a prestigious panel to share their predictions, their advice and their strategies for the year.
Below are some big-picture take-aways from the meeting:
General Business and Financing Trends
Private equity funds have gotten so big that few companies are now beyond their reach. This is good for Silicon Valley and businesses in general if it helps fix and repackage ailing firms, but not-so-good if it's for the purpose of financial re-engineering alone.
IPOs continue to be weak and M&A market will continue to dominate - Trend for early-stage companies is to invest 5, 10, 15 million an make an average of 60 million in M&A, not the hundreds of millions in an IPO
It continues to be tough to scale and grow firms sustainably
AIM market - 2/3 of companies that went public on AIM are not at IPO levels now
Outsourcing trend to continue as it makes economic sense
Foreign relations becomes more important as companies become more international
No materials changes in Sarbanes-Oxley or stock option back-dating for this year expected
Corporations will continue to give back to the community, through corporate foundations for example
Investments in consumer-facing companies that are compelling products, easily delivered with a unique value
Companies are successfully using viral marketing techniques to build brand, momentum and revenues
Technology Trends
Wireless is hot, especially when it involves education, entertainment, social networking, video uploading, business collaboration, inter-connectedness
Increasing importance of 'local' applications, targeted local marketing
Software as a Service and Open Source will be very attractive
Life Science Trend - There will be more opportunity/more up-sides in life science companies in Southern California
Clean Energy Trend - Filtering, purification, pumping and other local activities that don't involve distribution of energy are easier to implement. But when distribution is involved, safety, connectivity, legal and other issues arise which make it more difficult, more time-consuming to develop.
Media is hot - content and advertising plays like Yahoo and Google are examples of how we are becoming a 'Media Valley'
Silicon Valley Remains Strong
35% of VC investments in the US are in Silicon Valley, and US gets 20% more financing than anywhere else in the world
Market shared hasn't declined in 10 years
Our rich culture of failure-tolerance, innovation, multi-ethnicity, business-technology integration remains strong. Our solid infrastructure of support services from VCs to lawyers and accountants to serial entrepreneurs to academic institutions and their partnerships with businesses has been developed over many decades. This makes Silicon Valley difficult to replicate elsewhere.
Trends that Affect Our Personal Lives
There will continue to be breeches in privacy. Until there is accountability for parties responsible for protecting our privacy, privacy breeches may continue to occur. Lines will blur between business and personal lives
Entrepreneurs are less likely to make the financial returns once expected. Entrepreneurs should choose start-ups for the culture, lifestyle, passion, not as much for the money as there is less to be had and less favorable distribution to entrepreneurs after investors take their share
Education for our children becomes more important - there will likely be fewer jobs for well-educated, liberal arts majors
Pensions are gone; only 20% of Fortune 500 companies have them vs 80% of them 20 years ago. We need to manage and plan for pensions ourselves.
The aging baby boomer population will impact us all - from the strain on social security, to caring for elderly parents to retirement ages.
Thanks to our facilitator, John Verrochi, for compiling other trend reports below:
McKinsey
Centers of economic activity will shift profoundly, not just globally, but also regionally. As a consequence of economic liberalization, technological advances, capital market developments, and demographic shifts, the world has embarked on a massive realignment of economic activity.
Public-sector activities will balloon, making productivity gains essential. The unprecedented aging of populations across the developed world will call for new levels of efficiency and creativity from the public sector. Without clear productivity gains, the pension and health care burden will drive taxes to stifling proportions.
The consumer landscape will change and expand significantly. Almost a billion new consumers will enter the global marketplace in the next decade as economic growth in emerging markets pushes them beyond the threshold level of $5,000 in annual household incomea point when people generally begin to spend on discretionary goods.
Technological connectivity will transform the way people live and interact. The technology revolution has been just that. Yet we are at the early, not mature, stage of this revolution.
Individuals, public sectors, and businesses are learning how to make the best use of IT in designing processes and in developing and accessing knowledge.
