Arcadia: a Case Study in Navigating the Turbulence of Post Soviet Russia

The Strategic Evolution of a Firm that is not a Body Shop But People and Internet Centric

On May 26, 2009 we interviewed in St Petersburg Arcady Khotin, our friend since 1994. Arcady tells us the remarkable story of how he survived and prospered using the Internet during the transition from Soviet Russia to his current role as owner and managing director of a 160 person strong offshore software firm.

The article covers the history and business model of  Arcady’s company:  Arcadia.   We see that to survive and prosper it was necessary for Arcady to be intimately familiar with the changing environment around him.   We find that he has developed a management style very much compatible with that described by Joshua Cooper Ramo in his recent book The Age of the Unthinkable.

We learn that successful off shoring is far more than the delivery of code.   It is, from Arcady’s point of view, the development of a partnership with his company's customers -- one that gives them what he describes as an offshore development laboratory for their own company and one where acquiring a knowledge of the business culture is as important as writing clean code. Both are necessary to do an optimal job in a globalized world.

Finally we see how it is possible by means of building  a relationship with the customer based on empathy and detailed knowledge to go far beyond just writing code and begin to develop what can become processes of business consultancy.  This is done while all time understanding the complexity of the interrelated decisions that must be made   in order to ensure  and ongoing successful relationship with major clients with whom in most cases, Arcadia has been working for more than a decade.

As far as our technology focus goes I would describe us as being a top notch specialist in major technologies on the Microsoft platform.   Windows, both desktop and servers, and other application software for Microsoft.  And even within these areas we are strongest in certain specialty subsets. But overall our strongest point is people management, project management and business process organization because this is the most important part.   We call it PPP – People, Processes, Projects.  When you want to organize an offshore software development laboratory for your business, you want the operational and business processes of the laboratory to match those of your own Corporation.

What exactly you want us to do by way of software development is usually not that meaningful.  Code, quality, knowledge - this all is taken for granted. Nobody will give us work if they do not believe we can do it. But can we do it the way they want it to be done? Communicating - emailing, answering, making jokes, smiling - the same way the guy across the corridor from your office would do it.  We need to create that feeling in you that we are good; that you can trust us, and that we will not let you down.  Now, if you want some very specific skills we can supply them. And of course while we will develop what you are looking for, what we will also give you is people and a development process that can be finely tuned to operate in a way compatible with your own internal standards.

Symposium Discussion

Content Distribution Models  p. 35

June 25 Hendrick Rood: So why is Disney or the  NFL different than Elsevier Science and their contract with university libraries?  snip

Feld: Elsevier Science charges anyone who wants to pay for access. Disney gets the participating ISP to pay for everyone on its system whether they want the access or not -- in part because doing so is necessary or reduces cost on the video programming side. This must inevitably show up in pricing for all subscribers.  snip

Cooper: The Disney model is a classic example of anticompetitive bundling. Disney forces cable operators to put ESPN into ever home and charge every subscriber, even though three quarters would not pay the freight if given the choice, by bundling it with all the other ABC/Disney content it offers. Cable operators claim they would prefer the Elsevier model by occasionally threatening to put ESPN into a sports tier (wherein only those households that want it would pay for it).

Editor: And so on for a round robin through the regulatory jungle without I think a decisive victory for a single regulatory point of view.

Return on Assets versus Return on Equity  p. 41

COOK Report
: John Hagel and John Seely Brown have come out with their first extensive report on the way the world works from the Deloitte Center for the Edge.

Here is a snippet of Cory Doctorow's take.

Financial shenanigans wiped out all productivity gains from digital technology Posted by Cory Doctorow, June 27, 2009 11:26 AM | permalink

The new report from the Deloitte Center for the Edge says that, "return on assets for U.S. companies has steadily fallen to almost one quarter of 1965 levels, at the same time that we have seen continued, albeit much more modest, improvements in labor productivity." Jon Taplin explains, "any productivity gains from the digital revolution have been more than wiped out by our corporate (as well as personal) addiction to debt. To understand this, it's important to grasp the difference between return on equity (the classic Wall Street measurement) and return on assets...By masking their absolutely dismal performance in the last 40 years in ROA, by taking on more and more debt to juice ROE, both Wall Street and America's corporate elite are engaged in a massive shell game, in which the average investor is the mark."  snip

The Shift Index (Deloitte Center for the Edge),1002,sid%253D227141%2526cid%253D266128,00.html?introlist

Vest: I'm not sure that the switch to an ROA perspective would redeem us entirely, at least not in cases where the assets in question are capable of generating Moore's Law-like effects.

