Monthly Archives: February 2009

Why Is Outsourcing So Problematic?


outsourcingI had another one of those CIO conversations today – you know the ones:

We’ve spent the best part of the last year trying to unwind from an outsourcing deal gone bad!”

I think it is a terrible indictment of the outsourcing industry that I hear many more such outsourcing horror stories than I do success stories.  To be sure, the success stories are out there, and inevitably garner less attention that the disaster stories, but I get really tired of hearing from CIO after CIO about some good outsourcing decision, often to a supposedly reputable global outsourcing provider, gone bad.

Let me open by saying I’m a believer in outsourcing – performed intelligently and selectively.  What do I mean by that?

  1. I don’t think you should outsource all your IT.  I can’t think of a great analogy, but to me that would feel like outsourcing your nervous system – brain included!  You might argue that as long as someone else does that for you, and does it well and cost-effectively, that’s ok – you have bigger things to focus on!  That might have been a valid argument 10 or 15 years ago for some industries, or some companies, but today, information and IT are so pervasive and critical to business, you just can’t outsource your brain!
  2. I do think you should outsource what you can – stuff that you understand well enough to be able to manage and control your external sourcing relationships.  This is not just a question of economics (it’s not always clear that the economic benefits are truly there, though they often are – at least, for a while).  It’s a question of management bandwidth.  I do think there are high value IT activities that you need to focus on (such as opportunity discovery, business innovation) so if you can take the lower value (but critical) activities (such as basic IT infrastructure, data center operations) “off the table”, then you open up management bandwidth to the higher value stuff.

So, Why the Volume of Outsourcing Horror Stories?

There’s a wealth of good advice out there on how to “do outsourcing right” and consultants who specialize in helping you select the right vendor, negotiate the right deal, and manage your vendor relationships effectively, so I won’t try to second guess those sources.  But let me tell you what I see in the horror stories I come across.

  1. Vendors often oversell their abilities in the rush to win a deal.  “We really want to focus on your industry, and we need a flagship customer, so we’ll make you a deal you can’t refuse!”  Sounds good, and, perhaps, an offer made with sincerity.  But I’ve seen several such situations, where the vendor sold the deal, and maybe one or two others, but failed to really break into the focused industry.  After a couple of years, they exit the industry, and the stranded customers shift from favored reference account, to an unfortunate legacy – with service quality levels to boot!
  2. Vendors sell their expertise – people who have “been there and done that!”  Sounds good, but after the deal is done, the vendor is scrambling to find qualified people, and you find yourself training people who don’t even have the skills you’d have hired!
  3. Vendors sell their processes – CMMI Level 5 and ITILv3.  And yet, once the deal is signed, they seem to be making it up as they go along!
  4. Vendors sell you ‘the power of their firm!’  “You will have access to the thousands of IT professionals who are at the cutting edge of global IT practice – we will be your IT innovation engine!”  In reality, I’ve never seen that work effectively.  Yes, they have the experts, but somehow, once the deal is done, you don’t get sufficient access to them, beyond the occasional “fly-in” to do a presentation.
  5. Vendors sell you ‘knowledge transfer.’  “You will learn from our leading practices and CMMI Level 5 capabilities.”  While this sounds good in theory, I’ve rarely seen it work in practice.

What’s been your experience with outsourcing?  What has exceed your expectations?  Where have deals fallen short?

(Image courtesy of Intelligence interculturelle)

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“But We Don’t Have the Discipline to Implement ITILv3!”


student_discipline_head_photoI was talking to a consultant recently about some process work he was doing with a large, global IT organization.  I asked him if they had adopted any formal service management framework and he said that when he asked them about ITILv3, they said, “We tried that, but we just don’t have the discipline to do it!”

I was thinking about this admission from a multi-billion dollar, global enterprise, and thinking about analogies.

Businesses that Can’t Deliver What they Promise

Supposing, when you booked a flight, the airline said,

That flight might not get you to the destination you are paying for.  In fact, it might not get you anywhere with safety!”

Or, when you booked a hotel room (can you tell I travel a lot!), the hotel operator told you,

We can’t guarantee a room will be available, or that it will have clean sheets and towels.  We will try, but we really don’t have the discipline to ensure it!”

Or going to a hospital for surgery, and the admissions officer asking you to sign a waiver acknowledging that,

I understand that my surgery might not be performed by a board certified surgeon.  Or by anyone actually qualified to perform the needed surgery.  We will try to do no harm, but we don’t have the discipline to ensure it.”

