148 Understanding the Numbers
NOTES
- A server farm is a new service-offering concept in the IT industry enabled by
advances in optic fiber connectivity. NT- and UNIX-based IT computer systems (i.e.,
servers) are housed in a service facility, and customers are given the option of buying
the service on a usage basis rather than buying the computer itself. Customers are
then supplied this service through a fiber-optic telecommunication network. - Clients are also called fulfillers. An apt analogy in the non-ebusiness world is
the role played by Wal-Mart for its suppliers (“fulfillers” in the e-commerce world),
such as a Procter & Gamble. - See Geoffrey Moore,Crossing the Chasm(New York: HarperCollins, 1990)
and Inside the Tornado (New York: HarperCollins, 1995). - As discussed previously, some of these had been started but not finished at
the beginning of the period, and at the end some were still in process; but on average
they estimated that the equivalent of seven customers were loaded onto the network
during this period. - See Womack et al., The Machine That Changed the World(New York:
Macmillan, 1990), chapter 5 particularly. - See Eli Goldratt, Theory of Constraints(Croton on Hudson: North River Press,
1990). - Where output is defined by any parameter—units produced for a manufac-
turing system, units sold for a sales infrastructure, customers serviced for a service
infrastructure, and so on. - Economists argue that in a competitive market prices are set by the market-
place, and in a market where there is product differentiation, prices are value based—
i.e., dependent on the perceived value to the customer, not on cost to produce. - Many companies today do not limit their analysis to within company walls.
This type of activity analysis is often done across the value system to understand
how much value is being developed as a whole and who is capturing the majority of it.
This understanding can be very valuable when negotiating w ith par tners. See
Gadlesh & Gilbert, “How to Map Your Industry’s Profit Pool,”Harvard Business Re-
view,May–June 1998, pp. 149–162. - Quotation marks are used here to emphasize that this analysis needs to have
causal underpinnings. The key here is to allocate these costs using some type of a log-
ical procedure; avoid doing it in an arbitrary manner. The simple rule is: If there is no
logical manner in which to trace the cost, don’t! - Note in the ETN/ W example, the customer-qualification activity pool
increased with each additional outsourced report while the customer-sale pool in-
creased with each additional person hired. It increased in larger increments, thus the
descriptor chunkyis often used.