Technologies of Flocking  p.47

No new network society innovation can happen without rebels. Wether vested parties or companies like it or not, these transitions do appear in various breakthrough disruptive innovations as well and also businesses start to think in terms of co-creation of new products and services in a process which is driven by black swan rebels and activists. Prof. Rao of Princeton University wrote an interesting account of these activist movements in his recent book [10]. Rao quotes the advice a famous American social community organizer Saul Alinsky (1909 - 1972) gave to rebels active in mobilizing communities to act in common self-interest in the form of four rules to link hot causes and emotions: 1. Pick the target, freeze it, personalize it, and polarize it. The opposition must be singled out as the target and "frozen". 2. Ridicule is man's most potent weapon. It is almost impossible to counterattack ridicule. It also infuriates the opposition, who then reacts to your advantage. 3. Never go outside the experience of your people. When an action is outside the experience of the ppl the result is confusion, fear and retreat. 4. Whenever possible go outside of the experience of the enemy. Here you want to cause confusion confusion, fear and retreat. I think it can hardly be a coincidence that both Barack Obama, now President of the USA and Hillary Clinton, now Secretary of State (minister of foreign affairs) both where students of Alinsky, so they will be, I assume, very much aware of flocking network power all over the globe.

So cellphones and internetconnected laptops are not politically neutral stuff, in the hands of the emerging class of young flocking netizen professionals they will be more powerful than destructive men with motorcycles, clubs and axes. Thus the little birds will not only twitter and tweet but will also flock in networked groups and then they will suddenly swarm up high above all of us. I wish you good connections.

The NOFA - First Reactions  p. 52

Harold Feld on July 17:  Will NTIA Smother BTOP In The Cradle? Why that would be a disaster for policy, and how to fix it.

More and more, I'm feeling like a volunteer for the “Mark Sanford in 2012 Committee” finding out what “hiking the Appalachian Trail” really means. I have been a huge supporter of this program from the beginning. Even though I have had some concerns along the way, I have tried to keep the faith.

But the more I see about how this will get implemented, and the more deeply I delve into the details, the more I worry that a potentially great program capable of fundamentally altering our broadband future for the better to something so ridiculously screwed up that we will actually lose ground on both future funding and future policy.

Editor:  Unfortunately Harold only scratches the surface.  Some one or something got to these people during the month of June


MagicJack & FemtoJack  p. 56

Despite horrible customer service MagicJack has been extremely successful selling perhaps as many as 250,000 USB based soft phone plug-ins to internet broadband users a month.  (I have used the Mac Version for a year and just renewed.)

We discuss in detail plans reported in

Google, Chrome, Netbooks and Enabling Clouds  p. 64

Van Til -- What Google and others are trying to achieve is to split the present desktop PC into two parts: the display of the applications ( on any smart device) and the processing and storage (somewhere in the world on server farms in a cloud on Internet). This blowing up of the clumsy and bulky "MS machine" has been described by me in a blog some months ago about The Stupid Computer (in German Das Dumme Komputer ) in analogy of The Stupid Network idea of Isenberg where most network services have gone to user devices AND more central server farms.



Offshoring in a Rapidly Changing Networked Age

A Case Study of Arcadia as a Talent Enabling Ecology Fit for Joshua Cooper Ramo?s 21st Century World  p. 1

Arcadia: a Case Study in Navigating the Turbulence of Post Soviet Russia

The Strategic Evolution of a Firm that is not a Body Shop But People and Internet Centric

From Radio Engineer to Internet Entrepreneur    p. 3

Perestroika and Joint Venture Dialogue   p. 4

Boardwatch and Communicating One to Many   p. 5

First Customer and Comdex   p. 8

DataFellows and Getting Some Geographic Focus  p. 9

Being Paid in Dollars at the Time of the 98 Ruble Crash Allowed Us to Grow Up as a Company  p. 12

The Formation of ARCADIA ++  p. 13

RusSoft - Russian Association of Software Companies  p. 14

Arcadia?s Evolving Business Model    p. 16

Oil Money and the Domestic Market p. 17

In Scandanavia a Niche Market Product that Can also Be Localized for Russian Domestic Market p. 17

Corporate Culture and the Offshore Development Center Business Model p. 18

Knowledge Transfer and Quality Management  p. 20

Arcadia Customer Base  p. 23

Importance of Broadband and of Security  p. 24

Going up the Supply Chain  p. 25

The Challenge of Trying to Merge Different Business Cultures p. 27

Wii in Finland p. 28

Future Direction p. 29

Bibliiography  p. 29

A Summary of and Quotes from The Age of the
Unthinkable by Joshua Cooper Ramo p. 30
Ways of Seeing  p. 31

Symposium June 17- July 17

Differing Content Distribution Models   p. 35

Return on Assets versus Return

on Equity           p. 41

Technologies of Flocking     p. 47

The NOFA - First Reactions       p. 52

Editor’s Note            p. 54

MagicJack Business Model and

Plans for FemtoJack        p. 56

July 21 Postscript from the Editor:      p. 61

Google Chrome, the Netbook, and Enabling the Cloud         p. 64

Letter to the Editor         p.  67

Executive Summary        p. 70