Working on Step 2

A Cloud, by any other name, is how you tweet

2010-05-12T07:18:00.001-07:00

There are arguments about what’s in The Cloud or, said another way, what constitutes Cloud Computing. Some purists vociferously deny that there is such a thing as a Private Cloud. Others say the only reasonable way for large corporations to migrate to cloud computing is through the use of both external, or public clouds, and internal or private cloud services.

No matter what cloud computing sellers say there are practical limitations to moving existing business technology to cloud platforms. Most often when this is discussed the issues of establishing the target platform, testing and configuring, establishing management practices covering change management, service quality, security and access and the like are central to the discussion.

The so-called mythical man-month and the related issue of how to use scarce IT funds is also central. Cloud computing proponents rightly will tell you that cloud operating costs are somewhat lower than comparable in-house costs. Cloud providers are operating at scale and usually pricing on the margin. It’s a big cost advantage… if you don’t examine the switch-over costs.

The switch-over costs are not limited to the dollars or Euros involved in migrating applications to Das Kloud, whether public or private. The act of migration is distractive. It means the halt to the development of any new function, today, while legacy applications are migrated to a lower-cost platform tomorrow. That’s a bad thing.

Smaller companies with smaller applications portfolios may feel this pinch less than medium and large firms do. But for most, the time and opportunity costs of migrating the out-of-sight, out-of-mind legacy is too high for the benefits. It is often best to move those applications as they age to the point of replacement or major re-engineering.

New systems or major bolted on enhancements are a different matter. Provided there is a reasonably current interface available these new functions can be designed, developed and deployed in a cloud environment and linked through the web to the legacy.

New uses of IT, like social media technologies in Marketing 2.0 applications, tend to be cloud-provisioned. Instead of coordinating and helping, old-schoolers often try to block corporate access to Facebook, Twitter, YouTube and the other places where the customers are learning about and discussing your products.

Companies must be involved in those conversations. This drives marketing people to external clouds and creates gratuitous governance issues for IT. IT needs to get on board. “Resistance is futile.” Whether that cloud is Private, Public, or a hybrid, for most of us a cloud, by any other name, is how you Tweet.

4 Ways for Cloud Computing to Gain Legitimacy

2010-04-21T12:27:00.000-07:00

It says something about cloud computing when the NY Times, not often an information technology bellwether, not known for surfing on the bleeding edge of technology, publishes on its business pages an article on how mainstream companies are slowly but surely examining and adopting cloud computing. That the NY Times Business Section has noticed cloud computing is a clear indication that The Cloud has risen, in the mind of general management, beyond awareness and interest to the level of general business management discussion and decisions.

Action, one way or another, can’t be too far ahead. What will established companies be looking for? What must cloud computing providers do?

Companies considering cloud computing range from old and established like Eli Lilly to the new and working on establishment like Arista Networks. Larger companies with their multi-layered architectures, their extended labyrinthine networks of legacy applications and data farms and user communities have many obstacles to widespread adoption of cloud services. Many concerns have been expressed including conversion paths, conversion costs, data speed, data failures, responsiveness, privacy, security, recovery, long-term costs and hidden costs. In the days of mainframe-only computing I was asked “do you know the definition of an IBM elephant?” The answer, “it’s a mouse… with features.”

To date start-ups or smaller companies have been buying cloud services either to run all their applications or, just as often, to run some of the services like e-mail or, as in the case with Netflix, the web-presence portion of IT. Greenfields IT is relatively easy. But these companies haven’t got the scale and complexity of IT infrastructure that a Fortune 500 sized company has.

There is a wide array of cloud service providers. Expected names like IBM and Google are in the mix but Amazon, on first blush a surprise, is an industry leader. There are less gigantic players like Rackspace and Terremark. There are “public” cloud providers where the services are only available outside a company’s network. To the purists this is the only cloud that is a cloud. IBM and Acadia, a joint effort by EMC, Intel and Cisco, are offering so-called “private” cloud services where the web-based, on-demand capabilities are privately held or within a privately managed and controlled bubble.

Working on Step 2

Cloud computing providers are now reaching out to major corporations in an effort to provide core computing services to them via the cloud. Their relative success will depend on their ability to discuss, offer and deliver their cloud services less as a “transformational new paradigm in information technology” and more as a solid, tested, and trusted component of effective and efficient business operations.

To the extent that cloud computing significantly penetrates mainstream computing in large businesses providers will have to convince prospects that they understand the needs and motivations of mainstream business. Said in the framework of Everett Rogers’ Diffusion of Innovations, businesses that are innovators that are excited by the next new thing are already using the cloud. So are “early adopters,” companies that through need or culture like to be on the leading edge. For cloud computing to find a major market it must “cross the chasm,” in Geoffrey Moore’s “Crossing the Chasm” terminology, and appeal to the “early majority” of main stream businesses. They buy on different signals and in different ways.

The Early Majority are pragmatists. They care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get. Pragamatists tend to be 'vertically' oriented, meaning that they communicate more with others like themselves within their own industry than do technology. A standard question: “Where else have you done this for someone just like me?”
There are four fundamental characteristics of visionaries that alienate pragmatists. When planning and executing a marketing strategy, when engaging prospects in sales efforts, cloud computing services should avoid all four. They include:

1. Lack of respect for colleagues' experiences.

2. Taking greater interest in technology than in their industry.

3. Failing to recognize the importance of existing product infrastructure.

4. Overall disruptiveness.

I have worked in multiple very innovative software companies and came to dread the meetings where the founder/chief architect/head visionary is on a sales call and forgets to listen to the prospects. Instead, they frequently listen for a bit and lapse into how all encompassing the vision is and how smart we were to provide it to solve your problems, whatever they are. Implicitly we were also saying how behind the times the prospects were if they didn’t get on board. We would get smiles and encouraging signals of further consideration. The near universal back-channel reaction was that the prospects were plenty smart and plenty experienced too. They have a number of issues and we didn’t take the time to grasp and deal with them. We should come back when we’re prepared. Similarly, cloud providers who are in a race to establish market share may very well win that race through patience and listening.

A difficulty about providing technology is that evaluation discussions frequently become about the technology. It is important to know and measure scalability, be able to show how and if you use the Rete Alogrithm or not (for 50 bonus points, without using the web, what is THAT about?), and have a discussion of file size compression for rich media content. This class of issue has its place, and, since sales to the mainstream involve consensus across the prospects functions, they will be covered. But, these issues describe how value is delivered, not what the value is. In the end the winning providers in mainstream competitions will understand and communicate about in-this-industry net value. By net value I mean the value net of vendor-risk (can they support us, are they strong enough to stay with us, if something goes off the rails can they recover?).

Mainstream corporate IT has a ton of legacy, as well it should. The legacy systems and underlying infrastructures represent the collective, and sometimes forgotten, knowledge and wisdom of thousands of people over many decades. Legacy applications are rarely pretty, in IT terms. Within an enterprise they yield multiple systems architectures, multiple sets of underlying operating and data management software, multiple hardware platforms and configurations. Successful mainstream cloud efforts will work with these realities, align with them, adjust and change them where possible over time. Watch out for the cloud provider that attempts the large-scale, 100% conversion in an accelerated timeframe. It will look good for the business case, certainly look good on their income statement, and almost certainly fail under the pressure and complications.

Vendors of cloud services are in a difficult place. They need to introduce a new way of delivering, consuming and paying for computing to the mainstream market that buys consistency and reliability and distrusts change. The apparent economic advantage of cloud computing, it is generally priced on the margin, is the carrot. The winners will be able to communicate and deliver what the buyers view as risk-adjusted superior value. My personal expectation is that they will but only to the extent they put on their customers’ shoes and walk around in them.

On Social Media IT Pros Often are the Luddites

2010-04-14T07:40:00.000-07:00

A discussion was started on CIO Zone yesterday that makes my hair hurt.

Titled “CIO’s Are Getting Tougher on Social Media” the main article reported data from a Robert Half survey of IT management regarding the use of Enterprise 2.0 technologies: Twitter, LinkedIn, Facebook, wikis, YouTube et al. The article says that even though Enterprise 2.0 was ubiquitous, its usage growing, fully 38% of CIOs are tightening their restrictions on social media personal or business usage, depending, in the workplace. Only 17% are loosening such restrictions leaving 45% to stand pat where they are. A bit more startling to me, the article states that “in October, Robert Half issued a survey in which 54 percent of more than 1,400 CIOs said their company doesn’t allow employees to visit social networking sites for any reason.”

The author expresses surprise, “after all, we can all remember a time when allowing staffers to use the Internet seemed like a crazy idea from security and productivity standpoints.” I found the inward-looking, functional resistance nature of many of the comments more surprising. Here’s the first one:

... But if it were solely up to me to dictate policy, I would block Facebook/Twitter but encourage use of LinkedIn and professional social networking sites such as CIOZone.

To me, Facebook is nearly exclusively used for personal use and people who are addicted to Facebook tend to squander huge chunks of their time on it. I very much doubt many people at most companies have a compelling business reason to use it on a regular basis. Maybe give access to an HR person for potential background checking-type things, but that's it.

You can’t make some stuff up. The above comment reads as though the writer has never interacted with anyone in sales, marketing or customer service and support. I’m fairly certain that the writer has had such interactions but the position taken denies it. He clearly doesn’t work at Best Buy and has never heard of Blue Shirt Nation. He can’t work inside Booz Allen with Walton Smith. He doesn’t work at Thomas Nelson Publications.

