In 2005, Ken Klein, CEO of Wind River Systems, delivered the Embedded Systems Conference keynote speech, where he said:
“I’m one of those guys who sits in a board room and obsesses everyday over the bottom line. You’re an engineer or engineering manager in the developer trenches. Everyday you contend with big technology challenges, growing complexity, and daunting deadlines.
Believe it or not, we are joined at the hip.”
It’s 2009, and the very fact that I still remember his speech enough to actually look up his quote prior to writing this post is significant. It was actually the very start of a journey for me. I remember, at the time, thinking that Ken Klein was dead wrong. Today, I know he was dead wrong.
I am a Canadian software engineer, and a few days ago, an icon in the Canadian high tech industry, Nortel Networks, was delisted from the Toronto Stock Exchange. Nortel announced that, after several months of bankruptcy protection, the company’s assets would be sold and the company dissolved. This was after many years of executives, who were paid millions of dollars a year in salary, drove the company into the ground, and walked away wealthy. Many engineers who have worked for the company their whole life have lost half of their pensions. Once again, this story made me think, what executive is really worth the salary they get paid? What kind of system rewards incompetence so handsomely? In my opinion, nobody, not a single person on the face of this earth, can produce enough value in a single year to justify a million dollar salary. The real heroes of our industry, the engineers who pour their lives into organizations like Nortel, only to have their pensions stolen by the CEO, deserve better career options.
The business that Nortel Networks was in does require a classic corporate structure. Designing and manufacturing carrier grade telecom equipment is capital intensive, and therefore requires investment from stock holders, who will insist on classical organizational design. The business that Wind River is in, is not capital intensive at all, and does not require stock holders. Given the world we live in today, there is an opportunity to embark on a new business model. A model where we do not need to pay incompetent people huge salaries.
I originally thought this new business model would work for the embedded software industry about three years ago. Back then, I was just a software engineer, and had no idea on how to put it together. So, for the last two years, I have been working on an MBA, and I am almost finished. During my studies, I learned how Michael Dell invented a new business model that eliminated the middle man and dropped shipped PCs directly from the factory to the consumer after an online order was made. I also learned how Robert Young, founder of Red Hat, stumbled across the new economic model of open source, and used it to improve the IT software industry. In Open Sources: Voices from the open source revolution, Robert Young says:
“You can’t compete with a monopoly by playing the game by the monopolist’s rules. The monopoly has the resources, the distribution channels, the R&D resources; in short, they just have too many strengths. You compete with a monopoly by changing the rules of the game into a set that favors your strengths.
At the end of the 19th century, the big American monopoly concern was not operating systems, but railroads. The major railroads held effective monopolies on transportation between major cities. Indeed, major American cities, like Chicago, had grown up around the central railway terminals owned by the railroad companies.
These monopolies were not overcome by building new railroads and charging several fewer dollars. They were overcome with the building of the interstate highway system and the benefit of door-to-door delivery that the trucking companies could offer over the more limited point-to-point delivery that the railroad model previously offered.”
Robert Young’s message is about how Red Hat competed with Microsoft by offering something Microsoft was not prepared to offer – free software. Red Hat changed the rules of the game and generates over $600 million a year in revenue.
With the rise of open source in the embedded software industry and the ease that individuals can collaborate using social networking tools, we are standing at a unique point in time. A time where Wind River has lost its ability to control access to software, and where collaborating with a developer in China is as easy as popping your head over the cubicle partition. A time where we can eliminate the pay cheque for middle men like Ken Klein. A time where our future security will depend on ourselves, and the value that we create along with our peers. A time where we can change the rules of the game to favor our strengths, and compete with Wind River, even when it is backed by the resources, the distribution channels, and the R&D resources of Intel.
In 2006, IBM Global Business Services published a report called The power of many. ABCs of collaborative innovation throughout the extended enterprise. This report says “The IBM Global CEO Study 2006 found that, to drive innovation, many top CEOs are collaborating beyond their organizations – with their extended networks of suppliers, customers, business partners and others.” A case study in the report documents how Eli Lily, in order to combat the financial loss of several patents, launched “research without walls”, that lead to an innovative new business model described as:
“Lilly created a novel business model for collaborative innovation when it started InnoCentive. This company, which Lilly has subsequently spun off but still retains some ownership of, leverages the global reach of the Internet to bring together “seeker” companies with “solver” scientists in order to identify innovative solutions to diverse problems. To date, InnoCentive has registered over 110,000 “solvers” in more than 175 countries.”
Embedded device software development has reached a point where the industry is ripe for some serious business model innovation. We are in a position to offer the industry something that Wind River is not prepared to offer. We can offer an organizational design that has absolutely no executives sucking the life out of it. The ultimate virtual corporation. We are going to model this organizational design after the film industry, we are going to drive it with drop ship cost reductions, and we are going to create business agility that companies like Wind River can only dream of.
Many films are produced by independent film producers. The independents are very small companies that do not have employees, they contract out everything, on a project basis. They get funding for a film project, hire on a team, produce the film, and then dissolve the team. The producers are not associated with any particular film company. Producers will have pools of favored professionals that they work with on a regular basis, they work as a high performance team. The model works well because the financial rewards are very closely connected to the value creators.
With open source becoming the dominant choice in the embedded software industry, companies like Wind River have lost their ability to lock out independent software producers, making the film industry model very attractive for embedded device development. We are going to change the rules of the game and drive the embedded software industry to a model where independent embedded device producers get funding for a device, then they contract out the development to their favored team of hardware/software contractors, and the team is dissolved at the end. We are going to eliminate the middle man, and drop ship our software directly from our home office to giants like Motorola to run their phones. This model will be executed on a global scale. An independent device producer in the US will engage with freelance marketing professionals in the UK, freelance sales worldwide, system modeling architects in Canada, hardware developers in Taiwan, and software developers in India, all made possible by Web 2.0, and the Internet savvy of the modern technology worker. I could see Motorola developing phones this way, Dell developing consumer devices this way, Telecom companies developing new soft switches this way, auto manufacturers developing in-car systems this way, factories automating their lines this way, and on and on.
Not only is this a collaborative innovation model, it will also be a very new business model for embedded devices which, according to IBM, will add up to financial success for whoever drives it. We, the hardware/software engineers that actually create the value that goes into embedded devices, collaborating with the whole world, are going to drive it.
You may be wondering what this post has to do with Model Driven Architecture. Well, we are on a journey. A journey inspired by a technical vision, but empowered by good business sense. What we are doing is hard work, and hard work should be rewarded with significant wealth creation. I just don’t plan on sharing the value of my engineering intellect with an overpaid CEO. So, Ken Klein, its been fun, but, its time to remove you from my hip.
Chris Stone.