The battlefield for talent will shift. Ongoing shifts in labor and talent will be far more profound than the widely observed migration of jobs to low-wage countries. The shift to knowledge-intensive industries highlights the importance and scarcity of well-trained talent. The increasing integration of global labor markets, however, is opening up vast new talent sources.
The role and behavior of big business will come under increasingly sharp scrutiny. As businesses expand their global reach, and as the economic demands on the environment intensify, the level of societal suspicion about big business is likely to increase. The tenets of current global business ideologyfor example, shareholder value, free trade, intellectual-property rights, and profit repatriationare not understood, let alone accepted, in many parts of the world.
Demand for natural resources will grow, as will the strain on the environment. As economic growth acceleratesparticularly in emerging marketswe are using natural resources at unprecedented rates. Oil demand is projected to grow by 50 percent in the next two decades, and without large new discoveries or radical innovations supply is unlikely to keep up.
New global industry structures are emerging. In response to changing market regulation and the advent of new technologies, nontraditional business models are flourishing, often coexisting in the same market and sector space.
Management will go from art to science. Bigger, more complex companies demand new tools to run and manage them. Indeed, improved technology and statistical-control tools have given rise to new management approaches that make even mega-institutions viable.
Ubiquitous access to information is changing the economics of knowledge. Knowledge is increasingly available and, at the same time, increasingly specialized. The most obvious manifestation of this trend is the rise of search engines (such as Google), which make an almost infinite amount of information available instantaneously. Access to knowledge has become almost universal. Yet the transformation is much more profound than simply broad access. New models of knowledge production, access, distribution, and ownership are emerging. We are seeing the rise of open-source approaches to knowledge development as communities, not individuals, become responsible for innovations.
Red Herring
Brain Implants The hope is that by sending or blocking electrical pulses, the power of the nervous system can be harnessed to treat problems like depression, migraines, and even blindness.
Attack of the Mobile Virus Nasty viruses, long a threat to PCs, will likely start to menace the humble little cell phone in 2007. With cell phones getting smarter and with the proliferation of mobile advertising and applications, the communications world's first widespread cell phone virus attack is a near certainty.
Private equity goes shopping for technology giants. EMC, Dell, Yahoo Become Buyout Bait Google signs first ad contract, step one in dominating the 30-second spot.
Nanotech Will Heat Up now know that when materials like metals are broken down into particles the size of a few atomscalled nanoparticlestheir properties change, enabling a host of innovations like stronger, lighter tennis rackets, better flash drives, and stain-resistant fabrics.
Some day, it might provide cheap solar energy in homes across the world.
SOX Gets a Makeover Law will be fixed to make IPOs less costly.
HD-DVD and Blu-Ray: DOA Internet downloading will bypass physical media.
Rollins to Get Booted Out At Dell? Watch for Kevin Rollins to gracefully step down to "spend more time with his family" in 2007, but don't expect him to do it willingly Dell shares were down about 38 percent at one point in 2006, over worries that top management had become overly committed to the direct-sales and made-to-order business
Solar Gets Simpler Solar will get easier in 2007, which will be a step up from where it's been
New Year, New Jobs This year will usher in a boomlet for a new breed of jobs. With two populationsMySpace and AARPseeing explosive growth, there'll be a need for a Social Networking Liaison for the Over-50 Set. This person's job is to find a way to bring them together
San Francisco Chronicle
Clean tech -- which includes technologies for removing heavy metals out of groundwater or reducing power consumption through sensors and switches. Clean tech plays to the region's strengths. Silicon Valley excels at making tiny products such as controlled chemical and biological processes and electronic devices
Net neutrality (in which telephone and cable companies prevented from charging exit tolls on their high-speed Internet wires) 2.0 fight to resurface in 2007
Shift to a consumer-driven tech industry (see CES and MacWorld shows) will continue to cause friction within the industry as well as a general anxiety because fickle consumers with short attention spans make for brutal product cycles
Nanotech, biotech, robots
Round 2: Blu-ray vs. HD DVD fight heats up
More video on the Web
San Jose Mercury News
You (recall Time's person of the year, community, collaboration
Mobility, e.g., video to go (cell phones, iPods)
Renaissance of electric car (see Tesla)
Windows Vista: reliability, security, compatibility, new features. Estimates are that 82M units will be sold, primarily on new PCs
Games: Microsoft, Sony, Nintendo part of $28B WW market in 2006
Continued reduction in privacy (hackers, identity theft, social networking sites like My Space
Digital living room (AT&T and Verizon rollout of IPTV, Apple's iTV device
LEDs replacing conventional light bulbs
GPS in cell phones
The December 15 Connections event was on The Year in Perspective, The Good, The Bad, The Huhs? and our panelists and facilitator were:
Ysabel Duron, "KRON 4 Weekend Morning News"
Martin Kan, Silicon Valley Bank
Jay Phillips, Senior VP, Cornish & Carey
Keith Virnoche, Virnoche-Frigon Group at Merrill Lynch
Below are notes from the session.