No business can responsibly be interacting with and engaging with its markets, especially customers, prospects and influencers, without Enterprise 2.0 technologies. People research products and buy products through the web. They interact about what works and what doesn't, what is good and what isn't, using social media (see David Meerman Scott’s Four Questions).

Thus, all parts of the organization that interacts with customers, prospects and influencers must use it, any and all of it that the community they deal with uses. This means just about everyone in your organization needs access to Twitter, LinkedIn, Facebook, wikis, etc., etc.... except, maybe, the Luddites in IT.

Read the comment again. The writer is saying that the external social sites that he uses are fine but those that others use aren’t justified. It’s another way to say “I don’t know what other people do.”

Other comments are more sensible. An example, “you can't bury your head in the sand… you can't simply expect this thing called social media to go away. 40% of all professionals now use their profiles to email colleagues - soon email as we know it will be a thing of the past. For the professional side of social networking, reaching out to peers for industry discussions, problem solving and keeping abreast of business news, this site and others make complete sense. Forrester tells us time and time again that learning from peers in forum discussions and via video content is where it's at.”

Ed Zachary!

But the Luddites are there. “I believe that the security of the company must come before convenience” is a common sentiment. The problem is that this is not the choice. It’s security risk versus market participation risk. “Convenience” is not at issue.

Another view, “I still have a hard time justifying the use of Twitter, Facebook, MySpace, etc. in a corporate setting unless someone is doing sanctified marketing or other corporate promotion.” “Sanctified?....” Frankly, this comment reads as though the writer feels inconvenienced by all that “marketing stuff.” He should read the company’s income statement.

Working on Step 2

A viewpoint to get behind is “there is also no doubt that the world has shifted in such a way that personal and business boundaries are blurring, with work spilling into personal time and vice versa… The ubiquitous presence of personal mobile devices capable of posting to social networks places the issue outside of an employer's ability to restrict access.”

This view is consistent with that of Microsoft’s CIO, Tony Scott. Recently interviewed by CIO Zone Scott said that its actually social media “in life” and that they were going to entirely invert their previous position on the consumerization of IT and orient their infrastructure to support the technology their employees bring to the firm rather than force their employees to fit into an IT-generated cookie cutter.

I don’t suggest for a second that security concerns are immaterial. The normal rules of engaging in inappropriate content should be enforced as should professional standards of protection against sites and services that create security and access exposures. That said I agree with Sam Curry of EMC’s RSA group (they do security). Sam will tell you that business is ultimately about Risk v. Reward, that Fear, Uncertainty and Doubt (FUD) are no way to run a business, and that the task is to “ensure the right people have access to the right information over a trusted infrastructure.” “Trusted” is different from “entirely restrictive” and essentially not useful nor helpful.

It is clear, at least to me, that all parts of the organization that interact with customers, prospects and influencers must use Enterprise 2.0 technologies, must use “social media.” It is also clear that what is the best or appropriate tool to use for what business purpose is under rapid change. Your company doesn’t get to choose which ones the community-of-interests you deal with use. That is defined outside your enterprise and you must adapt to that definition, unless, maybe, you’re a technology Luddite inside IT.

This means just about everyone in your organization needs access to Twitter, LinkedIn, Facebook, YouTube, wikis, etc. You already have management authority to keep people working instead of fooling around, whether the technology is there or not, use it. Expect people to get their work done and provide them the tools to do so. Increasingly these are Enterprise 2.0 tools.

Clouds, Stages, and IT Spending

2010-04-07T18:24:00.000-07:00

There is a lot of talk about what is or is not “cloud computing” and whether such a thing as a “private cloud” does or does not exist. In the end I believe there are many forms of cloud. The question examined in this post is “what impact will a move to cloud computing, in stages, have on IT spending?”

Recently Michael Neubarth wrote another fine article. Its title is “Are Private Clouds Hogwash?” For some reason for a number of people the very idea of a “private cloud” is disturbing and disorienting. Neubarth quotes a number of the literati on the subject. Most say cloud computing must be outside the enterprise or clouds require a scale of computing and mutually-balanced workloads that a single enterprise cannot offer. Maybe, though this argument seems to fly in the face of the origins of many cloud providers (Amazon, Salesforce.com, IBM).

The private cloud naysayers do cite a concern that I share. Some people are simply calling their traditional data centers “private clouds” and declaring victory. But, simply employing virtualization, web-based computing and other technologies doesn’t make a cloud. Neubarth quotes P Laudenslager on his blog, “Calling [the use of modern technologies alone] a private cloud is like drinking alone and calling it a private party." You can’t just put lipstick on a data center. There is a required aspect of cloud computing that is by-the-drink, load balanced, on demand, scalable with the financial, service management and administrative practices needed for businesses to rely on such capabilities.

Still, one might well be confused reading the complaints about the term “private cloud” at all versus seeing where major players are placing their bets. IBM, Acadia (the joint effort of EMC, Intel and Cisco), Google, Amazon, Microsoft and others might disagree. Acadia’s stated purpose is to offer private clouds as evolutionary pathways for IT. Many readers of Rock Icons and IT Thought Leadership feel as Judy Collins did when she wrote:

I've looked at clouds from both sides now
From up and down and still somehow
It's cloud's illusions I recall
I really don't know clouds at all

The research firm Saugatuck Technology has a take on Das Kloud that is fairly centered. In their research alert “Cloud IT: Stages of Simultaneous, Disruptive Growth and Change” they describe cloud computing as “The Cloud. IT as a Service. Platform-as-a-Service. Software-as-a-Service. Hosted services. Managed Business Services. These and many other capabilities and offering types comprise what we have labeled “Cloud IT.”

It’s a deliberately inclusive definition. They go on to say that “all aspects of user IT and business operations are rapidly melding into an inextricably interwoven, and inter-dependent, series of capabilities that are delivered and used as one or more services via one or more networks. [Saugatuck] no longer sees easily-definable boundaries between IT and business; just as [they] will soon see the disappearance of boundaries between traditional (on-premise) and Cloud-based business and IT.”

Saugatuck’s point is that user IT and business operations are rapidly becoming intertwined “into an inextricably interwoven, and inter-dependent, series of capabilities that are delivered and used as one or more services via one or more networks.” It’s a practicalist view, not a purist view. They see that the business/IT boundary is blurring as well as traditional, on-premise and off-premise IT. By extension clouds must reach from outside the business into the business.

Saugatuck also sees the use of Das Kloud evolving in four stages within enterprises. The first is the Point and Supplemental Stage where the majority of Cloud IT exists today for users and providers. In this stage cloud infrastructure offerings and use is “filling in gaps, augmenting existing system and process capabilities.”

The second stage is the Developmental Stage. Cloud computing makes a practically limitless scope of software development resources available to users and vendors alike, and very inexpensively. Software developers no longer have to rely on dedicated internal resources to code, test and refine. Resources are available whenever (and wherever) needed, and can be turned on and off as required.

The Internal Growth Stage is the third stage and involves significant development, deployment, and use of Cloud IT within user organizations as part of overall IT strategy and operations and includes private and/or internal clouds.

Saugatuck’s vision has a fourth stage, “Hybrid/Interwoven,” wherein customized combinations of traditional, Internal/Private Cloud, and third-party Cloud IT are delivered and used. Saugatuck ties it all together with this model:

Working on Step 2

If we take Saugatuck’s estimates and stage descriptions as an example what are the implications for IT spending? Recall the basic concepts behind the IT funding model:

Systems built this year must be run and supported over time
Left unchecked, the compounding effect of increased operations and support costs inexorably crowd out further new systems spending
Because businesses cannot tolerate static systems, because system change and new challenges emerge, constant efficiencies are needed in operations and support costs to make budgetary room for new systems development

As described in Holding the Line on IT $pending, many companies are pursuing Saugatuck’s first stage of Supplemental Point cloud solutions in their campaign to hold down operations and support costs. These often include solutions as storage and processing. In the case of SaaS, many customers have deployed focused “point” solutions focused on key business. Saugatuck says these “solutions differ in concept very little from any early-stage, newly-introduced IT, with the possible exception that they are exceptionally low in cost to acquire.” And that is their point, budget reduction in operations to enable development spending.

The second stage deals with cloud computing and systems development. In an example of Platform as a Service (PaaS) multiple providers are coming to market with entire offerings for systems development in the Das Kloud. IBM and Microsoft are both investing heavily in Cloud-based development platforms environments and services for customers and their ISV and development partners. The Cloud also makes a practically limitless scope of software development resources available to users and vendors alike, and very inexpensively. This pattern will reduce the cost of developing systems and thus may ease the demand to reduce unit costs in operations and support, in the short term.

However, as cloud-based development becomes standard all competitors will have the same capabilities and the old pressures will resume. IF, as some claim, cloud-based development is a productivity enhancer for systems development it will bring systems to production faster. This will increase the pressure on support and operations to reduce costs as their workload will increase without resources to handle it. This will push those organizations farther into the cloud-for-cost-operational-reduction camp.

