The Pendulum

Peaks and valleys.  Reminds one of a bucolic Colorado vista, perhaps Pike’s Peak and the San Luis Valley.  But our lives are driven by patterns that look like peaks and valleys.  For example, this is a graph of the stock market for the last 25 years.

S&P 500 1984-2009
S&P 500 1984-2009

Notice the number of times that the chart has significant ups and downs.  This is a way that we as humans tend to operate in our domains.  We push the level of an activity until it goes beyond a breaking point (or some external event, like 9/11, causes a breaking point) and then instead of slowly returning to an equilibrium level, the system quickly regresses back to a point well beyond a median and we start the cycle all over again.  While it is painful to go through these cycles, our historical precedents do tell us that we will come out of the valley and start to rise again within a reasonable time.  Over time, these boom-bust-boom cycles have been getting shorter but steeper.

A current example of the boom-bust-boom cycles have to do with credit.  The credit markets have acted like a pendulum, swinging from high availability, low rates to low availability, high rates.  Some of these changes were due to changed economic policy by our government and the Federal Reserve. A large part of our current credit problem is related to the reticence of banks to take on additional risk, so they have tightened down the requirements for getting credit, to consumers as well as to businesses.  I wrote about the changes that Chase has made in their lending to small businesses here. Will this get sorted out?  Yes.  How soon?  Much bigger question.

But not all peaks and valleys correspond to economic events. It has always been instructive to me to watch the technology curves.

My technology journey started with the mainframe.  Everything you could want was on the mainframe.  It had to be since you interacted with the mainframe via punched cards (yes, I am that old). All by one manufacturer, all guaranteed to work the same way, the only way.  Kind of like Ford’s Model T, in any color as long as you wanted black.  But soon, we got PC’s and things got colorful fast.  Lots of different programs, different interfaces, different data storage, little interaction.  Businesses had a hard time utilizing these PC’s; actually IT (or Data Processing as it was called in those days) had the problems.  Everybody did things differently.  So, they decided to purchase integrated ERP solutions that allowed the entire company to work together cooperatively on planning and executing, counting and selling, paying bills and receiving cash.  These also included the support software to ensure it would all work together, the databases, the communications manager, the security systems and the scheduler. Back to the mainframe mentality – easier to manage, but limited in flexibility.

But of course, people wanted their own solutions.  So, along came Unix and other open systems.  Now it was possible to pick the best of breed solutions for each system need.  Flexibility to pick and choose, difficult to integrate and make sure that Program A fed Program B the right data in the right format.  It was costly for the software companies to support – they had to have every possible combination of systems to test with and provide their tech support staff with. I likened it to going to a race track and having to make the right choice to win for 10 races.  Difficult for anyone and not efficient for the IT staff.

Yesterday’s announcement that Oracle is going to buy Sun is bringing this whole technology cycle full circle.  Now one company can sell you the database, CRM Software, ERP Solution, security and hardware to be able to guarantee that all things will work together.  IBM and HP are also looking to provide a full course solution. What could happen to companies like Dell, Cisco and Fujitsu?  Where does Microsoft play in this arena?

All I can say is that given our history with peaks and valleys, you can expect that this phase of single company providing a full suite will have a reasonable lifespan and another model will come into play. It will be fun to watch this change over time.

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