Re: Cause and Effect Reversed? -- MIDRANGE-L

Rainy Saturday morning rant:

One of my system bibles is "The principles of systems" by J. W.
Forrester.  It is a text that studies closed and open loop feedback
systems for operating a manufacturing enterprise.  What I liked most
about his works is that it is a study of causal relationships and not
isolated algorithms operating in a vacuum.

The first question for plant capacity planning is "What is your
advertising and promotion budget?"

That is not to say that other factors are not important, but if you
perform a causal regression, your advertising budget has as much, if not
more, impact than price.  If you don't advertise enough, how much
capacity you have and your price are moot.

How much you advertise will greatly influence your units delivered,
which in turn will determine the size of factory you will need, the
operation of that factory will determine your cost, this and market
pressure will determine your price and maximum profitability.

Even by adding this promotion causal relationship to the standard price
/ profit / production capacity algorithm, you will find other feedback
loops that apply.  If you have little market pressure (like M$) your
price can have little relation to cost.  I would venture to say that in
the M$ case, price and maximum profits had very little bearing on units
delivered and production requirements.  In their case, the creation of a
market for home computers, by advertising, overshadows price as the
determining factor.

So where does this leave IBM?  Can they create a market for business use
of computers? Nope, it's already there.  Can they take advantage of the
instability of Win9x?  Nope, too late.  It got better.  Not great, but
for many, good enough.  Should they practically give away computers to
small companies so that they are brought into the fold?  Apple tried
that by giving computers to schools.  Didn't get them very far.

Can you really sell 5 year cost of ownership to people who view a
computer as a three year tool?  Especially at the rate that IBM keeps
making improvements?  In the M$ case, the features of the software
required more horse power and that drove hardware sales.  In some cases
the decreased cost of hardware expanded the market and that increased
software sales.

Even by tweaking the mentioned algorithm by IBM would fail to increase
AS/400 sales, because AS/400 sales are not achieved in an IBM vacuum.

IMHO, the application software will drive any hardware sales and
industry targeted advertising of software solutions and support services
instead of generic name building would grant a higher yield of AS/400
sales.

IBM can, at the same time, still sell the sizzle instead of the steak by
capitalizing on the technical merits of the AS/400.  If it has the
fastest Java run time, shout it to the world.  Most of the people who
see the ad don't even know what Java is, but they know it's hot.  It's
been in the news.  If the AS/400 can support the most stable
distribution of Linux, shout it to the world.  Most of the people who
see the ad don't even know what Linux is, but they know it's hot.  It's
been in the news.

But the sizzle selling or name building only gets you in the door. 
After that they are going to ask what does it do.  Not what can it do
(after 2 years and $500k of development).  And this requires application
software.  Even putting a pretty GUI on a dog won't get you very far.

<selfservingplug>
It is this hardware/software marriage that prompted me to start the
WyattERP open source project.  The eventual goal was to increase AS/400
sales, therefore increasing AS/400 job opportunities.  IBM could lower
the price of the AS/400, but the initial license fee of application
software in some cases is higher than the hardware, so IBM's
contribution to an overall cost decrease to the consumer would be
negligible in comparison.  WyattERP isn't great software, but it's a
start.
</selfservingplug>

I just reached up on the shelf and grabbed any copy of IBM's AS400
magazine.  They usually contain a case study.  If IBM and a software
vendor have a success story, don't just put it in the AS/400 magazine,
buy an advertising supplement in Newsweek.  It's good advertising for
IBM, the software vendor and the user.  IBM is already putting out money
to publish their own magazine, just shift those dollars.

Anyway, my stomach and wife are both starting to growl.  I think I
better find something else to do on this fine rainy Saturday morning.






Leif Svalgaard wrote:
> 
> maybe IBM has been a victim of the algorithm we have been discussing?
> To quote Pete Hall: "there is a finite price that will yield a maximum
> profit,
> and that determines the size of your production run."
> 
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