Thursday, June 2, 2011

Business interdependence vulnerabilities

Some years ago I ran a business in the UK re-distributing CRM (Customer Relationship Management) software built by a US company. But there were problems: the original company's management sold out and the new team members were less visionary, less communicative and less technically competent ... As a re-seller I had no control over the quality of the product and found myself having to apologise to customers for things that I couldn't fix. Out of control, I intentionally closed the UK business down.

Similarly, the investor's refusal to fund people and technology to support a cloud-based Software as a Service business left me stuck when the service failed and customers complained; and I was powerless to ease their pain.

Today, the Wall Street Journal has reported that pressure to cut costs and downsize after the financial crisis has led many tech suppliers to reduce their manufacturing facilities to just one site; now, after the effects of the Japanese combined earthquake and tsunami and nuclear disasters, supply chains are under intense pressure. And the problem won't get fixed any time soon.

Also today, TechCrunch reports that market leader Twitpic was left out in the cold when Twitter decided to release its own product, talking with Twitpic competitors but not revealing plans to Twitpic. "This is the same complaint that many ecosystem players have had over the past year with Twitter as they continue to “fill holes” in their product. Many have spoken about being blind-sided as Twitter moved to essentially crush their businesses — businesses built on top of Twitter, mind you."

The bottom line lesson, the theme from these four stories, is that inappropriate dependence on a single source leads to fundamental weakness and potential failure. If you can't fix the problem then it may be time to close down, get out or take equally dramatic and costly action. But the alternative can be worse.

Better to reduce dependencies. For example, when Blogger went down the other week it left me unable to communicate via this blog and the business site that we also host at Blogger. But the impact was less than it could have been because we'd got fail-over plans in place; alternate means of communication and separate web hosting that meant that we were still able to communicate even though a single supplier had a (temporary) problem.

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