Thoughts about Silicon Valley
It's been a tough year for the low income. The middle income is also feeling the pinched, the upper income are becoming more strategic about how they spend their money.
The economy is slowing down for some
Our political leaders received a strong message encouraging change, as their perspectives are straying from that of their constituency.
There's an undercurrent of unease. It's difficult to trust our leaders.
On a positive note, values-driven business leaders are making strides to change our views on leaders, particularly in Silicon Valley where hope springs eternal. These business leaders striving to make money, have fun, and do good.
Thoughts about Real Estate Trends
Due to increased corporate earnings, venture financings, and other factors, the real estate market is very strong, at all-time high prcies in some cases. We haven't seen such numbers since 1999-2000.
Sales activity extremely strong, residential conversion subsides. Total vacancy rates continue to fall
The rapid commercial expansion of companies like Google (and indirect residential expansion for employees) are directly affecting housing prices much more quickly and with much greater impact than anticipated
Green energy companies are starting to impact the real estate market
M&A activities are more strongly impacting the real estate market than anticipated
Thoughts about Venture Financing Trends (statistics from PriceWaterhouseCoopers Q3 2006 Shaking the MoneyTree Report)
Steady Pace in Number of Deals: 2004: 3,024; 2005: 3,092; 2006: 2,533 (thru Q3)
Increase in Total Dollars Invested: 2004: $22.1 billion; 2005: $22.7 billion; 2006: $19.2 billion
Silicon Valley Continues to be the Leading Region for US Investments: 250 Deal in Q3 2006; 87 Deal in Q3 2006 for the New England Region.
Software and Biotechnology Continue to Attract Strong Investor Interest
Software - Number of Deals and Total Dollars in Q3: 2005: 205 $1.14 billion; 2006: 186 $1.10 billion
Biotechnology - Number of Deals and Total Dollars in Q3: 2005: 101 $1.03 billion; 2006: 95 $1.14 billion
More thoughts on venture financing:
VCs are raising their expectations/standards/requirements for funding
Natives from India (software companies) and China (hardware companies) are returning to their countries
Migration of European companies from UK, France, Finland establishing headquarters in Silicon Valley
China is interested in moving from hardware manufacturing into design and India is looking at moving from software test to design
Thoughts about Investment Trends
The economy is stronger than many people think - double-digit earnings growth ends after 15 quarters in a row
Investments in 500 S&P may be a good opportunity now
What can we as leaders do?
Foster innovation in your companies and partners as innovation offers countries and companies a competitive advantage
Build a collective social conscience while meeting and exceeding business/revenue objectives
Get involved - in your company, in your family, in your community!
Support our local educational system
The November 17 Connections Event was on the Topic of Corporate Governance: What It Means for the Average Exec
Corporate Governance is at the center of all investors' minds as decision-makers for companies of all sizes are charged with mitigating the risk of high-profile business failures, such as Enron and WorldCom. In order to reinforce investment confidence and protect investors by improving the accuracy and reliability of corporate disclosure, executives today are adopting Sarbanes-Oxley compliance standards, proactively managing board communications, and, in general, building corporate infrastructure and processes to automate reporting and accounting practices.
