Disintermediation – dead or alive?

It was hugely popular in 90’s and 00’s strategy circles to talk about disintermediation, focus on core, do what you do well and what-not.

Well, all of that was only partially true and people & consultants who pushed that as a cure were stunningly wrong as usual.

It’s always been the case that economies of scale are important to managing costs. For a long time, companies vertically integrated when appropriate because they felt they could lower their costs or improve their products by controlling their dependencies. The strategy consultants came in and said, no matter what a big or small company can do, if you do not focus on the core you are wasting money and management attention.

Strangely enough, consultants felt that this concept applied at any scale. Of course, small companies with limited means need to rely on others. But even small or large companies can vertically integrate. The criteria for “what is core” and “outsource everything” was fairly helter-skelter. At times, the outsourcing and disintermediation process was linked to the customer experience at other times money at other times, it was based on what you thought your business was (which was sometimes hard to define or constantly changing).

Amazon will be, shortly, a larger package delivery operation than UPS or FedEx. Amazon vertically integrated. Their core is not package delivery, but they are building one of the largest consumer delivery capabilities in the US. They are doing this to save money and enhance the customer experience with 1-day or same-day delivery.

Disintermediation? With so much capital floating around, companies can invest and do it themselves. There are limits to this approach of course and in knowledge-based areas it may be better to rely on others. But even in the knowledge-based area that’s also less true as, for example, FANG companies buy others with innovative technology versus “consuming” it as a customer. FANG is also “vertically integrating.” While google fiber was not a huge success, it is more evidence that even in knowledge-based companies, vertically integration is alive and well.

In general, do we think disintermediation really happened or that there is more disintermediation than before?

Our government is working

Many people believe that the government is not working. The storyline is that “we the people” have become polarized and the government no longer works. The left, right, ultra-left and ultra-right are all attacking each other, the middle, the government and everything else.

Strangely enough, our government is working.

The government is a reflection of the people–that’s a big point about our constitution. When our people are divided and the consensus is far away, the government should not be able to make wild changes. It is after all about “we the people” and not “this group of people over here.”

So if our people are divided, the government should not be rapidly changing until a consensus is reached. A state of consensus almost by definition means that we are less polarized. Once a consensus is reached, the government should be able to move quickly again. Typically, national emergencies or other really “large” events are needed to unify a group and today’s America is no different.

I do not disagree that certain things the far-right/far-left believe in are hypocritical and often oblivious of the real-world and how it works. The ideology of the tribe often seems to be the reality when in fact, ideological positions are, literally, comically wrong on the facts or non-workable in the real world.

Today, it seems the far-right is more outlandish than the far-left but it has been flipped in the past. There have been worse times in the United States and indeed, it takes decades to heal, if ever, from some civil conflicts. Both sides have significant issues. Social media makes far-* positions seem mainstream when they are most likely not. It is also most likely true that big money is influencing the current political environment even more than usual-although that is debatable. Think about the Koch brothers and their effect on man-made, global climate change policy or the Sacklers on drug trafficking. But also then think about Carnegie or Vanderbilt.

Politicians hack on the government with their point of view (aka ideology) about how the world should work. There is no law against a person being a hypocrite, boorish, ignorant or downright despicable. Politicians are a reflection of us.

Only “we the people” can change how well the government is working and when the time right, we will.

Oracle needs to be Unhurded.

It is an interesting case of blinders when one considers Oracle. While Oracle was quick to enter the business applications market in the 90s, buying Siebel as well as developing their own products, they started missing the mark fairly quickly shontly thereafter.

A recent article https://www.cnbc.com/2019/12/05/oracle-shows-buybacks-can-go-too-far.html discusses Oracle buyback frenzy and how it is leaving the company with net debt. There is really only one reason for that–they were Hurded.

Mark Hurd ran the company as co-CEO for a long time. Unfortunately, Hurd rips apart companies, with an eye on financials, but without an eye for doing anything useful in the marketplace. He proved that time and time again. First at NEC, Teradata, HP, then at Oracle. Hurd was good at understanding financials and I think that’s critical and good. He was horrible, always, at understanding what makes a company tick and missing big trends. He’s missed them all his life–totally blind. Mostly, he propped up a company playing with financials while undermining its core–the companies would falter after he left and he always left. Hurd would make a good 2nd in command, just not a 1st in command.

With Ellison mostly retired (now un-retired), Ellison was out of the loop of the marketplace. He’s been mostly a one-trick poney so far–a good trick that has its place of course. But not a trick that takes it to the next level. That’s why Microsoft finally got rid of its self-limiting ponies as well as, recently, google. I’m still amazed that Ellison does not understand the damage Hurd did at Oracle.

At Oracle, like HP, Hurd scared away deep, technical talent. A short-term focus on financials meant that Hurd was missing the market signals. Oracle is missing the largest IT transformation story in the history of IT–cloud computing (private/hybrid/public)–because he scared away the talent that understands the change. Locked in with just a focus on financials, he completely misread the trend. Underinvested and undercommitted in multiple ways, Oracle’s transformation story to prepare itself for the next decade is sorely lacking. If you are going to take on debt, at least do it to help you become more competitive.

I own Oracle stock and I want it to succeed. I am hoping that it does not fall into a death spiral and sold off. The marketplace needs more competitors sooner. They need to replace the senior leadership team with a new “Ellison” (Ellison was good in his time). The focus needs to be on customers and improving their interactions with them. You can see a steady stream of awful sales executives leave Oracle, bounce over to IBM and HP, then bounce around again–all while delivering little value. Sales executives who learned truly terrible behaviors at Oracle replicate their poor behaviors elsewhere while not delivering–just look at S. Cook who has bounced around at Oracle, HP, IBM, MicroStrategy et al.

Let’s hope Oracle succeeds at becoming competitive again and can direct itself to the next level.