Saugatuck’s third stage, the Internal Growth Stage, is the significant development, deployment, and use of Cloud IT within user organizations, as part of their overall IT strategy and operations. It is a reaction of the success of the first two. If the Stage I, or Initiation Stage uses of Das Kloud reduces operations costs and eases development then everyone will want to be on those bandwagons. This typically results in a rapid increase or “Contagion” in use of computing and, in this case, a rapid increase in cloud-related spending.

I’m not particularly concerned with whether or not there IS such a thing as a “private cloud.” I think the description is apt enough. It describes how many very large organizations today, and smaller ones in the not-too distant future, will use cloud technologies. I’ll leave the nomenclature battle to others.

I do believe there is a driving requirement to reduce IT support, maintenance and operations unit costs day in and day out, week in and week out, year in and year out. The Cloud appears to offer assistance in making reductions without sacrificing delivery and quality. As and if that proves out expect your business to use much more of it in the near term regardless of the name you put on it.

A View Towards the Future

2010-04-01T13:30:00.000-07:00

Last month, i.e. yesterday, the Massachusetts Technology Leadership Council held its annual meeting at a hotel outside Boston. The title of the session was “Flipping the Switch from Survival to Growth.” The underlying theme was that the technology industry stands poised for a new wave of connectivity-fueled growth, characterized by ubiquitous access, cloud computing and “new” new media.

Surrounded by a slightly corny opening session by Council leaders (e.g. Massachusetts has always been venture funded… our first angel investor was King Charles) and a closing panel, were three interesting presentations:

1) Economics of Innovation: The Road to Optimism

2) Internet 2020: The Future Connection

3) Futurescape: Sixth Sense Technology

The first talk by the economist Michael Mandel explored the question, “what are the key areas for innovation going forward?” Mandel showed data that says that those industries that recover first from an economic decline, and we had/do have one, are the industries that will lead the next boom. His most interesting chart showed that through the years 2007-2010 when the mis-deeds of the mortgage market came home to roost, connectivity oriented technology companies kept on hiring. He’s not prediction or making stock recommendations, he’s just saying…

The next two presentations were about providing and then using the connectivity. Tom Leighton, Chief Scientist & Co-Founder, Akamai showed how the delivery mechanisms for the web will need more than higher band width to accommodate coming demands. Today we average 2.4 terabytes per second (tbps) going over the web. Akami estimates 1,296 tbps by 2010. That’s an increase of over 500 times the volume. Delivering adequate bandwidth and processing power is a challenge, but doable.

There’s a second challenge dealing with how content and information are delivered over the Web. Engineers use a metaphor for describing the path of traffic. Each message to or from your PC has a First Mile, a Middle Mile, and a Last Mile phase in its path. The provider puts content into the web infrastructure, it travels, and it then gets used at the end point. Over the past few years there has been a 50 times increase in First Mile connectivity, a 20 times increase in Last Mile connectivity, and only a 6 times increase in the Middle Mile. We have a constraining bottleneck. Expect innovations in the Middle Mile (Akami’s is distributed delivery of content).

As the internet and its capacity and capabilities evolve expect to see “dramatic change in media, software, and communications as well as new applications in medical technology, financial technology and other verticals.”

Leighton described four new kinds of technologies we’ll be using. The first is video. YouTube currently delivers you “Longtail SD.” SD means standard definition and Longtail is pre-HD TV. As TV and the web merge, video over the web will transform to Premium HD. You’ll have HDTV quality on your laptop and your cell phone. This will drive much more web use and, when combined with digital analytics of the web traffic and user, allow for the customization and tailoring of content to each user.

This tailoring will allow the second technical change, this time in web and TV advertising. Currently you see ads based on the context of what’s on the page you are viewing. Increasingly the web will be able retain information about what you have been doing, the interests you hold, and show you information based on your behaviors, so-called behavioral advertising. It is already in use with web pages but coming to video as well. An example of the change: when baseball is televised there are advertisements displayed behind the batter via green screen. They are tailored by geography. Soon they will be tailored to each viewer. Expect an extended discussion on privacy and control of personal information on this.

The third technology deals with Das Kloud. If you use an application on your desktop today you hit enter and you get a response. If that application is in The Cloud and it needs data thousands of miles away, even across oceans, because that’s where The Cloud put it, the Middle Mile could have latency of 8 seconds or so. Decentralized delivery, and Akami is a provider, can reduce that latency to one second. When your company buys services from The Cloud they are buying at marginal cost to the provider. It is coming to a neighborhood near you. Expect it to come in an increasingly distributed delivery model, slightly higher cost but somewhat more functional.

The fourth technology is radical changes in mobile devices. This was the heart of the SixthSense technology presented by Pattie Maes, Associate Professor of Media Technology at the MIT Media Lab. She demonstrated a prototype of “wearable” technology that allows users to interact with the digital world in and through the real world. It can project digital objects like cell phone dialers and digital cameras onto real world objects such as a wall, a sheet of paper, a product in a store or a hand and call up relevant information from the internet such as “is this product green” or “what do people say about this book’s author.” You can also get your e-mail… This style of capability entirely frees mobile users from the constraints of a cell phone’s screen. It also creates applications opportunities not available without this kind of mobility.

How soon is all or some of this going to be available? Beats me. The technology providers surely have their projections, some of which are too soon and some of which are equally to far into the future. If history serves those companies that make the “internal combustion engine” will do fine. Those who make the “cars” will do better.

Failure to Tweet

2010-03-25T13:51:00.000-07:00

The world got turned on its head the other day when a man was arrested for failing to tweet. According to the Associated Press, Justin Bieber's manager was arrested on charges of reckless endangerment and criminal nuisance. Police say that his past November he had failed to respond to a request to use twitter to cancel an appearance at a mall that had become unruly (http://bit.ly/aq4y8Q).

At first blush the story strains credulity. Instead of arresting the manager Police might have arrested Bieber over his hair cut or his “I’m so cool” hip-hop stare. In their best Steely Dan manner they may rightly have wondered “where did you get those shoes” and arrested him for wearing them. Add to all that is the fact that he’s only 16, he’s Canadian, and he’s getting rich.

The police could have arrested his fans for being, well, his fans. They even could have arrested Beiber’s manager over his name: "Scooter" Braun… What they did was arrest Braun because, they claim, when asked to tweet he did not (at least not for over an hour) and thus he created a criminal nuisance.

If we take this on face value it says that local law enforcement is so attuned to the utility and ubiquity of social media, in this case Twitter, that the failure to use it responsibility overtly implies participation in or liability for the acts of others in your social network.

This makes for an interesting contrast with friends and colleagues of the Boomer Generation who declare Twitter a waste of time and generally turn up their noses at it.

I haven’t the faintest idea about what will happen with Scooter (there are already “Free Scooter” t-shirts). I will predict that if local law enforcement believes they can assume Scooter Braun will behave as a responsible public person through his social network then so will others. So will your boss expect that you behave through your social network. So will your customers and competitors.

Working on Step 2

So we have a handful of trends and data points. Last summer CIO Zone published an article about 12 CIO’s who have embraced Social Media. The same day that Scooter-gate hit the press they published an article about another 8 CIO’s with the same convictions.

The CIO of Microsoft, Tony Scott, has been interviewed about social media “in the enterprise” Microsoft saying that its actually social media “in life” and that they were going to entirely invert their previous position on the consumerization of IT and orient their infrastructure to support the technology their employees bring to the firm rather than force their employees to fit into an IT-generated cookie cutter.

The Mahatma Meerman-Scott has his Four Questions about marketing that make it crushingly clear, no matter what else you do, you must market your firm and products through the web and through social media.

And now we have people exposed to criminal charges over failure to avert a pre-pubescent public disturbance via Twitter.

Whether you are working on internal corporate communications or external customer and supplier outreach you will be more effective if you do it with Web 2.0 technologies. They are less expensive, more effective, and more flexible than e-mails, press releases and web-sites. Do like Walton Smith at Booz Allen and connect interested internal parties around competitively compelling bodies of knowledge at the time and pace they can absorb it. Do like Dell and create a profitable market for returned and refurbished equipment. Do like Michael Hyatt at Thomas Nelson Publishers and bring your entire organization into direct, conversational touch with customers helping to create a more personal and persistent relationship.

Do something like what these people do. If you wait until its “proven” you lose.

Be Careful in the Custom Infrastructure Wasteland

2010-03-08T12:05:00.000-08:00

An interesting article was posted today at CIO Zone. The article was titled “Cray Teams with Microsoft on Cloud Computing.” Apparently Microsoft and Cray plan to work together on cloud computing systems. Cray is a supercomputer company. Microsoft is a well known provider of software for PC’s and servers... I find it interesting in that on first blush these are strange bedfellows and neither is “top of mind” in this market. It appears to me that they’re trying to get into the game.

The two have formed a partnership whereby Cray’s custom engineering group will work with Microsoft Research (italics are mine) to explore and prototype cloud computing infrastructures. They’re focus is to “dramatically lower the total cost of ownership for cloud computing data centers” through the application of “latest breakthroughs in high-density packaging and cooling technologies.” According to Cray this is the engineering group’s first move into the commercial market. Until now they have designed and delivered custom solutions to the specifications of an individual customer.

In previous posts I have referenced the Everett Rogers’ Diffusion of Innovations and Geoffrey Moore’s application of this idea to the marketing of technology solutions in Crossing the Chasm. In those models today’s announcement involves two innovators who are enthusiastic about their technical prowess and the contributions they can offer. They will likely construct some impressive prototypes and go to beta with a few customers (including themselves). Then they will face the challenge of getting material adoption from the market at large.