This Month's Facilitator ws Richard Brenner, CEO of The Brenner Group, , and chairman of the audit committee for the fastest growing bank in the United States. Rich helps small and mid-market public and emerging private companies proactively plan for corporate governance practices, but also assists in harnessing the positive impact of financial reporting and disclosure activities throughout the organization. Rich facilitated a prestigious panel who will share their knowledge and insights on proactively developing and managing corporate governance plans.
Mark Leahy, Partner, Fenwick & West
Leinani Nakamura, Partner, Mohler Nixon
Tom Sa, Executive Vice President and Chief Administrative Officer, Bridge Bank
Below is a Summary of Notes and Advice for your reference, drawn on the wisdom of our facilitators and each of you as participants.
With the recent corporate scandals, there is a public outcry against the behavior of coporate executives
There was a similar outcry against the behavior of the banking industry in the 80s, and federal mandates helped to reform that industry. The Sarbanes-Oxley corporate governance requirements might do the same for corporate America, and may be worth the administrative and financial burden for complying with these requirements.
Boards are more involved as the duty of loyalty and the duty of care (to meet frequently, to understand the issues) is enforced through SOX.
With more involvement and participation and ownership from leadership, the 'tone at the top' may be better, with higher integrity, better accountability, better communications, better transparency, etc.,
The requirement for independent auditors and an audit committee helped ensure better run companies with better internal controls, cleaner partnerships with independent auditors, more proactive ownership of issues, earlier notifications of problems, earlier preparation
The code of conduct for CEOs, CFOs, Directors and Staff has helped ensure clear guidelines for behavior and encouraged consequences for breaches in conduct
The disclosure requirements encourage transparency of communication, proactive management, etc.,
The certification requirements encourages planning, process, validation, etc.,
Companies are encouraged to take some early steps to prepare for 404 Compliance, prior to the start of the documentation and testing process, even before they become public.
However, there are tremendous time, money and loss-of-opportunity costs for complying to these standards above
As a result there are fewer finance professionals, particulary at the senior level, just at a time when we need them more
As a result, fewer companies are deciding to go public, and more are going through M&A exits
As a result, CEOs in smaller public companies are opting to merge with another company rather than accepting the legal, fudiciary and other requirements demanded for senior executives.
As a result, companies may choose _not_ to go public due to the additional SOX requirements.
Below is a Summary of Notes and Advice on Outsourcing Challenges and Solutions, provided by the facilitators and the audience in general at our event on October 20, 2006.
Comments from facilitator Dave Gardner, Founder and Principal of Gardner & Associates Consulting, DGardner@Gardnerandassoc.com:
At the edges, outsourcing relates to the ever present dilemma of "make or buy"—should a company do something itself or find another company to do it for them. For years and years, American companies have outsourced. Why? It simply didn’t make sense to "do everything yourself" or "vertically integrate" as it was once described. What’s changed during the past generation? Today, we not only outsource tangible goods but also intangible items such as information technology management, software development, product development, etc.
At one point in our economy, we talked about a company having "core competencies"—those things perceived as their value-add in the market place—those elements that you could never remove without ruining a company’s value proposition.
Today, we are finding that we can establish outsourcing "core competencies" heretofore considered unthinkable.
Entrepreneurs no longer have to hire a staff of engineers to commercialize their innovations.
Companies that design products do not have to manufacture them
We have fabless semiconductor companies
We no longer simply have to outsource the manufacturing of key components and sub-assemblies—we can go to turn-key outsource manufacturers who can drop ship complex capital goods directly to customers
Need a software application but don’t want to spend a fortune? Outsource it!
The U.S. competes in the global economy for both market share and capital. Investors want to know what a company is going to do with their capital to create a return-on-investment.
If a start-up company commits to outsourcing from the outset:
This strategy reduces the risk to investors and improves ROI
Makes a company more agile
Allows company to focus on those things it does best and avoid the things it doesn’t want to do
The company doesn’t expend nearly as much capital on plant, equipment, inventory, people, employee benefits—the outsource company does that
Conversely, many companies are looking to migrate to an outsourcing as a way to reduce costs and improve their capital utilization. Outsourcing can be employed by start-ups as well as established companies. We’ve assembled a panel of experts who’ve "been there/done that" to give us insights about how to successfully outsource manufacturing, information technology, software development, product development and what you need to do to have legal agreements in place that protect you, your company and your intellectual property.