For all the criticism we might throw at airlines, hotels, and even hospitals, by and large, these organizations have the processes, controls and disciplines to mostly do it right the first time.  IT service management is hardly open heart surgery, but the IT organization is being paid a significant amount of money to deliver services that people depend upon.  The customers of these services expect that they are being delivered consistently, reliably, accurately and at the best possible cost.  I can’t imagine what they would say or think if they knew this was not necessarily the case – that their service provider “did not have the discipline” to do it right!

Process and Service Management Discipline – Not Optional!

I’ve posted before about ITIL and about it being necessary but not sufficient.  I’ve never posted anything that implied that process discipline is not a critical success factor, or that ITILv3 is not a highly effective framework for bringing process and service management disciplines to an IT organization.  I do acknowledge that any process improvement methodology when applied without a modicum of intelligence can go overboard.  We see this in a phenomenon I call ‘death by Six Sigma‘ when the race to green belt certification leads to hundreds of mini process improvement projects without any overarching change architecture.  We saw it with Total Quality Management, and the Baldrige Award and Deming Prize winners that got into serious difficulty as the end of the prize became more important than the means to make money!

Do you have the necessary discipline to provide the best possible services at the lowest possible cost?  If not, what can you do to develop some commitment to do it right, and the discipline that comes with that commitment?  If the answer is “nothing,” how can you look your customers in the face?

The CIO as “Questioner In Charge”


questionsI was talking to a CIO recently who is on a mission to take his IT organization, and, more importantly, his entire enterprise, to a much higher level of business-IT maturity.  We were discussing the CIO’s role in influencing the business leadership, and ways to achieve that.

When Questions Are Better Than Answers

Very early in my career, a wise boss said to me, “Vaughan, when in trouble, ask questions!  It buys you time to think, and often helps clarify the situation, and how you can help.”  This was wonderful advice, and a technique now that is totally instinctive for me (I’m often in trouble, and need time to think!)

Some years later, I had the privelege to meet and work with Eric Vogt, at the time the head of MicroMentor, Inc., a pioneer in the design and development of interactive multimedia learning.  Eric taught me a great deal about The Art and Architecture of Powerful Questions, techniques that I have relied on as a management consultant for many years.

Powerful Questions

In Eric’s own words:

A powerful question…
•  stimulates reflective thinking
•  challenges assumptions
•  is thought-provoking
•  generates energy and a vector to explore
•  channels inquiry, promises insight
•  is broad and enduring
•  touches a deeper meaning
•  evokes more questions

Architecture of Powerful Questions

Vogt suggests that there is a hierarchy of questions, with increasing power to stimulate reflective thinking, and that virtually any question can be converted into a more powerful question by moving up the pyramid.

quest-arch-2

So, how good at you at asking powerful questions?  When “in trouble” do you gabber on in self defense?  Or, do you turn the table and use the opportunity to cause reflection, and ask powerful questions?

IT and Recession: Time to Partner With the CFO?


partnershipI’ve posted before that realizing value from IT-enabled business investments requires both a partnership between IT and the business (duh!), but also a partnership between the CIO and CFO.  This can provide the credibility and linkages necessary to ensure that meaningful metrics are defined and tracked, and that accountabilities, both for costs and value, are identified and taken seriously.

Is Finance Your “Worst Offender” in the IT “Value Leakage” Stakes?

So, yesterday my colleagues and I were working with a global manufacturing client.  We were sharing some of our latest research into Managing IT During Recessionary Times, and looking for ways to apply the findings to their specific situation.   We were talking about the need to revisit the IT portfolio of installed systems, and work with business partners to do almost a ‘zero-based‘ exercise to re-justify legacy systems.  When we have done this with clients in the past, we have typically identified at least 20% IT cost savings by eliminating legacy systems that have been superceded by newer solutions, but that are still kept in the active portfolio, typically because a few individuals “like the reports the old system generates” and have not taken the time to learn the self-service query/reporting tool that came with the new solution.

I mentioned that I have found that enrolling the CFO in this exercise can help provide the “air cover” to get the portfolio “work-out” accomplished, when the client CIO laughed and said, “But finance is the worst offender in terms of keeping redundant systems on the books!”  I guess I should not have been surprised.  Sometimes, the so-called support functions (e.g., finance, HR, facilities, legal) are not among the most responsible consumers of IT capabilities and assets.  Exacerbating this, I often find that the IT relationships with the other support functions are not the most healthy and constructive.  Perhaps, the current economic climate is a great opportunity to forge stronger partnerships with the support functions, and take out some IT costs?

