The cost of capabilities…

Do you understand the true cost of your capabilities?

The topic of this post first appeared in the comments section of a post by Gene Hughson and Gene latched on to my thoughts and posted a great follow-up of his own here. As the topic reappeared in some discussions at work over the last few weeks, I figured now was the time to write it up as a separate post here also 🙂

Imagine you buy a car and each month you pay off the loan/lease and the cost of running the car in full. When after 10 years of running the car and paying off every penny of buying and keeping it, it finally dies, you would think that you would be in the clear, right? You could now make a decision on whether to buy a new car based on the current cost of buying and maintaining a new car just as you did the first time. Well, if you are like most people you will have built you life around having the car and so you don’t really have a choice but to replace the old car when it’s finally dead – that’s the hidden cost of capabilities.

That cost of sustaining your capabilities also very much applies to IT-systems (you couldn’t really live without that CRM-system now, could you? 😀 ) but it is something that most organisations seem to overlook – and don’t think about until it is too late. It goes both for the “core” enterprise systems (ERP, CRM, SCM, PLM etc.) where it is probably mostly the cost of upgrades and patching rather than the cost of replacements that aren’t properly factored in, but still.

Where I would imagine it applies even more is when you delve into the more fast-paced layer of customer/consumer-facing applications in mobile etc. If you want to offer your customers a mobile application you have to consider the cost of updating it as new OS’es and new hardware comes along. Eventually, some of your underlying platform technologies may also die, but you still want to have the mobile app and so the cost of porting/converting/rebuilding it on to another technology stack comes on top.

This (hopefully) isn’t exactly rocket surgery, but as mentioned it does seemed to be overlooked quite often and it is also hard to predict what the real future costs are.

So, what to do about it? Well, if you can’t predict it, you have to find ways to minimise the impact when it does hit and so your two best friends are now architecture and strategy. Architecture to ensure that what is built will continue to be fit-for-purpose for as long as possible, and strategy to ensure that the new capabilities you add will be capabilities you need, and not just capabilities you want.

This way, there should be strategic support for continuing to invest in these capabilities and there should equally be an understanding (for management) that increasing your capability footprint will inevitably lead to an increase in your baseline cost.

Advertisements

The rule of 2…

(or: which part of the creative process are you?)

I’ve found that when I start something new (new process, new functionality etc.) then it often tends to follow the same pattern, which means it takes:

  • 2 seconds to get the initial idea – that flash of inspiration that tells you that something could be done better/smarter etc.
  • 2 minutes to think though the concept and the implications and convince yourself that it is indeed a good idea.
  • 2 hours to write up a case for the change with arguments and benefits, a quick impact assessment etc.

But then it takes:

  • between 2 days and 2 weeks to convince those around you that it is indeed worth the hassle of making a change and upsetting the status quo.
  • between 2 months and 2 years to actually approve and implement the changes and see the original idea come to fruition and deliver value to the business.

And so you might ask, what can I use this for? Well, perhaps to think a little about where your strengths are and where you want to be in this cycle? Are you the person who gets the initial idea and sticks with it for just long enough to explain it to someone else, or are you the person that gets a kick out of following something for a long time to finally see it deliver value?

I guess there is no right or wrong answer, but for me personally at least it has made me understand a little better how long I prefer to stick with an idea before handing it over to someone else – and of course what projects I should try and avoid getting assigned to 🙂

On architects and doctors….

I want to make it clear that I have tremendous respect for doctors and I don’t think that a comparison is entirely justified – after all the decisions I’m called upon to make on a daily basis are hardly “life-and-death”. Also, rather than anything remotely dangerous or traumatising, typical occupational risks for someone like me are likely to be the mental anguish of too many meetings without a clear purpose and the physical impact of 8-12 hours per day in an office chair…

I will however maintain that this works as a comparison, a) because of quite a few similarities in patterns, and b) because the context in which the doctor operates is much more clear-cut than the world of SW architecture, making it more easily understandable to “normal” people in a business (whatever that means… :D) .