Manufacturing/Supply Chain, Comments from Dave Gardner with reflections from Lila Dormishian, Director of Global Supply Chain Management, Lam Research
This past month, a study produced by the National Institute of Manufacturers stated that U.S. manufacturers now suffer a 31.7% cost disadvantage—the equivalent of $6 per hour worked—over other countries including Canada, Mexico, Japan, China, Germany, U.K, South Korea, Taiwan and France.
The overall calculation takes into account corporate tax rates, employee benefits, tort costs, natural gas prices, and spending on pollution abatement.
Advice and Comments from Lila:
Be strategic about your outsourcing decisions:
Consider your core competencies and bring those competencies in-house. Don't outsource them. Does outsourcing help you focus on your core competency?
Consider materials sourcing for your short term and long-term needs. Where is the best place and who is and will be the best providers
Leveraged model for volume purchase, sourcing, and manufacturing capability
Efficiency of operations if DF is used
Does it improve your ability to sell in the region (PRC local content mandate)?
Does it bring you closer to customer base
Consider the Risks
Communication
IP infringement Risk
Adequate top level management skills
Engineering change management
Systems/Tools
Quality control
Capacity management control
Social and Political factors
Consider long-term and short-term costs for your outsourcing decisions.
Cost reduction for high volume manufacturing
Cost reduction if localized material is used
Lead time and inventory increase (based on FOB terms)
Transportation costs and delays
Weigh in the infrastructure setup and maintenance for any outsourcing relationship and ensure that the value outweighs the costs in time and money and resources.
Information Technology Comments from Dave Gardner with reflections from Usha Sekar, CEO of CriaTech, usha@sekars.com
Is outsourcing IT overseas past its prime? According to a new survey, some think it is. Consider this:
Two years ago, 84 percent of the respondents to a Global IT Outsourcing Study sponsored by a Chicago-based consulting firm said they planned to increase their level of offshore outsourcing.
In October 2006, that figure fell to 64 percent.
Meanwhile, 47 percent of respondents said they "abnormally" ended at least one outsourcing deal in the past 12 months—up from 21 percent in 2004.
There are several reasons why the bloom is coming off the outsourcing rose-- the largest factor is cost. The claim is, "New tools are making it easier to manage and measure projects in-house, so many firms are realizing that it's actually less expensive to bring certain IT functions back."
Meanwhile, companies have learned that getting outsourcers to deliver to specifications requires far more oversight and management than they bargained for. And then, of course, there's the security issue. All these factors, the study claims, make outsourcing IT overseas "grossly inefficient."
Usha's Thoughts and Advice:
Companies in general are more comfortable with outsourcing in general and outsourcing to countries like India for example.
There has been a history of success working with outsourcing companies.
In addition, there is a trend for Indian entrepreneurs and executives to return to their native India and providing development and support services there. These outsourced services are attractive to corporate executives in Silicon Valley for example because the former-Silicon Valley entrepreneurs and executives in those companies better understand the corporate and cultural expectations for Silicon Valley technology companies.
Be strategic about your outsourcing investment
Similar remarks to Lila's comments about long-term and short-term needs for the company.
Identify the best of breed for your outsourcing needs.
Accept that there might be a drop-off in service in the second and third year of an outsourcing relationship and plan around that/anticipate it.
Understand what needs to be outsourced, why it needs to be outsourced. What needs to be done in-house - e.g. a company's core competencies and why it needs to remain in house. Then plan accordingly.
Legal Advice around Outsourcing: Stephen Gillespie, Partner, Intellectual Property Group at Fenwick & West, Sgillespie@fenwick.com
Stephen's Thoughts and Advice:
Provide detailed and specific descriptions, deliverables, milestones and consequences prior to an engagement.