Social Networking for IT Organizations in a Recession


social_networking3

I’ve been thinking about a couple of things my CIO clients are wrestling with, and how these might be better approached jointly rather than as separate challenges.  These are:

  1. How to strengthen Business-IT Relationships in the context of the current economic climate.
  2. How to experiment with, learn from and foster Social Networking in the business context (rather than the more common “Facebook-like” personal context.
  3. How to sharpen and refocus the role of IT for the global recession.

Business-IT Relationships and the Current Economy

The abstract notion of “business-IT relationships” becomes more tangible when we thing in terms of role.  The CIO can be thought of as the “über-relationship manager” - responsible for the relationship between IT and the Executive Leadership.  The good news is that this relationship is key to shaping, understanding and enabling the overarching enterprise strategy.  The bad news is that there is often a large gap between this strategic intent and the actual strategy as enacted by business unit management.

A second layer of business-IT relationship management is needed at this second layer – seasoned IT executives (often on a CIO succession track) who face off with business unit leaders and, just like their CIO bosses, are responsible for shaping and understanding their business unit’s strategy.  The role responsible for this management layer is the IT Relationship Manager (actual titles vary considerably).  They are also responsible, with the CIO, for reconciling between strategic intent at the top executive layer, and current strategy at the business unit management layer.

From my experience, this Business Unit Relationship Manager role typically does not work very effectively.  The competencies essential for this role to thrive include:

  • Deep business knowledge and insight
  • Analytical skills
  • Sufficient IT expertise to keep it all real and current
  • Strong communications and change management
  • A goodly dose of innovation
  • Decent level of finance and accounting

This is a rare combination, with limited training and development sources available.  (I must plug my company, nGenera, here for being a pioneer with our highly regarded Relationship Management Professional Development Programs).

In a down economy, the Relationship Manager role is even more important.  They have to surface and “sell” innovative opportunities that can grow market share in a recession, create new top line growth, and innovate products, services and processes that provide exceptional customer experiences.  At the same time, they have to deflect all the low value demand for system tweaks and enhancements that don’t lead to these types of growth oriented opportunities, and actually add cost while consuming scarce resources without adding much value.

Experiment with, Learn from and Foster Social Networking

I’ve posted before that many of the more innovative and visionary CIOs are driving Social Networking and Web 2.0 into their IT organizations and their businesses.  Some are still struggling with this, looking for the “killer application” that becomes the tipping point for this brave new world of IT possibilities.  I believe that strengthening Relationship Management performance might be an ideal “killer app” for social networking.

Imagine a community of Relationship Management practitioners, sharing war stories, ideas and applications of their art.  Imagine Wiki’s containing internal (and external) best Relationship Management practices, pointing to tools and templates such as customer profiling, business case development, strategic account management and so on.

Imagine this community expanding over time to incorporate IT savvy business leaders, building on each other’s ideas and creating momentum for innovative and high value IT-enabling opportunities.

Sharpen and Refocus the Role of IT for the Global Recession

So, three separate challenges – converged, might make for a potent brew.  I believe there’s a potential “virtuous cycle” here – one that can be initiated relatively easily, inexpensively, and with very little risk.  In fact, I bet for many organizations, this is already happening – it’s just not be channeled and amplified into critical mass.

What do you think?  Are you doing any of this?  How’s it working out?  How could it be amplified?  As alway, comments are most welcome!

Marketing and Leading Organizational Change: Part 2


benefitsrealization2112

This is the second in a Two-Part post on Marketing and Organizational Change.  It features  Scott Marticke, a highly seasoned and experienced marketing executive who has given a great deal of thought to organizational change, and has experience in using the lens of marketing to drive business change results.

Scott, welcome back to my blog!  In Part 1, you told us a scary but familiar scenario of failed organizational change.  How would the use of a marketing plan and related tools and disciplines have led to a different approach and a more desirable outcome?

Organizational Change: The Good, the Bad and the Ugly!