If history serves the Cray and Microsoft technology enthusiasts and visionaries will have a hard time convincing the wider “pragmatic market” to adopt their solutions. For one thing, as enthusiasts and visionaries they will tend to have a tin-ear to the non-technical buying patterns of the market at large. The pragmatic market wants providers with track records that cover not just the technical but the financial and support aspects of the buying decision as well. They want providers with organizational infrastructure and history. They want reliable, long term partners from that space. This is a new market for the partners.

For another thing, by the time the partnership is ready to go the relative importance of their packaging and cooling technologies will likely diminish. Theirs may always be better than what competitors offer but it will be hard to be so much better that it sways buying decisions in the face of other benefits competitors will bring. In large scale computing like Das Kloud everyone is working on energy conservation. So-called Green Computing makes everyone feel good and saves a lot of money. Other technically advanced and well heeled, long-time players are hard at work on their own efficiencies. Cray’s advantage will have to be substantive to drive very many decisions by customers.

Still, some IT management can’t resist the temptation to use “the new new thing.” In one ancient example a colleague was surprised to find that the IT director, unsatisfied with the IBM operating system that came with his mid-range device, had written his own, “Chief/370.” In another, a major insurance company’s technical services group was unsatisfied with the transfer rates and job control capabilities in the standard labels for data center tapes and wrote their own. They were internally efficient and had no upward compatibility at all and could not share files easily with others.

More recently companies are building their own content management systems or buying “unique and innovative” Enterprise Service Busses. In all of these cases the maintenance and support of the technology becomes an internal, un-leveraged expense versus a shared expense across all users of the technology. Sometimes you don’t even get to an operating solution. Not long ago a major financial services firm planned to rewrite all of their 30 year old core account management systems in a solution so elegant it required proprietary, early-stage processors. Soon enough the runaway project collapsed and hundreds of millions of dollars went wasted. The hardware vendor collapsed too.

Working on Step 2

Previous posts have shown the total cost of ownership relationship between developing systems and the down-stream costs of maintenance, support and operation. If the underlying infrastructure you are using is unique to you or shared by a very few others your total cost of ownership for that portion of your applications portfolio will be high, in some cases prohibitively.

On the other hand, if the only thing you do is employ technologies that are widely installed and thoroughly market tested it is unlikely that you will be able to generate any material competitive advantage from information technology. For most companies it becomes important to not only keep an ear to innovations but to pursue them from time-to-time. How to proceed?

My first suggestion is that you soberly set your context in business terms. Either you work for an aggressive company or you don’t. There is an expectation that managers try new things in some companies. In others managers have less leeway. All companies experience change. Perhaps your company is experiencing more change in the nature of the competitors you are facing, in how people are winning (or losing), in what the future holds. The more aggressive your corporate personality, the more leeway managers have, the more change your industry is facing the more innovative risks you should consider.

Still, when considering risks be hard nosed about it. Malcolm Gladwell published an instructive article in The New Yorker in January describing how true entrepreneurs like Ted Turner, Sam Walton and the hedge fund manager John Paulson, were not actually wild risk takers. Instead, they were thorough, detail-oriented and, once they fully understood an advantage, very aggressive. The people who thought they were risk takers, or crazy, hadn’t done the homework that showed they had a sure thing on their hands.

You may well want to use a burgeoning rules technology or a better business intelligence platform or cloud computing from Cray and Microsoft. Make a thorough analysis of all your options. Know the total cost numbers objectively, deeply and coldly. Do not sugar-coat your internal support costs or the risk that you’ll have to provide more support than the vendor or your internal enthusiasts think. It’s always better to have others in the buying pool with you. Being the only owner of Chief/370 is a disaster. Have some company you can talk openly and bluntly with.

Lastly, give yourself an out. When sitting in design meetings you’ll have discussions about establishing structured interfaces between modules and systems or using an SDK from the vendor (that may well be under design as you’re talking). These are important discussions. A friend often said that “an interface is a freedom creating device. If you obey it you can do whatever you want on your side.” In this sense establish an interface between all other systems and the technology innovation. If the innovator’s solution doesn’t prove out you can move on to another solution. By then the market may well have surpassed the innovator. Unless you like failure do not accept the compromise of speed-to-market for fudging on this out. If the project gets behind or gets costly then adjust the budget and timeline or get out. The minute you customize the solution it’s broken and it’s yours and that’s rarely a good thing.

The History of Social Media: Part I

2010-02-15T12:48:00.000-08:00

Early in Mel Brooks’ “The History of the World: Part I” Moses goes up the mount to see the burning bush and receive the word of God. Coming down with three tablets Brooks as Moses says “The Lord, the Lord Jehovah has given unto you these fifteen... [drops one of the tablets] Oy! Ten! Ten Commandments for all to obey!

My own experiences have gone in the other direction. When working with CIOs and their staffs to define the concept of the “IT Utility” we proposed seven major attributes that a utility has. My CEO said that there were “Ten Principals of the IT Utility.” We asked him to describe the other three. He suggested he only knew there were ten and that we had to go back to work. With a little word-smithing, conceptual parsing and verbal padding we got to the magic number.

It is with this jaundiced view that I recently read Brian Solis’ Ten Stages of Social Media. If you haven’t read Solis you might want to. He’s a very knowledgeable marketeer especially in the realm of Social Media, its role in marketing and how corporations can take advantage. That said I doubt there are “Ten Stages” of it (or much else). And, although the article has much to offer it doesn’t lay out “stages” as much as a combination of things to do or accomplish (e.g. Finding a Voice and Sense of Purpose) and management concepts (e.g. Business Performance Metrics).

I was expecting something along the lines of the Diffusion of Innovations model generally popularized by Geoffrey Moore in his book “Crossing the Chasm.” The chart below shows how different groups of consumers, described by Moore to have very different buying behaviors, will buy an innovative product as its market share matures.

- Diffusion of Innovations by Everett Rogers -

In this model Innovators are well-informed risk-takers who are willing to try an unproven product. Early Adopters tend to be educated opinion leaders who, based on the positive response of innovators, begin to purchase the product. The Early Majority are careful consumers who tend to avoid risk. The early majority adopts the product once it has been proven by the early adopters. The Late Majority are somewhat skeptical consumers and Laggards avoid change and may not adopt a new product until traditional alternatives no longer are available.

My sense of the world is that Social Media in business, writ large, is leaving the world of the Early Adopters and is at the front of the Early Majority stage. This would explain much about all the noise regarding return on investment measures for Social Media. Moore’s chasm is focused on the cultural and mindset conflicts between Innovators and the Early Majority. Innovators have internalized the vision. They understand and believe it. The Early Majority insists on being shown.

But the question remains, what is the state of Social Media inside large organizations, individually, and what should they do about it?

Working on Step 2

For a guide map on this we need to turn to what Dick Nolan and Chuck Gibson called “The Four Stages of EDP Growth.” Taking Everett’s model and defining the market to be served as a business and its functions and processes Nolan and Gibson described four stages a company goes through in learning how to manage IT (Initiation, Contagion, Control, Maturity) and the four “growth processes” that influenced progress (Applications,Technologies, Organization and Management, Users):

Originally designed to examine all of IT in a company I suggest we can employ this model to examine the progress and prospects for Social Media within companies.

If you consider your own company and its use of Social Media in business you should be able to place yourself on this map, growth process by growth process. I suspect most companies are finding that Social Media use is proliferating, that it is doing so on multiple, replicating platforms, that the organization that supports it is becoming more than technical, they’re supporting expansion and that the users of the technology are both excited and uninformed.

Healthy progress requires that the four growth processes are at similar stages of maturity. If your users remain totally unaware while your governance actions reflect the strictures of the 30 year old IT function you will have a mismatch, conflict and waste. If you are trying to "proliferate" Social Media across your possible uses but do so only with the one technology your initial trial used you will have another mismatch, more conflict and more waste.

You may find that the customer care organization’s use of Social Media has made more, or less, progress through The Stages than your product development organization. Examine where they each are, the overall structural health of their efforts. Take actions to make them healthy and set a date to examine whether to Rationalize their applications and begin a process of Integration.

From “The Department of Pay Me Now or Pay Me Later” if its likely that currently independent efforts will be rationalized in the future management must make it hard, very hard, for them to deliberately make technical and implementation design choices intended to slow that future day down. Such actions are selfish and expensive and in almost all cases eventually fail. Let the market decide, not fiefdoms.

Your customers have the option of buying into a new product or technology. Inside a corporation there are two models for the diffusion of innovations: collective innovation decisions and authority innovation decisions. The collection-innovation decision occurs when the adoption of an innovation has been made by a consensus among the members of an organization. The authority-innovation decision occurs when the adoption of an innovation has been made by very few individuals with high positions of power within an organization (Rogers 2005, p. 403).

If consensus can’t be achieved then an authority-intervention decision will be made. For this instance Brooks, this time playing Louis XIV at Versailles, reminds us “It’s good to be the king.”