Manage the relationship based on those agreements
Consider consequences for cost overruns. Be specific about budgets and caps.
Be clear on IP ownership agreements prior to project engagement
Everyone involved should have an NDA signed and a release form
Be clear about who should have access to your data
Product Development/Software Development Comments from Dave Gardner with reflections from Yogen Upadhye, Omnivant, yogen@omnivant.com
Yogen's Comments and Advice:
For IT services or Business Processes in general, the industry has learned about many hidden costs in terms of continuous oversight of the process and the controls needed to enforce agreed SLAs. Therefore, after factoring the company's own compliance and oversight costs and costs of onsite vendor resources needed for success, savings are significantly less than what was/is touted by vendors. Again, the savings depend on the type of engagement model actually being used and the skills and location mixes involved.
Consider the business and technical risks when making outsourcing decisions, such as Loss of IP. Unless proper controls are put in place and thoroughly tested first, losing customers due to perceived lack of quality of service or product is a very real possibility. Litigation and consequences of a less than ideal break in relationship with an outsourcing partner if such a break is desired. Other risks include information security, unclear communications due to cultural and other differences, etc., Even if business continuity plans are in place, managers should check whether the plans are sustainable, scalable and easy to implement.
When managing technology risks, consider the architecture, design, quality and maintainability of final product. Understand the software development process and its limitations and opportunities and gauge the expertise level and process maturity of the vendor's team.
Formal communication and formal documentation are critical factors to success. Over-communicate to begin with and then pull back as both parties learn what's the optimal level. Be prepared for initial setbacks. It will get better over time.
Have well defined and agreed SLAs and Acceptance Criteria at different points throughout the delivery process - not just the final point. Have controls to monitor them and remediation process defined.
Don't put all eggs in one basket and have a good plan to pull back gracefully with minimal impact on your operations.
The facilitators and panelists for the September 15, 2006 Connections meeting on Life Science Success Stories were facilitator Ken Macrae, Ed Amento from Theracos, Sergio Garcia from Fenwick & West, Geetha Rao, and Dave Whitman from Pharmadyn. Below are some words of advice shared by the facilitator and panelists, as well as the collective wisdom of the audience.
Define success
Venture Funding?
Delivery of product?
Merger/Acquisition Event?
Great Team?
Grasp and communicate the market opportunity and trends
VCs can work with technology challenges and even leadership challenges, market challenges are much more difficult to address
Get support
IP and corporate attorney from established, well-respected firm like Fenwick & West has many advantages
Protect what you have, build the fences;
When working in partnerships, attorneys can help develop an understanding of who owns which IP
Attorneys from established firms are better positioned to negotiate with VCs as they have more leverage
Finance professional
Business Development professional
Management professional
Don't have a one-man team
Management Team should be able to speak candidly, manage conflict, build consensus
Corporate Board
Scientific Board (not just the big names)
Technical advice and cross-checking
Represent product to professional environment, users, evangelists
Regulatory pathway
Put investor's minds at rest
Company qualities
Must have a balance of vision, passion, discipline and risk management
Senior management must be able to balance the business people (rewarded for teamwork, collective problem-solving, seeing beyond the data) and the scientists (rewarded for facts, being #1)
Senior management must have the ability to manage the tremendous cash-burn of R&D activities while sustaining the enterprise and growing
Trends in Funding:
Pharmaceutical companies are funding earlier stage companies
Consequently, VCs are looking for funding opportunities before pharma companies fund them
As a result, entrepreneurs may have more latitude in the negotiations, both in seeking funding earlier in development and also negotiating governance agreements through the funding process.
Mergers and acquisitions are a more common exit path.
The facilitators and panelists for the August 18, 2006 Connections meeting on Sustainable IT Practices for Today's Executives were Stuart Robbins of CIO Collective, Madhukar Govindaraju, SVP of Engineering for Certive, former VP of Engineering for Hyperion and Usha Sekar, former CIO of Fujitsu America and CEO of CriaTech. Below are some words of advice shared by the facilitator and panelists, as well as the collective wisdom of the audience.