SCOTT:  I’ll give you a good example, recently completed by one of our partners. A major energy provider on the west coast, battered by the Enron scandal and other publicity issues, had engaged a well known change consultant.  Again, the consultancy recommended a laundry list of activities for the reorganization. This time, a marketing expert was brought in to manage the internal communications.  He built a marketing plan for the reorganization.  Out of this, he was granted access to all staff levels and spent several weeks interviewing and assessing attitudes. One important factor – he was armed with the knowledge of the change recommendations and was able to gauge how those recommendations would resonate with the employees.

His dialogue (and it was a true ‘dialogue’ rather than one-way messaging) led to the discovery that some of the preconceived notions about the change were wrong.   For example, some aspects of the reorganization were redundant, just not needed.  Other aspects would be gladly adopted and still others would be more effective if slightly altered.  Don’t get me wrong, this was a complex communications process but in the end it produced a much more realistic reorganization, one that had the support of the entire organization.  It had the support of the C-suite, which was absolutely critical in ensuring success, because it allowed a third party to enter the process without any preconceived notions.  And, by the way, it led to the discovery of a new internal and external company branding – one, which ultimately boosted the company’s image.

VAUGHAN:  You mentioned “preconceived notions” and I think this is an important point.  From my experience, architects of change are inclined to make certain assumptions without adequately testing those assumptions.  An important aspect of marketing is testing assumptions like this.  Could you expand on this notion?

SCOTT:  In any “change environment” there are a number of non-neutral constituencies.  Management is certainly not neutral; after all they are investing a lot of money and time and the future of the organization.  The consulting company is not neutral. They have a significant fee and a corporate reputation at stake in providing a complex change that the engaging management and board feel will be: a) effective, and b) worth the money spent on the plan.

Using marketing techniques to create a flow between your product (change) and the consumer (your constituents) will uncover useful information, just as a deep and up-to-date knowledge of the consumer will often lead to important corrections and adjustments in their brand and product marketing.

VAUGHAN:  Great point!  So exactly what disciplines of marketing would you use to facilitate this change communication?

Web 2.0, Social Networks, and the New Tools for Change

SCOTT:  First and foremost, it would be knowledge of what marketing is and how it has evolved, especially with the onset of interactive communications, social networking, and Web 2.0.  For example, while the proven staples of the four P’s or push/pull marketing are still valid, a number of savvy marketers have come to realize that the marketer is not in control of the brand as in years before.  Some marketers have gone as far as stating that the consumer is now in charge of determining the brand.  This is not as far fetched as it sounds.  When bloggers or other individuals can exercise as much or more influence than a marketing department with a huge budget, then certainly the playing field has changed.

Now think of your employees or other impacted stakeholders as the consumer of your planned change.  You have brand advocates, detractors, neutrals and influencers in each of these areas.  Your constituents encompass all of these ranges to varying degrees.  Some will be vocal, some will be insidious and some will be up for grabs.  It is to the benefit of successful change that you, as the “marketer,” have as much intelligence on these consumers as possible.  This will allow for the right messages at the right time with the right constituents; the right protective or proactive steps to be taken; when to lead and when to listen.  Even in the best of times the C-suite is often isolated in regards to the ruminations of their employees.  Change mode tends to segregate even further.

As the degree of each change varies from company to company and as the effects of change impact individuals and groups differently, each assignment needs to be considered unique.  There are tools such as polling and prediction markets that can measure that uniqueness; research tools that can determine the extent of the social networks operating within an organization; identify the aforementioned advocates, detractors, influencers, etc.  It then becomes our job to think and work creatively to develop the right messaging.

Another consideration is the ability to think and work nimbly.  Rarely does a significant change occur in a vacuum.  It is not a linear process, and unseen dynamics will surely come into play.  That could happen in the form of an offhand comment on the factory floor, a rumor put forth in a blog or an errant email.  (Simple training on email do’s and don’ts would have saved a major ad agency a lot of headaches this past fall when the HR director inadvertently emailed a management report on layoffs to all the global staff!)

VAUGHAN:  Not to come off as too self-serving, but you seem to be implying that a 3rd party marketing specialist is an important part of getting this right.  Can you defend that position?