Rock Icons and IT Thought Leadership

2010-02-02T09:15:00.001-08:00

Mechanical calculators or computers date at least as far back as the 150-100 BC with the creation of the Antikythera mechanism. In more modern times Charles Babbage created his mechanical difference engine in the 1800’s. John Von Neumann outlined the architecture of modern computers in the first half of the 20^th Century based in part on ENIAC, a military computer developed by J. Presper Eckert and John Mauchly. They then made it generally practical with the first commercial computer, the UNIVAC-1. Admiral Grace Hopper made that invention accessible in business by inventing COBOL, COmmon Business Oriented Language, the first business move away from ones and zeros, computing for the business masses.

These relatively technical accomplishments were soon complimented by people who studied the effect of computing on business and how to manage computing in business. In the 50’s John Diebold coined the use of the word “automation” to reflect the use of computers in this way. Based in part on the Diffusion of Innovations concepts developed by Everett Rogers in the 60’s, in the 70’s Richard Nolan and Chuck Gibson wrote “Managing the Four Stages of EDP Growth” signaling an understanding that a business’ ability to manage computing, to manage IT, had predictable evolutionary steps. In the 80’s Michael Hammer led the revolution in Business Process Reengineering.

These were and are the great thought leaders in IT and IT Management. We all stand on their shoulders. But of significant concern is where are the subsequent generations of thought leaders for how IT and business interact? It’s been quite some time since “reengineering.” As is often the case Rock and Roll provides the answer.

One of the first generally recognized rock icons who wrote on the role of IT in business was John Lennon. Expressing a visionary viewpoint he wrote:

Imagine there’s no hunger,

It’s easy if you try

Computers are transformative

No need to wonder why.

As it happens these original lyrics were edited in studio.

Mick Jagger was contemporaneously writing practical observations on the yin and yang between business goals and technical visions and what can actually be done within a given time period, with a given set of IT skills and a given budget. Influenced heavily by Fred Brooks and The Mythical Man Month Jagger famously (and repetitively) wrote:

You can’t always git what you want

But if you try sometime

You might just find

You get what you need

Jerry Garcia was a keen observer of this scene. He was especially interested in CIOs, their careers and what it took for them to succeed. He would immerse himself in the life of a CIO-at-a-time, chronicling their struggles, how they overcame obstacles, and the successes they settled for. Garcia’s most telling commentary on this was from Truckin’ with the line “What a long, strange trip it’s been.” As a side note Jerry Garcia and Tom Davenport have never been seen in the same place at the same time.

As we entered the age of outsourcing Warren Zevon described the optimal approaches to defining which services to outsource, which vendors to consider, how to choose a vendor and how to negotiate with the vendors. This last was summed up with:

I'm the innocent bystander
Somehow I got stuck
Between the rock and the hard place
And I'm down on my luck

Send lawyers guns and money!

More recently Lady Gaga has been writing about the difficulties of outsourcing contracts gone bad with: “Want your bad romance, caught in a bad romance. Rah-rah rah-ah-ah. Roma roma-ma-ah,” though the meaning of the last phrase remains unclear.

The Foo Fighters have been writing on the conflicts between reinvesting in current systems or “going greenfields” and replacing existing applications and infrastructures: “Well we all want something ‘better than,’ we wish for something new.”

IT professionals are constantly being sold by vendors. They’re constantly being besieged by users. They’re constantly being reviewed by auditors and CFO’s. Whatever certifications they have are always going out of date as the technology relentlessly marches on. Still, IT generally succeeds. Much is written about how IT may or may not be strategic. The proof is in the widespread consistently improving use of technology in business. On these points, in the song “Handle Me with Care” The Traveling Wilbury’s wrote:

I’ve been fobbed off and I’ve been fooled

I’ve been robbed and ridiculed

In [data centers] and night schools

Handle me with care….

I’ve been uptight and made a mess

But I’ll clean it up myself, I guess

Oh, the sweet smell of success

Handle me with care!

Do you have a favorite rock icon who writes about IT thought leadership? Use the comments to let us know about it.

The Vogons Have Noticed Social Media

2010-01-18T11:25:00.000-08:00

Cisco Systems recently published a report on Social Networking in the enterprise. Its an interesting read in that the interviewees discuss how social networking is helping corporations interact better, more completely, more successfully with customers and partners. But the report also says that, though this is a nascent, just starting phenomenon sure to generate significant success, out next move should be governance and control.

Cisco's report is saying that just as Web 2.0 is establishing what amounts to a "critical mass" of business and market purpose and value our bureaucrats, our Vogons (see the bottom of the post for more), should investigate and write up their reports on appropriate control, in triplicate.

Such a suggestion would be putting the cart before the horse to Dick Nolan and Chuck Gibson. They long ago introduced the concept of sigmoid curves (of spending) to explain how organizations investigate, adopt, spread and then professionally manage new technologies in support of organizational goals.

Slide 1

Adapted from "The Four Stages of EDP Growth" by Cyrus F. Gibson, Richard L. Nolan,
HBS Publications, Prod. #: 74104-PDF-ENG

By my reading most companies are in the early part of the contagion phase. They've established that there are ways to use Web 2.0 that produce good business results and they want more. Since its easy to install and adapt, and since its not expensive, most companies will be doing quite a bit more of it in the near term.

Cisco's report has quotes on this. "The rise of the connected consumer is driving a market shift in the enterprise,creating 'people-powered business' where social networking tools and collaborative technologies are the propeller of the next-generation of productivity and bringing about a fundamentally different leadership model." And, "successful companies in the 2.0 world are those that are tying.... social networking initiatives into their wider strategy and are able to create meaningful connections with their communities."

A Cisco interviewee, Baz Khuti, Chief Architect at Emerson, talk, about how "effectively improve the speed and agility by which we can make business decisions and interact with our partners. Additionally, they provide insight into what's going on within different parts of the organization, as well as customer usage of our products and market trends."

There will be a time for control. There are some concerns now about security and the use by neer-do-wells of the interactive nature of Web 2.0 to introduce worms and viruses into corporations. But we are just now ramping up into full use and meaningful benefits. This is the time to invest not the time to administer and count beans.

During the front end of the Contagion phase set out an overall plan, major initiatives and a budget (that you will not be overly surprised if you surpass it). Don't worry too much about how managers around the company are pursuing their own initiatives. You won't be able to find them, you haven't the controls and the time to do so, and you actually don't want to stifle innovation experiments that your intelligent, professional, market-oriented, capable managers engage in. If a project is large enough, and few will be, it will come under standard expense and capital management reviews. If you can allocate the time and money to an effort within your budget then pursue as much of a financial justification as you need to support the effort.

By the time Contagion is coming to a close everyone in your organization will understand that you are collectively spending significant time and effort on Social Media and doing so in myriad ways. You'll likely have had one noticeable failure and/or one truly impressive budget overrun. You'll also have so many ways in which you're using Social Media that it has become part of the way business is done (watch the front end of this interview with Tony Scott, Microsoft's CIO, where he discusses both Social Media inside his enterprise).

There will be LOTS of successes. What you don't want to do before you've hit critical mass is slow down your Stage 2, your contagion, with the formulations of Stage 3, control, before its time to implement them.

From Wikipedia about Vogons -

The Vogons are a fictional alien race from the planet Vogsphere in The Hitchhiker's Guide to the Galaxy series by Douglas Adams. Vogons are slug-like but vaguely humanoid, are bulkier than humans and have green skin, although the movie has them have greyish white skin . Vogons are described as mindlessly bureaucratic, aggressive, having "as much sex appeal as a road accident" and the writers of "the third worst poetry in the universe". They are employed as the galactic government's bureaucrats.

Social Media Marketing Stands at the Chasm

2010-01-14T18:16:00.001-08:00

(Or, "How to Stop Worrying and Learn to Accept the Need for ROI)

Recently I attended a seminar at the Harvard Business School that featured David Meerman Scott, the consultant, speaker and author of the book “The New Rules of Marketing & PR.” Scott spoke about Social Media and business marketing. His was by far the best talk I have been to in quite some time. Scott is a marketing careerist who is an early adopter and proponent of the use of Social Media (YouTube, Twitter, Facebook, LinkedIn, etc.) in marketing. He is experienced, knowledgeable, engaging, and entertaining.

Scott had my attention very early in his talk. He asked the participants, many of whom are the “old guard” of Harvard Business School’s theories of marketing, these four questions:

In the past two months, either privately or professionally, in order to find an answer to a problem, or to research or buy a product, have you:

Responded to a direct-mail advertisement?
Used magazines, newspapers, TV or radio?
Used Google or similar search technology?
E-mailed/texted/chatted with a friend, colleague, or family member and received as a response a URL which you then clicked to visit the web site?

As it happens audiences around the world, in many different forms and contexts, answer pretty much the same way. Few of us buy or do research via direct-mail or the traditional media of magazines, newspapers, TV or radio. Everyone uses search technology and web-based interactions to find out what’s available, what’s hot, what works, what’s the best deal, and what to do. Everyone.

Scott’s talk made tangible my already existing instinct that Social Media was the thing to do.

But, many people have not experienced such a revelation and remain unsure of Social Media. Some are quite hostile. A large portion of the populace thinks it’s for geeks and or charlatans…

- Figure 1 -

One way this is expressed is in a question that has gotten under Scott’s skin, “what is the ROI of Social Media?” His reaction to this seemingly innocuous question was the one off-note key of the presentation. He really hates it when someone says “show me the ROI.” Just the day before he had gone on what he calls “a rant” (listen here) about his frustrations with constantly being asked to provide, demonstrate, or describe the path to the ROI for Social Media in business.

