Friday, June 02, 2006

Open Sauce 2

Following my earlier post on Open Sauce, Sandy Kemsley points out the link between SaaS and shared services:
"your older brother owns all the bottles of hot sauce, and your mom makes you buy from him rather than the kid in the next block ... if you don't like his taste and choose not to have hot sauce, then he still justifies his existence because he's still the household standard"
So why does your mom grant a monopoly to your brother?
  • Because it improves your brother's supply-side economics. (He needs a critical mass of customers to be economically viable. She doesn't think he is ready for the harsh realities of the open market.)
  • Because it improves your own demand-side transaction costs. (Your mom doesn't want you traipsing around the neighbourhood trying out alternative sauces when you should be getting on with your homework. Your mom thinks - argue with her if you dare - that homework is a core activity whereas sauce-procurement is non-core.)
  • Because it reduces the overall complexity of the household, reduces risk and increases accountability. (If you get sick, she knows exactly who to blame.)
All these arguments can be used to justify standard shared services in an enterprise. But they always have to be balanced against the loss of opportunity and choice.
  • Who gets to choose the flavour of sauce? Does the casting vote always go to the loudest or most awkward member of the family?
  • Do some members of the family go without sauce altogether, rather than use the majority choice?
  • Does trading sauce with the neighbours have any positive side-effects - for example relationship-building (trust) or learning new recipes (innovation)?
  • And shouldn't your brother be getting on with his homework as well, instead of wasting his time on a venture that is only viable with Mom's intervention?
Sandy spells out some of the enterprise implications of this in a comment to James Governor's post on Shared Services and SOA. One of her main concerns is captivity versus choice - a factor where external services seem to have the advantage over internal services. I think this is generally correct. However, as I argued in my post on Service Competition, external services aren't always going to give you a decent choice either.

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