SCOTT:  Organizations need to contract a third party to aid in their change communications for the same reason that they hire a consulting firm to determine what “change” is needed in the first place.  It’s also why they hire an outside ad agency or PR firm to assist in their traditional marketing.  First, they need to stay focused on their core business.  That is essential in any market, especially so in this economic climate.   Second, this is a creative process that very often uncovers and assuages issues that an organization fails to find or in some cases chooses to ignore in favor of keeping to a timeline or an out-of-date script.  Often the organization will turn to their current vendors, ad agencies, PR firms, to assist in developing and communicating the change process.  As I mentioned previously in many cases, these organizations may be part of the change.  They are therefore given information on a “need-to-know” basis or it’s filtered down through management levels.  The resulting efforts are bound to be flawed.  There is also the frequently overlooked issue of competitiveness between the communications partners.  I wouldn’t discount this as it comes up more often than not.  Sometimes the client encourages this, other times it’s a jockeying for position behind the scenes.  At worst the result may be mixed or poor messaging, the spreading of rumors. At best it’s an inefficient use of your time and money.

VAUGHAN:  I’m also hearing that access to the C-Suite is an important factor here?

SCOTT:  Absolutely!  Remember, the role of the marketing specialist in building the change marketing plan and shaping the messaging must be neutral when it comes to the change implementation; our goal is to discover and interpret; to determine how the change can be best communicated and discover and address hidden roadblocks.  Of course this can lead to some interesting revelations that might impact the change, as I referenced in the energy company example.  As a neutral entity, we are not hesitant to recommend a change in course when it would be beneficial.

To sum it up, organizations invest vast amounts of time and money in the change process.  So often they skip the critical step, understanding their most important market(s).  Receptiveness to organizational change is necessary in order to keep up with evolving technologies, economic uncertainties and shifting global markets.   Marketing that change correctly will become an integral part of the change process. I think organizations are beginning to understand the benefits of integrating the marketing step.

VAUGHAN:  Scott, thank you very much for your time, and for sharing your insight on this important topic.  And if you don’t have internal marketing expertise (or if that expertise is going to be part of the change!)  I’m sure, Scott, that you’d be ready and willing to offer your services.  Here’s how to reach Scott:

Scott Marticke
Marticke Associates, LLC
Roswell, Georgia
678-428-2677
Marticke@comcast.net

Marketing and Leading Organizational Change: Part 1


carry-books-cartoon

I’ve posted several times before on the importance of marketing skills and disciplines for the IT organization – strengthening a traditional weakness for IT leaders and professionals that is critical to realizing business value from IT assets and investments.

I’ve heard back from several readers and consulting clients who want to hear more on this topic, so I have enlisted the help of my friend Scott Marticke, a highly seasoned and experienced marketing executive who has given a great deal of thought to organizational change, and has experience in using the lens of marketing to drive business change results.

Scott, welcome to my blog!  Can you tell us a little about your professional background?

Scott Marticke

Thanks Vaughan. Glad to be here. I’ve spent 28 years working and consulting with organizations such as Young & Rubicam, Grey Global, Chiat Day, Saatchi and Saatchi, Ketchum, on both marketing and business development. In my time working with these companies, I’ve gained experience in guiding many of their clients through organizational changes. My partners and I, marketing professionals, business and academic leaders have all borne witness to or been directly involved with complex organizational changes that have either stagnated or gone rather badly. Most often the culprit has been poor internal and external communications. Whether driven internally or in conjunction with established consulting firms, this key factor is often mismanaged.

The Case For Marketing and Change Communications

VAUGHAN:  Scott, your position is that the disciplines, skills and tools of marketing are applicable (and in fact, highly necessary) for helping raise the effectiveness of organizational change management initiatives.  I’ve heard you say that organizational change management, and the IT organization as a common agent of change, need marketing as much or in some cases more than the company’s product or service needs marketing.  Why is that?

SCOTT: Change is a complex psychological process. Companies will spend millions to get to the point of implementation. That is, engaging with a change agent, such as a consulting company, researching the existing organization and postulating outcomes, then creating the plan to arrive at the desired outcome.  When the actual change implementation takes place this is where it often breaks down. That’s because the change is usually treated as a mechanical step. The C-Suite (typically including the CIO) has arrived at very considered decisions based on the research around the current state I mentioned.  Now, it’s up to the management team to make the change happen.

The gist of my argument is this. You, as the instigator of change, now have to sell that change to any number of constituents.  Management, staff, analysts, investors, vendors, customers, etc. You are marketing the change as you would be marketing your product or service to end consumers. So why wouldn’t you use proven and prudent marketing techniques to understand the market segments your are trying to reach, creating the correct messaging, ensuring proper delivery and receipt of those messages, and adjust your messaging and marketing approach based upon feedback?

