Friday, August 31, 2007

A lunchtime interlude

Before I get stated on a discussion of the stack, I'd like to talk about the pleasant lunch I had today with a friend who is a research analyst. I discovered that something which I thought everyone had known for the last decade may not actually be that widespread.

Most organisations tend to spend more on CODB-like activities than necessary, because it is easier to justify, and less on CA-like activities because worth is such a difficult concept.

Since CODB-like activities are in the majority, then the correlation between investment and worth is generally broken.

I have been operating under the illusion that this was common knowledge. The revelation that maybe it isn't may help to explain some of my frustrations with our IT industry.

The ideas of worth which I discussed in earlier posts are not mine, nor are they new - they are an amalgamation of my "collective experiences" from others and in most cases are at least a decade old.

The main problem appears to be that most organisations do not segregate activities (into for example CA, transitional and CODB) and tend to instead use singular approaches to manage activities (such as cost focused). As discussed in earlier posts, this leads to the perverse situation that we tend to spend more than required on the necessities which don't bring value and less than required on things which might.

Customer: "I have $300 to buy some essentials like food and some books on finance. I'm hoping to improve my understanding of the field and therefore my prospects"

Sales Rep: "Certainly, now food is a necessity, something you really need."

Customer: "Of course"

Sales Rep: "Well, I have lots of studies here to show how much food is important to you. Everyone uses it you know?"

Customer: "Really, wow that's interesting. I can see food is really important."

Sales Rep: "Hmmm ... I don't seem to have any reports on why improving your understanding of finance will help you?"

Customer: "Well, it's just this idea I have. It's just a hunch, a gamble."

Sales Rep: "Sounds expensive especially if you don't know what the return will be?"

Customer: "Well, it was just this idea."

Sales Rep: "Are you sure you just want any old food? You look like a dyanmic, go-getting sort of person surely you want to compete with the best?"

Customer: "Naturally"

Sales Rep: "Well this report says that if you increase your intake of blue coloured food, your performance ... as measured by athletes ... will increase. All the top notch people are using it - here's a client list"

Customer:"Wow, oh look I'm definitely more go-getting than Fred"

Sales Rep: "It's more expensive to buy blue food - quality always is - but it will give you the edge over others. I've got some ROI calculations for you and case studies if you like?"

Customer: "That's impressive it certainly explains the value. I can also see all these other people I know buying blue food. It certainly justifies the expense. Listen forget the books, just give me $300 of the blue food."

Sales Rep: "Not a problem. Would you like me to book you a session with one of our consultants to tailor the shade of blue required to create synergy with your own lifestyle and to maximise your advantage?"

Customer: "Sure."

Now, I'm not knocking the necessity to eat a well balanced and satisfying diet, but assuming you are fortunate enough to do so then food is just a CODB of living. If you want to improve life beyond this, you'll to need to look further up Maslow's hierarchy of needs.

It's a glib and somewhat turgid analogy, but It's no different with an organisation.

So when I first came across Paul Strassman's work in the 1990's that IT spending was not correlated to company value - it wasn't a shock, just empirical evidence showing this effect. I was delighted that someone had taken the time and effort to gather the evidence which showed what was plainly occurring in my day-to-day experience.

When much later Nick Carr published his article, I felt elation that finally we had a spokesperson willing to take on the insanity and the industry around it.

With the growth of open source, I expected as a side effect there would be a greater shift towards commoditisation of CODB-like activities and an acceleration in innovation and hence disruption of existing industries. So I was delighted when Andrew Mcafee published his report showing increased turbulence in the IT industry.

I expect that turbulence to increase as the "X as a Service" industry grows.

I was just part of the huge crowd who appreciated these breakthroughs to "sense and reason", who understood that the singular magic bullet approaches, the over-hyping of ROI and the sweeping broom of cost focus combined with an organisational inability to identify worth was at the heart of the problems.

After the discussion today - I'm starting to feel that crowd is either smaller or more quiet than I realised. Maybe I'm missing some critical point or a lot more discussion is needed?

Well, if I am operating under a delusion - it is probably best to continue ...


Anonymous said...

Remember to expand the CODB and CA acronyms for those who haven't been following along.

swardley said...

My apologies.

CA is competitive advantage. It is generally that which is novel and new within an industry and it creates a source of value. It differentiates you and your competitors and is often characterised by high risk, short term, uncertain, non-essential and is frequently described as either non-strategic or non-core.

CODB is cost of doing business, generally that which is common and ubiquitous within an industry and a necessity in order to compete. It itself creates no value, as it doesn't differentiate you from your competitors. It is often characterised by low risk, long term, well defined, essential and is frequently described as strategic or core until it is almost taken for granted.