Examples of where I find this analogy useful as a means of communicating what I do to those around me:

– 1) Listening to requirements is to me somewhat akin to listening to a patient describing symptoms and carries the same inherent risk of jumping to conclusions about what the problem really is. The doctor has to cut through the patient’s own ideas of what the problem is, the patient’s preferred solutions to said problem and any “false flags” because people simply don’t necessarily realise what is important to tell the doctor.

– 2) Like the doctor, the architect also has to balance short-term inconvenience/discomfort with long-term benefits for the patient. That means sometimes causing a patient to go through very painful procedures because they will give the best end result. Good doctors recognise that while some decisions clearly should be made by the patient, some decisions should be made by an expert that has the full picture and a more objective position on what the right decision is. I doubt that anyone would leave all medical decisions to the patient, but some people seem very prepared to insist that all IT decisions are made by the business (or exclusively by IT, which IMHO is equally wrong).

– 3) The doctor has to keep the good of the patient front and center, but the doctor must also be prepared to make uncomfortable decisions for the good of the patient (cf. point 2), remain objective while doing so and then be able to stay (relatively) calm and composed when someone afterwards starts to second-guess the decision they made.

– 4) Last, but not least: Patients normally come to doctors because doctors are experts and they are prepared to accept an expert opinion but the doctor understands the responsibility of making decisions based on the relatively limited input that a patient can provide. I have seen some curious practices for instance regarding sign-off of requirements and solutions – which, if you transplant them to a doctor/patient context and it becomes clear that they do not make sense at all. Some of them, when transplanted into this alternative context, would effectively mean that you had to be a doctor yourself in order to get any value out of seeing a doctor…

 

…or am I completely off here?

How to recognize a customer?

In response to yet-another-discussion at work about the “customers” of IT, I started thinking about coming up with a definition of what customers really are – and who actually deserves being called a customer within the organisation. My best shot for now is the following:

“A customer is any (external) person or entity that contributes a net positive cash flow to the enterprise”

Seems fairly simple (and no, it’s probably not perfect), but actually there are some important implications hidden in here:

  • In some industries, you may sell a ton products to certain people at very little to no margin but the resulting scale drives down your cost of operations overall and the overall relationship thus ends up being very cash-flow positive.
  • In other industries, you may sell some products to people where you then spend so much money on marketing contributions, after-sales service, various long-term incentive and retention schemes etc. that your relationship with the “customer” actually ends up cash-flow negative overall.

The challenge in both cases is of course whether you have the tools and the data to see when the balance, on an enterprise-wide scale, tips from one to the other side (my guess is that most companies, especially large ones, don’t).

So does that make my sales department a customer (because they claim that they bring in all the money?) someone asks? No, because the sales department in itself does not contribute any cash flow into the enterprise, but it acts as an enabler to get external entities to contribute (they are also internal to the enterprise which to me is a disqualifier, but some would definitely disagree here).

And of course last but not least does it mean that all business functions are “customers” of IT? Not to me, because there is no positive cashflow into the enterprise from what the LoB functions buy from internal IT – it’s just moving money from one side of the cigar box to another. Of course there is a significant cashflow from the business, via IT and out of the enterprise to suppliers, partners and consultants but that’s a different matter. Again, it’s redistribution of funds from one part of the enterprise to another, or it is a part of the enterprise cash flow that IT controls on behalf of the business. Of course that spend has to be made in the best interest of the enterprise, but the spend in itself should not be a problem  – you wouldn’t close down your procurement department because they are the company’s biggest spender, would you?

But wait, I hear someone shouting from the back, just because you’re cash flow positive doesn’t mean that you are profitable – no, and that’s what differentiates “a customer” from “a good customer” 😉

Quote of the Day… (12)

“Just because it’s a good idea doesn’t mean anyone’s going to use it. And just because a lot of people use it doesn’t mean you are going to make any money off it”

As a corollary to a previous post about products when talking specifically about software products (and SW-based services).

Formulated after a recent discussion with a colleague about some potential app-ideas he was exploring 🙂