VAUGHAN:  You present a strong case for marketing as a core discipline – and not just for the marketing organization.

SCOTT: Absolutely!  It’s my contention, especially these days that everything a company does is marketing. When Detroit auto execs fly in their corporate jets to ask for bail-out money, it’s front page news and paints a very clear picture of the mindset of those CEO’s.  It effects public perception of their brand, just as their advertising would, and to be truthful, even more so because it’s perceived to be a more genuine example – people follow the ‘walk’ more than they follow the ‘talk’.

The Case for a Marketing Plan for Change

VAUGHAN: I know how important marketing planning is to product and service marketing.  Does a marketing plan have a role in managing organizational change?

SCOTT: A smart marketer would not spend millions on a new product launch without developing and instituting a marketing plan. A company undergoing change must do the same. This is even more critical in today’s world than it was even a few years ago.  The ease in which people can communicate via institutionalized social networks has made even the deepest, darkest secrets of an organization open to the public. Therefore a company that is implementing change today can anticipate commentary and immediate feedback, both internally and externally, that has to be planned for, and if necessary, assuaged or supported. To be silent or to be inflexible just won’t cut it.

VAUGHAN:  Unlike product marketing, it sounds like a company’s employees become a key segment for treatment in the marketing plan.  Can you provide and example of who this works or fails in practice?

SCOTT: Your most important constituency, your employees, are often the ones who are most neglected in the change process.  As I mentioned change is a psychological process and typically, for most of us, an uncomfortable one at that!

I’ll give you an interesting example. Several years ago a major import auto manufacturer decided that it was time to revamp their internal organization in order to better respond to the market and create a leaner and more nimble company in the US.  They engaged a top consulting company with whom they had spent millions of dollars researching the market and developing a decentralized business model that would allow for local empowerment of the decision making process.  It sounded great on paper. However, when it came time to implement, the consulting company, as is their model, was less active, preferring only to offer a recommended process. That process was driven from the top down (the antithesis of the business goals) and called for an internal change team to guide the process. The team was to be made up of management pulled from a variety of disciplines including HR, Sales, Finance, Logistics, Supply Chain, etc. The team was pulled away from traditional duties and charged with this massive one-year assignment. One that would involve combining locations and moving a large number of employees out to field locations. And they went about implementing it in an all too traditional way. Information was put out on a need to know basis, and the overall scope was kept close to the vest.

You can imagine the results. Bits and pieces started to leak out. Employees became nervous and rumors started to spread like wildfires.  Phone calls and meetings turned into guessing games and productivity slowed. Their dealer body, a key constituency, had no clue as to how this would impact their businesses. Vendors who were charged with communicating the “official” announcements (the PR and ad firm) were just as concerned about their situation.  Many of the rumors pointed to the elimination of those relationships.

In the end what should have been a one-year reorganization took several years and the internal unrest led directly to a loss of market share during critical new product launches as mixed messages led to staff defections, poor marketing decisions, analyst and consumer confusion.

VAUGHAN: That’s scary.  But also, from my experience, a familiar scenario.  Thank you Scott.

In Part 2 of this post, we will explore how the use of a marketing plan and related tools and disciplines can lead to a different approach and a more desirable outcome.

Cartoon Courtesy of Harvard Business Review – Value Prop by flickrdarbyshire

Here’s how to reach Scott:

Scott Marticke
Marticke Associates, LLC
Roswell, Georgia
678-428-2677
Marticke@comcast.net

The IT Infrastructure Investment Deficit Disorder


man-andHow should you treat IT infrastructure investments in a recession?  I was listening to an interesting piece that got me thinking about this question on NPR this morning titled “Obama’s ‘Big Fix,’ And Investment Deficit Disorder.” Renee Montagne interviewed New York Times columnist David Leonhardt about his January 27 article, “The Big Fix.“

Determining IT Infrastructure Investments

Arguing that the US economy has been “far too dependent on consumption over the past couple decades and not dependent enough on investment,” Leonhardt points out that in the 1950s, the government spent the equivalent of about 7 percent of GDP investing in highways, buildings and other infrastructure.  But that amount has declined to 4 percent in recent years.