Words of Advice on Sustainable IT Practices
Definition of sustainability: ability to meet the needs of today without compromising the needs of tomorrow.
When planning or executing your IT practices, consider people, process, technology and environmental needs (including the global impact of your activities).
Lead your teams effectively: Deal with the people issues!
Develop consensus on the criteria for success within specific timeframes and continually measure results
Foster cooperation between people, teams, partners and other stakeholders
Model the way
Engage your stakeholders, communicate the reasons for planning and execution, forge consensus/buy-in, manage for success
Proactively develop and encourage a commitment to best practices for today and tomorrow, while efficiently responding to the needs of today.
Start with the desired and measurable outcome and work backwards
Consider factors such as reliability, security, inter-operability, etc., and the requirements now and expected requirements in the future based on changing business and technology needs
Understand the clustering of skillsets, draw out the best in individuals and teams
Investigate actual results of implementation - did it go as planned, why or why not? Were the requirements accurately reflecting the needs of the customer?
Accountability is important when trying to raise quality standards
Consider corporate, industry-wide, and other expectations for software vs hardware for example. Consider also how you will hold your team accountable to a higher standard, and how to motivate your team to achieve those standards.
A culture-wide shift on software quality expectations may be long in coming, but developing a higher quality standard more on par with hardware standards may improve your company's brand.
Be flexible in design and execution
With the additional complexity and challenges today, flexibility is 10 times more important than it was ten years ago.
Put the processes, tools, resources in place to change quickly based on changing requirements.
Measure your responsiveness to change.
Balance bottom-line pressures with sustainable business practices
Remain in touch with the needs of the customer
Example: take a 'cow's-eye-view' when designing a product for a cow.
Leverage focus groups for current customers and prospects and partners
Putting it Together: Plan for changing technology and business requirements, based on the needs of the market and the customers, and remain flexible in your IT strategy and execution.
The facilitators for the July 21, 2006 meeting on Successful Mergers and Acquisitions, What Does It Take were:
Mike Jones, Managing Director of Onyx Associates mikejones@onyxassociates.com;
Ken Gonzalez, VP Corporate Development, McAfee;
Andrew Luh, Partner, Mergers & Acquisitions Group, Fenwick & West;
Dave Petroni, Advisor to Valchemy Inc., former VP Corporate Development, PeopleSoft, and
Frank Young, Private Equity Investor and CEO, PS Print.
Below is a summary of advice provided by the facilitator and panelists.
Words of Advice on Successful Mergers and Acquisitions
It's about the people
Be self-aware
Have ethics and integrity
Maintain Relationships
Negotiate with transparency - put your cards out on the table/lead with your chin
It's a small Silicon Valley, word gets around if you don't act with integrity
Strategic M&A activities are more likely to succeed
Make sure the People, Technology, IP, Culture etc., of the company being bought fits into current and/or future business direction for the combined organization
Maintain a strategic perspective about the value of the M&A activity throughout the course of the evaluation
Have a financially strong core business and keep working on building the business through the M&A activity because sellers with Viable business model and financial health are better prospects for buyers
Customers, vendors, management team is distributed among many parties, not concentrated in a few people and relationships
Selling companies are evaluated on pre-selected criteria
Be thorough with the due diligence
Both sellers and buyers should have options if the M&A activity doesn't go through
