OR/MS Today - December 1998 - Was It Something I Said?

December 1998

Fear the Pencil, our Greatest Competitor

By Vijay Mehrotra

ITEM: I was recently reminded about a flame war that took place on the Usenet group sci.op-research. The principal protagonist declared unequivocally that it was a waste of time to do any linear programming in Excel, due to the fact that there were a plethora of far better software tools available for this task. Others argued against his position with equal vehemence, citing Excel's ease of use along with its widespread reach on desktops all over the world.

ITEM: Scott Cook is the founder and chairman of Intuit, a large Silicon Valley software company that makes, among other things, a personal finance software product called Quicken. For years, when asked about his competition, Scott would reach into his pocket and produce a pencil. "This," he would say, staring viciously at the pencil, "is the enemy." While he wanted his company's software to be the best in its industry, he believed that their true competition came not from other software, but instead from people who either did no financial planning or simply scribbled out a few calculations haphazardly from time to time.

A one-page column is no place to fully address a subject to which the likes of Michael Porter and Geoffrey Moore have dedicated many chapters and volumes. Nevertheless, there are some things that I just gotta get off my chest.

First of all, it is essential to understand that as operations research professionals we are providing advanced solutions to other people's problems. This is exciting, and indeed for many of us it is the promise of creating this "new way" of doing things that drew us to the profession or keeps us here.

However, we must remember that our stiffest competition is the proverbial pencil. Our primary challenge is to combat prospective customers' comfort with familiar ways, or their discomfort with our ways. Remember, often these are people who struggled with math somewhere back in school and are inherently uncomfortable with solutions that are steeped in mathematical methods. We must overcome their fear of the unknown, and of us, and this is something we have not done well in the past.

(This, by the way, is why our spreadsheet- or VB-based software solutions have the potential to be used by far more people than our traditional specialized tools with proprietary interfaces and unique data structures. Deal with it.)

Secondly, I contend that in today's economy you really don't know exactly who your competitors are. This is disconcerting because even if you carefully track and compete with your most natural predators, you can still get blandished.

My favorite example is the brokerage world. Discount brokerage houses such as Charles Schwab began appearing on the horizon 15 years ago. Charging significantly lower commissions, these discount firms have taken a lot of customers — and even more potential customers — from old, full-service stalwarts such as Merrill Lynch and Smith Barney. Poetic justice perhaps, but now the Schwabs themselves are under siege, most notably from World Wide Web sites like E*Trade that charge even less while meeting largely the same customer need.

For an example closer to home, discrete event simulation software companies with their powerful machinery for building complex simulation models and conducting detailed statistical analysis are currently facing a huge challenge from the flowchart applications that have been proliferating during the recent re-engineering revolution. These flowchart tools have neither the modeling power nor the statistical capability of the simulation heavyweights, but they are swarming the desktops of the people who need answers to the same type of questions that simulation can answer.

From these examples, it is important to note that your competitors are inherently defined not by a set of common skills or tools, but rather by the nature of the problems they are trying to solve, where these problems are defined by the customer, not the analyst.

Is this good news or bad news? It is up to us as individuals to choose. We can take an obstinate position like the sci.op-research spreadsheet foe mentioned above, and decry attempts to use inferior approaches as heresy or stupidity. Or we can let go of our preconceived notions and look at the world with fresh eyes.

When you do this, one of the things that often jumps out is that there are tremendous opportunities to collaborate with those that you might otherwise shun. For example, the simulation software companies have recently had some success by providing solutions that are integrated with the same flowchart software products that have threatened to swallow much of their market.

For what it's worth, I have actually lived through this discovery process. After developing expertise in call center forecasting and scheduling through projects with some early clients, our company sought to expand our business. A little bit of market research — and a lot of hard knocks — taught us that our customized solutions and "just-trust-us-smart-guys" presentation was rarely able to compete, on either price or perception, with the Workforce Management Software packages that were on the market. Eventually, we concluded that the best way for us to have an impact was to partner with a software company, get our mathematical ideas embedded into their products, and provide training and consulting to their customers. So far, this experiment in cooperation has gone well for everyone.

Today, Quicken is used by tens of millions of people to manage their personal finances online. Scott Cook still fears the pencil.

Today, there are more OR/MS applications in use than ever before. But there are many, many more people still scratching their heads and twiddling their homegrown spreadsheets. There is a long way to go.

Vijay Mehrotra is the CEO of Onward, an operations management consulting firm in Mountain View, Calif. He holds a Ph.D. in operations research from Stanford University and can be reached via e-mail at vijay@onward-net.com

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