This got me thinking about IT infrastructure, and how investment levels are determined, and how these levels are typically impacted in an economic downturn.  I think there is an analogy between “government and infrastructure investment” with “business-IT governance and IT infrastructure investment.”  I further believe that the role of business-IT governance in IT infrastructure investment takes on an especially crucial role in an economic downturn.  When “the tide is rising,” as the aphorism goes, it is relatively easier to fund infrastructure, but in the current recession, the temptation will be to starve IT infrastructure.

One of the key roles of business-IT governance is setting the level of IT infrastructure investment.  I use the term “business-IT governance” to describe the highest level of business-IT decision-making, typically the Executive Committee and CIO, who is hopefully a member of that body, or if not, is a member of a special Business-IT Governance body, along with the CEO, CFO and business unit leaders.

The Tragedy of the IT Commons

Extrapolating from Garrett Hardin’s “Tragedy of the Commons” article written first published in 1968 in the journal Science, it is in each business unit’s self-interest to leverage and load the IT infrastructure as much as possible (i.e., put as many cows as possible onto the land)  even if that infrastructure suffers as a result (i.e., even if the commons is damaged.)   The business unit receives all of the benefits from over-leveraging the IT infrastructure (i.e., the herder receives all of the benefits from the additional cows) while the damage to the infrastructure is shared by the entire enterprise (i.e., the damage to the commons is shared by the entire group.)  If all business units make this individually rational decision, the IT infrastructure is degraded and all its users suffer.

Three Key Disciplines for IT Infrastructure Investment

Discipline #1. Business-IT Governance

The metaphor of the commons is a good one, and points out why a robust, intelligent, and forward-looking business-IT governance capability is crucial for planning and guiding the level of IT infrastructure investment and the relative portion of the overall IT spend that goes to common capabilities – i.e., IT infrastructure.  Another reason that increasing IT infrastructure investments may make sense in recessionary times is that business agility becomes increasingly important.  The ability to try new things, to be able to rapidly scale up, scale down and seize market opportunities often requires a more agile IT infrastructure than is typically in place at most companies today.   The good news is that the types of IT infrastructure change that increase agility, such as server virtualization, infrastructure consolidation and rationalization, and the shift to cloud computing, all show promise for actually lowering ongoing IT infrastructure operating costs.

Discipline #2. IT Portfolio Management

Closely related to Business-IT governance is the discipline of IT Portfolio Management – and here I’m really referring to the top down strategic aspects of this important discipline.  (Some organizations practice IT portfolio management more as a bottom up aggregation and rationalization of projects – a practice that I find does not typically work well, and actually masks the fact that top down portfolio decisions are not being made.)

Just as in any market, personal investors have to decide their investment goals (funding college, building wealth for retirement, creating income in retirement, etc.) then formulate an investment strategy that meets those goals, businesses have to determine their IT investment goals, then formulate an IT investment strategy, including:

  • What should the level of IT investment be?
  • How much of this should go into common and shared IT infrastructure?
  • How much, and in what proportion, should go into individual business units and functions?
  • How much should go into “risky” but potentially high return “strategic” investments?
  • How much should go into pure IT research and development?
  • How should smaller business units or opportunities be subsidized by larger, cash-generating investments or business capabilities?

Discipline #3. Enterprise Architecture

Professor Peter Weill at the MIT Center for Information Systems Research) defines Enterprise Architecture as:

The organizing logic for business processes and IT infrastructure reflecting the integration and standardization requirements of the firm’s operating model.”

Enterprise Architecture offers the grand blueprint for IT investments – including technology roadmaps, standards and models that help simplify,  unify and rationalize information and technology decisions.   Just as the personal investor will determine their investment goals, then the investment strategy to reach those goals, they will then create (or work with some type of agent or specialist) the roadmap that helps determine when and what investments to buy, what to hold, and when to sell.   Perhaps a better analogy for Enterprise Architecture is the grand design for a city, including forms and designs for transportation (streets, highways, rail lines, bus routes), for energy distribution, for sewers and waterlines, for public facilities such as schools, town halls, libraries, and so on.  One of the most important issues that Enterprise Architecture should address is the question as to what IT capabilities are common and shared – i.e., IT infrastructure, versus business unit specific?

This turned out to be a much longer post than I envisioned as I was shaving this morning while enjoying NPR’s Morning Edition, but my key point is – do you have an IT Infrastructure Investment Deficit Disorder?  Is this exascerbated due to the economic climate?  Is now a good time to be increasing your IT infrastructure investment strategy?  Would your firm be better positioned for the current economy if the IT infrastructre were more agile and responsive to change and opportunity?