The visionaries, like David Meerman Scott are often frustrated by the requests of business to provide a financial justification for two main reasons. The first is “can’t they just see it? Can’t they see the time we’re wasting? We have to go NOW!” The second is centered on the reality that when management isn’t ready to deal with a subject, doesn’t want to invest, they often ask for an analysis such as an ROI, claim that the underlying assumptions are questionable, and effectively say “no.” It’s a deliberate waste of the visionary’s time. Nobody likes to push on a rope, certainly not a visionary.

But this is not new. At each brand-new age in IT the proponents are asked for an ROI and they tell those who hold the purse strings, “you just don’t get it.” They get on their “you’re such a Luddite” horse and dismiss as irrelevant those who would challenge the vision. The question and the frustration with it are as old as time. It happened with distributed processing vs. mainframes, PC’s vs. central IT, the Web versus proprietary networks and is apparently happening, right now, with Social Media for business (and plastic corks for wine...).

Working on Step 2

Eventually proponents of each new technology or process or approach understand that prior to gaining significant investment those who are responsible to shareholders and management need to be shown why the proposal is a good idea and why and how it will produce a beneficial financial return. Eventually the proponents who said “you don’t get it” realize that it is they who don’t get it and we all get down to business.

The song they’re singing is called by Geoffrey Moore, another marketing maven, “Crossing the Chasm”. In his work he argues there is a disconnect between the early adopters of the product (the technology enthusiasts and visionaries) and the early majority (the pragmatists). Moore believes visionaries and pragmatists have very different expectations creating a gap between the market as viewed by what visionaries offer and what pragmatists are willing to buy.

In Crossing the Chasm (and the closely related to the Technology adoption lifecycle) five main segments are recognized; Innovators, Early Adopters, Early Majority, Late Majority and Laggards. Moore’s recommended strategy is to focus on one group at a time: Innovators then Early Adopters and so on, using each group as a base for marketing to the next group. The hardest transition, and the location of the chasm that Social Media faces, is making the transition between visionaries (early adopters) and pragmatists (early majority). If you make it through to the end you have yourself a world-class success.

- Technology Adoption Lifecycle -

Crossing the Chasm is, for want of a better term, about a cultural conflict. Early Adopters are the visionaries who have the insight to match an emerging technology to a strategic business opportunity driven by a dream. As a buying group, visionaries are easy to sell but very hard to please. "You can succeed with the visionaries, and you can thereby get a reputation for being a high flyer with a hot product, but that is not ultimately where the dollars are. Instead, those funds are in the hands of more prudent souls who do not want to be pioneers"

The Early Majority are pragmatists. "They care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get. Pragamatists tend to be 'vertically' oriented, meaning that they communicate more with others like themselves within their own industry than do technology.

There are four fundamental characteristics of visionaries that alienate pragmatists:

Lack of respect for colleagues' experiences.
Taking greater interest in technology than in their industry.
Failing to recognize the importance of existing product infrastructure.
Overall disruptiveness.

It is very difficult to break into a new industry selling to pragmatists, and that’s essentially what Social Media is attempting to do in overall corporate marketing. References and relationships are very important. Pragmatists won't buy from you until you are established, yet you can't get established until they buy from you.

Moore says "Overall, to market to pragmatists, you must be patient. You need to be conversant with the issues that dominate their particular business. You need to show up at the industry-specific conferences and trade shows they attend. You need to be mentioned in articles that run in magazines they read. You need to be installed in other companies in their industry. You need to have developed applications that are specific to their industry (italics mine). You need to have partnerships and alliances with the other vendors who serve their industry. You need to have earned a reputation for quality and service.”

For actual chasm crossing tangible, “relevant to my situation” applications have a huge advantage. They are most likely to be championed by end users. Applications are what an end user sees. If the application fixes a strategic challenge they can be used to generate a business case. Certainly Social Media, with its very low costs of technology, should be able to do this. To accelerate the adoption of Social Media techniques and tactics we must tie them directly to an application, to a business case, in order to gain the end-user sponsorship necessary to succeed.

To cross the chasm, Moore advocates that a company focus on a single market, a beachhead, win domination over a small specific market and use it as a springboard to adjacent extended markets to win. So, if you haven’t dipped your toes in at all, don’t try and apply Social Media everywhere at once. Choose a market or a channel. If you have been working Social Media pay attention to those activities that succeed in Social Media marketing and find the tangible ways they generate business value.

Back to Meerman Scott, don’t make the content about your product. Make it about your customers’ interests. This is not coercive marketing/advertising. For this portion of your content at least expect it to be customer-participatory and contributory and by definition you have to relinquish message control. Get involved in the on-line communities your target market participates in. Create triggers in content that encourage people to share and point them to your virtual doorstep (where you can sell to them ‘cause they’ve opted in).

To convince internal or external investors, those with the purse strings, show a planned deployment of resources and an expectation of the Awareness and Interest you will generate, how you’ll know if you succeed, and what you’ll do if results are good, bad or indifferent. Make them confident you know what you’re doing. They’ll get that and you won’t seem so “reality challenged.”

Let's Get Small

2010-01-12T06:23:00.001-08:00

(this post is expanded, in content and images from an article published at IT Business Edge)
After toiling in obscurity, learning the hard way about stand-up comedy and how to play the banjo, Steve Martin started catching on in the 1970’s hitting the big time with a comedy album titled “Let’s Get Small.”

The title and the bit by that name are nominally an absurd twist on the drug culture of the time and the phrase “Let’s get high.” As it turns out there is a theory that Martin was actually prescribing how to manage a portfolio of IT projects. Researches have debunked the theory that Martin was recommending that IT management parade around the office with arrows through their heads and wearing Groucho Marx glasses…

The longer each project is the less likely that you can properly define all its goals much less achieve them much less ensure yourself and your colleagues that the effort was worth it. If you have a long-term goal, a roadmap, that’s fine. Get there in pieces with tangible benefits coming from each step.

This reason is that, no matter what we’re doing, from target sports to planning out a systems initiative, our aim is much better on short shots than it is on long ones. The longer the shot, or project duration, the harder it is to see, understand, explain and focus on the target. Even if you can do those, the longer the project duration, or shot, the harder it is to actually take aim at all much less deliver what you intended.

With a little thinking you can predict how far off your aim is likely to be and, using that information, have a sensible discussion about what should be the limits on individual project duration. To keep the example simple let’s assume that whatever you think is the right thing to do today will, in one year’s time, be off by 20%. There are many reasons, among them: technology will change, vendors will collapse, the economics of your business will change, skill sets will enhance, and new competitors will enter your market forcing new ways to compete.

If you had $3 million to spend and you embark on a large-scale 3 year project, due to compounding year-over-year change your vision will be off by 20% after one year, 36% after two years, and nearly 50% after 3. Few projects are managed that way except for the “we have to replace the core systems” projects. The compound inaccuracy of vision and reality is one of the reasons so many of them result in runaway projects (I’m thinking of three that I’m familiar with right now).

If you took that same $3 million and spent it on a series of $1 million dollar, 1 year projects the visions would miss the targets by 20% each year, but never more than that. Break it down again into 6 month chunks and the maximum mis-alignment is 10%. Go “extreme” and require all projects to deliver value in 3 month chunks and you’re never off by more than 5%:

In terms of protecting the bottom line there is no question that making projects small is the best possible thing to do, to a point. Just going from one-year projects to maximum 6 month projects enhances the value for the dollar by 10%. This is big money especially in tight money times.

This analysis must be tempered by the time, effort, and distraction you receive from repeatedly going back to the drawing board to set new goals. If you chunk up a long-term project one frequently runs the risk of losing funding from phase to phase as “higher priorities” arise or as the ROI on Step 3 is attacked as too weak to fund even though it’s fundamental to Steps 3-6. Then there’s the ego/glory factor. Business and IT managers alike often prefer the big budget projects with the big resume impact they carry.

This is where a plan or a roadmap comes in. Susan Cramm suggests you get the money but spend it right. What she’s on about here is something akin to the Apollo program. There was a goal set out, get to the moon by 12/31/69, but the plan in 1961 only laid out the macro steps and the near-term efforts. On an effort like that, since it had never been done before, they couldn’t plan “beyond their headlights.” Most business projects are not that sophisticated. That said, the underlying business conditions and assumptions are constantly changing and so must project definitions.

Speaking of cramming… Do NOT use this as a license to request 7 months of deliverables and their required effort in 4 months time. This is an exercise in maintaining “alignment.” There are myriad ways people try and take time off a professional job. My personal favorite is “don’t do testing,” which is fine if you want to be highly productive at delivering systems that don’t work. The value of this approach lies only is keeping resources and time for tasks as they must be but re-adjusting your aim on a regular and timely basis.

If you set and execute a long term vision, planned out up front without down-stream adjustment you will miss the mark by a wide margin. Set long term goals but limit your systems definitions, designs and efforts to short-as-possible projects with tangible benefits. At the end of each take a short breath, reset your sights, and do it again. Get small. It’s the way to win.

Making Progress with Social Media

2009-12-29T14:07:00.000-08:00

Marketing expert Deborah Overdeput suggests three main reasons why Social Media is important to business. She says it allows a company to build a community and engage in two way dialogue with customers, the media, partners and other key external stakeholders, and internally with employees.. It allows for collaboration through what Social Mediaistas call “crowdsourcing,” to enhance products, gain insights, and improve customer service. And, it enables a company to reach a broader market with fewer dollars.