IP issues should be especially thorough reviewed with competent counsel
Sellers should assemble a team of advisors including investment banker/intermediary, attorney, and accountant to help guide them through the complicated sales process
Deals can be fun and Integration can be a lot of work
Thank you to all our speakers for our Connections series in 2007:
Meeting Date
Meeting Topic
Panelists
Friday, January 19
Business and Technology Predictions for 2007
John Verrochi Steve Bengston, PriceWaterhouseCoopers Rick Ellinger, WCA Tom Foremski of SiliconValleyWatcher.com Fred Greguras, Of Counsel, Fenwick and West
Friday, February 16
Building a Culture of Leadership and Innovation
Facilitator Linda Prowse Fosler, Linda Prowse-Fosler and Associates Panelist Allen Kato, Associate from Fenwick & West Panelist Barrie Novak, Director of Organization Design & Development, Global Technical Services at Cisco Systems Panelist Donna Novitsky, partner from Mohr Davidow Ventures Panelist Ramon Nunez, CEO of MetaLINCS
Friday, March 16
The Nearshoring Options
Matt Perez, NearSoft Panelist Steve Mezak, author of Software without Boundaries Panelist Brian Higgins, Manager at KLA Tencor Panelist Dr Jack Linehan, Stanford Professor
Thank you to all our speakers for our Connections series in 2006:
Meeting Date
Meeting Topic
Panelists
Friday, January 20
Good Management Practices
Rossella Derickson and Krista Henley, SBODN and Corporate Wisdom David Douglass:Partner, Delphi Ventures Bill Mince:V.P. Operations, Natus Medical Barbara Scott:Principal, Scott Consulting Team Mary Walti:Director of Human Resources & OD, Kodak EasyShare Gallery, formerly Ofoto Andrew Whiteley: CEO, Vitra Bioscience
Friday, February 17
Lessons Learned from Bad Management Practices
Kimberly Wiefling, Wiefling Consulting Hannah Kain, Alom Technologies Scott Janssen, QA4U Mike Kanze, Cornerstone Services Inc. Dr. Tam Nguyen, SDForum SW Engineering Mgmt SIG Co-chair
Friday, March 17
Trends in 2006: What to Expect and How to Prepare
Bill Shepard, COO Business Forum Mitchell Levy, Happy About Cindy Padnos, Outlook Ventures Bill Grosso, SD Forum Engineering SIG Chair Mike Gospe, Kickstart Alliance
Friday, April 21
Business Models for Open-Source Based Companies
Greg Olson, Olliance Group Fred Greguras, Fenwick & West Paul Doscher, JasperSoft Pradeep Tagare, Intel Capital
Friday, May 19
Business Collaboration Tools: Where's the Money?
Patti Wilson, Career Company Bob Karr, LinkSV Eugene Kim, Blue Oxen Scott McMullen, JotSpot
Friday, June 16
Emerging Technologies: What's Hot, What's Not
Bill Grosso, SD Forum Engineering SIG Chair Dave McClure, 500Hats Carol Sands, The Angels Forum Gary Sasaki, Digdia
Friday, July 21
Successful Mergers and Acquisitions: What Does It Take
Mike Jones, Onyx Associates Ken Gonzalez, VP Corporate Development, McAfee Andrew Luh, Partner, Mergers & Acquisitions Group, Fenwick & West Dave Petroni, Advisor to Valchemy Inc., former VP Corporate Development, PeopleSoft Frank Young, Private Equity Investor and CEO, PS Print
Friday, August 18
Sustainable IT Practices for the Successful Exec
Stuart Robbins, CIO Collective Madhukar Govindaraju, SVP of Engineering for Certive, former VP of Engineering for Hyperion Usha Sekar, former CIO of Fujitsu America and CEO of CriaTech
Friday, September 15
Starting and Growing a Life Science Company
Ken Macrae Ed Amento, Theracos Sergio Garcia, Fenwick & West Geetha Rao, Auxoglobal Dave Whitman, Pharmadyn
Friday, October 20
Outsourcing Challenges and Solutions
Dave Gardner, Gardner Associates Lila Dormishian, Lam Research Stephen Gillespie, Fenwick & West Usha Sekar, CEO of CriaTech Yogen Upadhye, Omnivant
Friday, November 17
Corporate Governance: What It Means for the Average Exec
Richard Brenner, Brenner Group Mark Leahy, Fenwick & West Leinani Nakamura, Mohler Nixon Tom Sa, BridgeBank
Friday, December 15
2006: The Year in Perspective
Ysabel Duron, "KRON 4 Weekend Morning News", Facilitator Martin Kan, Silicon Valley Bank Jay Phillips, Senior VP, Cornish & Carey Keith Virnoche, Virnoche-Frigon Group at Merrill Lynch
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