Brian Solis recently posted data from a Visible Technologies and Sirius Decisions survey (from the eMarketer website) on the reasons US B2B companies use social media. The top reasons correlate with Deborah’s.

As Polis says, “perhaps one of the more understated benefits of social media in B2B is the ability to establish and foster expertise within a given industry or niche. Everything comes into focus by reverse engineering who you need to reach, at what level, where they go for answers and direction, who do they look to for insight, and who are they connected to and why.”

And, buttressing all this, a recent post discussed McKinsey’s global survey and how it showed steady, substantive increases in Social Media and Web 2.0 adoption rates and investment plans by business with a focus on Social Media.

But many people don’t yet see the value. They may be willing to “friend” you, but haven’t begun to see the business or commercial value. It’s alien or ge eky:

You may agree that it’s geeky and take no interest at all. You may think that the acolytes of blogging and twittering and wikis are not only wasting their own time but yours in taking so much of the corporate agenda jabbering over tools that your kids use to arrange Mall Dates.

Working on Step 2

It’s a sure bet that some businesses are better suited to the use of Social Media than others. I believe that Social Media is relevant, to some degree, to all business and it’s a matter of fit whether it will drive or merely support your company’s delivery of messages and interaction with markets. What you don’t want to have happen is to be firmly in the doubting camp when the Social Marketing success is achieved transforming you instantly from a challenger to a Luddite.

One thing to watch for is small victories in the use of Social Media to cut through the layers of your business. Consultants like to talk about crossing or cutting across and through silos. Some call it “disintermediation.” They mean taking out intermediate steps, processes, systems and people no longer needed to get to an end point. It may be a long time, or it may be tomorrow, but a Social Media’s success at this is likely to occur in your business and you don’t want to be the last to know.

In a much simpler time (1980’s) I witnessed a sea-change from the first top-down use of e-mail inside DuPont. Before PC’s were ubiquitous the head of a small division within the Textile Fibers department embraced e-mail via CRT’s attached to minicomputers as a method to questions directly of people down the management chain. He quickly established direct flows of information with experts on plant floors or in engineering labs who were elated to talk directly to the boss about production issues and opportunities. He was able to ask his direct reports what they were going to do about things that they often did not yet know were going on. He drove the division to cut 9 management layers to 4 and to greatly speed up decision-to-action cycles. His division became leaner and faster and more successful, he was promoted to head the department, the entire department transformed and those who insisted on the traditional flow of reports from manager to manager to manager lost roles and influence.

In a recent McKinsey interview, Andrew McAfee of the Center for Digital Business at MIT’s Sloan School was asked how business will make progress in the use of Social Media. McAfee “[finds himself] agreeing more with the top-down crowd, though. We know how important it is for management to create culture and to signal what’s valued inside the organization.”

I agree. There must be activity on both ends but the sea change is imminent when someone, from a top-down perspective starts his or her “disintermediation” between themselves and market awareness and interest.

If you are a skeptic about your company’s use of Social Media don’t criticize the faddishness or the geekiness of the technology. Whether you’re the decision maker or a participant/observer in management do challenge the Social Media efforts to create a new flow of information, findings, hypothesis and decision making within the company. In the same manner, challenge the efforts to create interactions about markets and within markets, especially interactions external to the company and about needs and opportunities that you should address (versus, perhaps, the ones you are addressing).

Because Social Media flows inside and outside the company you may need to look less for a reduction layers (as in the 1980’s) and more one of creating a 360º perspective on strengths, weaknesses, opportunities and threats. As McAfee says, you can lay the tools out there but you must participate. In Social Media it is not enough for the company president or head of marketing to have a blog but her blog has to allow for comments and feedback. It must be a successful vehicle for company participation in conversations, internal or external, without going through 20^th Century layers of managers and processes.

What the Future May Hold for Mortgage Originations

2009-12-10T12:16:00.000-08:00

As we exit the era of easy mortgage credit some hints as to what the next era of Mortgage Originations will entail are emerging. Gone are the armies of investors willing to buy mortgages and turn them into securities. In 2006 in preparing a plan to build out investor guidelines for an automated underwriting service we uncovered 65 investors with 760 products and programs represented an estimated 80% of the market. Smaller, one-off investors brought the total well over 100.

We now have fewer than 20 substantive investors with the broad majority of loans bought by seven: Fannie Mae, Freddie Mac and the top five banks. Gone are the endless variety of programs and products that each investor offered in an attempt to attract more business and to serve increasingly unique markets. There are a handful of available conventional loan types to choose from, period.

The retrenchment has been painful for all participants, from borrowers to investors and to the US taxpayer. In terms of industry players, according to Implode-O-Meter, since late 2006 371 major U.S. lending operations (mortgage banks, conduits and investors) have failed. Along with those failing lenders are rates and quantities of defaulted loan payments, foreclosures, home abandonment, and destruction of neighborhoods not seen since The Great Depression. One measure of the scope for homeowners is that according to US Treasury, reporting on only the Making Home Affordable Program through October 2009, there are 650,000 Trial Modifications underway out of 900,000 offers extended to borrowers and 2.75 million borrowers have been sufficiently concerned to receive the form needed to apply. That’s three million homes asking for help. And in response, Linda Simmons reminds us, “Industry innovators are doing workouts, not production.”

Still, while we work through that a new origination world is emerging that has many of the ”local banking” hallmarks of a bygone era while taking advantage of the healthy aspects of the leverage engine built over the last quarter century but misused in the mortgage meltdown.

And these companies are hiring. As Rob Chrisman notes, "the number of mortgage companies which are interested in expanding. For example, First Centennial Mortgage, out of Illinois, is sending out e-mails looking for originators. First Priority Financial, a retail shop out of California, announced that they were buying Austin Perry Financial, a wholesaler also based in California. CMG Mortgage has been expanding, as has Opes Advisors, Stearns Lending, American Pacific, etc., etc. (just a small sample from here in CA) – the list goes on. This is an interesting trend, as perhaps small to mid-size bankers are indeed seeing the origination “pie” shrinking in 2010, and are looking to maintain volumes and increase market share. An the hiring is not only taking place in the loan officer area but also operations and back office support."

Most current mortgages are so-called conforming mortgages. They are approved by Fannie Mae or Freddie Mac and, compared to 2005-2007 are conservatively underwritten. Since it is safer to loan to someone that is known to the bank (instead of through a broker) banks are performing loan origination almost entirely with in-house loan officers and local branches, especially for so-called community bankers are doing great business. Being local, in the community that the loan is being made, is a key method being used to try and mitigate this risk.

What is different from the days of 760 products is that each of the investors that are offering to buy the conforming Freddie/Fannie loans are layering on extra conditions to ensure, really ensure, that the loans will perform. One reason is that with all of the disruption in the markets noted above it’s very hard to estimate the value of a house and thus the risk being taken by borrower and banker and the acceptable amount of money to lend. With the disruption in employment having a large current impact on mortgage default rates credit risk is a sensitive issue to investors. With the dismantling of easy credit through the dissolution of the sub-prime market fraud risk has become a much more significant concern to mortgage bankers than just a few years ago.

If originators don’t apply extra filters then loans fail they will be forced by the investor to repurchase the loans. The cost to the bank of this is crippling, a handful of repurchased loans wiping out profitability of a quarter’s worth of originations and all the work that went into them. Quoting Linda Simmons, “Despite some fuzziness in the process, investors want no surprises in pricing/fees, compliance and eligibility when a loan is delivered. None, zip, zero surprises.” Bankers respond by gathering far more data on loan applications than recently and by underwriting and re-underwriting loans prior to submitting them for approval.

Additionally, in the near term interest rates are very low. Jay Brinkmann, the Mortgage Bankers Association’s chief economist and senior vice president for research and economics is predicting that rates will rise through 2010 (though to what level and when is hard to predict). If he’s correct it makes it less likely that borrowers with newer mortgages will refinance. Why go from a low mortgage to a higher one unless you have to move? This reduces the rate of early prepayment of mortgages and enhances the value of mortgage servicing rights. Bankers see this and are increasingly retaining servicing rights to ensure longer term profitability where a few years ago they would sell them and take the cash to invest in more originations. The exception appears to be for FHA and VA loans. These loans prepay for a variety of reasons, including the sale of the house (when the mortgage is not assumed), refinancing, delinquency buyouts, and liquidation (without being bought out first). Most analysts expect delinquencies and liquidations to increase in the coming years for these loans.

There’s lots more data in the system and no respite in the number of decisions an originator has to make to complete a loan. In fact, the number is up. All these decisions based on all this data mean lots more forms to fill out, get signed and reviewed and notarized. Profitability may be fine in the short term but eventually a better way will emerge. There’s a lot of manual activity here.

Working on Step 2

Perhaps the layering of requirements by investors will abate and the exposure to risk will diminish. While you’re waiting for that here are some technologies to look for in Mortgage Originations.

Managing the raft of decisions is a big goal. An easy, or easier way to tell your operation what are the terms and conditions available and acceptable by loan type by investor by geography and, if needs be, by shoe size and eye color. This requires far easier addition of new criteria for loan decisions and far easier manipulation of the combinations of requirements across loan type by investor by geography and, if needs be, by shoe size and eye color.

Easier addition of loan criteria is more than flexible data bases. Most technology allows for the addition of variables (though one should be careful here). Once added, getting them into the operational flow, onto the screens of users and into the decision criteria is relatively hard.

My personal fantasy, a room for the lock desk and secondary markets pro’s with a large screen, enabled like an iPhone, being used to stretch or contract DTI and LTV ranges, to swipe in or out documentation needs, to quickly look at and compare one investor versus another. Allowing a mortgage banker to have control of the rules is one thing. Making that control operationally intuitive would change the game. Perhaps only the mega-producers will be able to afford this. Perhaps “the cloud” will bring it to a community bank near you? Some people will revisit business process outsourcing as a method to achieve the same goal by contracting with BPO providers who will commit to support the myriad changing combinations of requirements for a fee.

Regardless, everyone wins if something aggressive is done about the paper chase. Regulations and procedures like HVCC increase the likelihood that actors in the origination process will not know each other or even see each other. Sending paper versions of loan applications, credit reports, appraisals, inspections, income verifications and the like to all participants who need to see, review, comment, edit or approve them is very expensive. eDocument solutions are in use today that mitigate and or eliminate the movement of paper, speed the approval of loans in origination or modification status, and secure the transmittal of information. Far broader adoption of these solutions should come and come soon.

Holding the Line on IT $pending

2009-11-25T09:54:00.000-08:00

Although we managed to avoid The Great Depression, Part Deux, “all we have to show for it is this lousy [jobless recovery.]” Times remain challenging. Profits are less difficult to come by but “confidence” and “calm” about future prospects remain fleeting, amorphous, a hoped-for future reality. On this Thanksgiving Eve we can be thankful that we’re still here and wishful that the hunkering-down will abate in a somehow foreseeable future.

For those who are CIO’s or who are planning IT spending the message is, “hold the line.” It’s a rare thing to find an IT organization that is expecting increases in budget for 2010. Jason Hines of Tech Republic did a nifty set of interviews of CIO's recently at the SIMposium 09 in Seattle. None of the CIO’s he spoke to expected a rise in IT budget. One flat out said his budget is going down. Most said the budget would be flat at best.

The CIO’s also discussed with enthusiasm the hottest trends in IT that they are pursuing. The ideas of the 5 in the video clip are Das Kloud, Open Source, Green IT, “bringing value to the business” and the “consumerization” of IT. The first three can be viewed as ways to deliver IT at lower costs. In fact, the CIO who is implementing Cloud Computing, Larry Bonafante of the USTA, is planning a drop in hosting costs to 1/3 of current spending! At one point in that interview the saving is 1/3, later its 1/3 OF current spending. Regardless, it’s a big bite and some of that saving is going to the bottom line and some is being reinvested in business value, i.e. new development.

The pressure on costs leads to headlines like "Seriously, I can't imagine any company that's looking at any upgrade to its telephony system not going the IP route at this point." It’s hard to argue with statements like this. If you want to have any room for new development you’ll have to find money in Das Kloud, in VoIP, in virtualization and in a myriad of places like them.

So, what’s the math on holding the line on IT spending while retaining some money for new development? How much new development restraint is too much? If you assume that you can’t stop keeping up with demand but you have to keep overall spending flat, what innovation does that demand elsewhere in your budget?

Working on Step 2

Remember the classic IT Funding Model, each new item of value built today requires both operations and support resources and maintenance and enhancement resources for the useful life of the system, application or feature that’s been built.

As covered in a previous post, “your mileage may vary” based on organization size, the systems you have in place, the burden, or benefit you enjoy in matching previous systems decisions to your actual capabilities or needs. Leaving all that aside the “rule of thumb” ratios to use in this model are that for each dollar you spend in developing systems (D) in year one expect to spend twenty cents in out-years on the maintenance and enhancement (M+E) of those systems and on total operations and support costs (P).

- Classic IT Funding Model -

(adapted from original work by Nolan, Norton & Co.)

As a starting example if you assume $1,000 in development spending (lever this up to your actual spend if you wish) and an existing equal maintenance and enhancement costs and ongoing operations costs 2.5 times as large, i.e. a typical distribution, and then continue your development spending for 5 years, with the above ratios for D->M+E and D->P your overall IT spending will rise at a compound rate of 8%:

	Year 1	5 Year Total
Development	$ 1,000	$ 5,000
Maint. and Enh.	1,000	7,000
Production	2,500	14,500
Total IT:	$ 4,500	$ 26,500

The reason the IT budget rises at that rate is that the M+E and the P numbers are compounding year after year. The only way to keep the IT budget flat is to constrain development spending or to continuously find savings in both M+E and P.

Were you to hold the overall IT spending flat year over year you would spend 15% less than the classic model suggests. Suppose you refuse to compromise on your support of existing systems and their users and you refuse to compromise on your maintenance of assets you already have in place. That is, suppose you don’t change your M+E or P behavior but you constrain development spending only. Can you hold your IT spending steady? Surely, it will look something like this:

Constrain Development, Keep IT $ Flat
		Year 1	Year 2	Year 3	Year 4	Year 5	5 Year Total
Development		$ 1,000	$ 600	$ 360	$ 216	$ 130	$ 2,306
Maint. and Enh.	20%	1,000	1,200	1,320	1,392	1,435	6,347
Production	20%	2,500	2,700	2,820	2,892	2,935	13,847
Total IT:		$ 4,500	$ 4,500	$ 4,500	$ 4,500	$ 4,500	$ 22,500

In this approach the available investment for developing systems in support of the business drops precipitously and, most would argue, dangerously for any business. If your competitor does this while you keep development spending steady they will end up spending roughly one half on development in a five year period than you will. It’s hard to imaging a greater gift for your competitive advantage from IT than a competitor lying down in this manner. While you are building extensions to the supply chain or luring new customers through IT enabled channels and systems your competitor is flat-footed and inactive. You win.

You should be so lucky. What is far more likely is that everyone in your and your competitor’s shop will be asked to contribute and the development spending might be cut to, say, 75% of current levels. The remainder of the savings needed to keep overall IT spending flat must come from M+E and P spending. If they participate proportionately then the planned spending would look like this:

Development reduction. Constrain M&E and P
		Year 1	Year 2	Year 3	Year 4	Year 5	5 Year Total
Development		$ 1,000	$ 750	$ 750	$ 750	$ 750	$ 4,000
Maint. and Enh.	20%	1,000	1,157	1,209	1,239	1,258	5,863
Production	20%	2,500	2,593	2,541	2,511	2,492	12,637
Total IT:		$ 4,500	$ 4,500	$ 4,500	$ 4,500	$ 4,500	$ 22,500

There are innumerable variations on this theme. In this case, in order to retain development spending at three quarters of previous budgets and keep overall IT spending flat, M+E and P must each drop by an average of 15%, compounding year over year, from the “no change” model introduced as a baseline. The USTA taking 30% out of their hosting costs by going to Cloud Computing is but contributing to this ongoing need for operations, support and maintenance productivity enhancements.

For many readers these models put numbers around a reality that they’re quite used to and have been living for years. If the models themselves clarify a planning task or enable a more quantified and less emotional discussion on “What do we do now?” that is good.

Here’s a different discussion to think about while you’re watching interminable Thanksgiving football games. Whose more athletic, the offensive and defensive line players or the backfields with the flashy players? There is no interception without the nose tackle disrupting protection. There’s no touchdown pass without the guard picking up a blitzing linebacker. In the same manner, there is no innovative, inventive, dare we hope game-changing application without the budget to pay for the conception and planning, the design and the prototype, the development, testing and roll-out. Who’s more “athletic,” the developers or the management and staff in support and operations who run ever larger systems complexes with larger and larger stakes at risk on budgets that go down, on a unit cost basis, 10-20% per year?

Raising the ROI of IT

2009-11-12T10:13:00.001-08:00

IBM’s Institute for Business Value recently published a report titled “The New Voice of the CIO.” It is based on an exhaustive series of interviews with CIO’s across industries and around the globe. Based on insights from CIO’s the study attempts to describe what makes a CIO, and by extension, an IT organization successful (for more background on the study’s findings try this link). The chart below is the centerpiece of the study and this blog’s focus is on the concept at its center, raising the ROI of IT. IBM finds that in order to raise the ROI of IT a CIO and the IT team must be “savvy value creators” while cutting costs. One CIO quoted in the study says “the balance between new projects and cost control is the dichotomy of my life.”

Source: “The New Voice of the CIO” - IBM Institute for Business Value

Creating value combines selecting when and where to invest and when doing so, hitting sweet spots. In terms of “value” the CIO’s IBM spoke to are looking to enable superior customer experiences, help the business cope with burgeoning amounts of information, and to extract value from that data especially to understand what customers want. In the near term this includes collaborative relationships with customers, transparency, and active input from and interaction with customers.

Cutting costs involves increasing either or both efficiency and effectiveness. One CIO in IBM’s study says that companies “need to position IT to handle increased activity with minimal additional cost.” This is creating leverage from efficiency. Throughout the history of IT in business, three tools: standardization, automation and centralization have proven to be well worn tools for generating efficiency. From the original one’s and zero’s to Assembler and Cobol, from a dogs breakfast of machines and operating systems to System 360/370 and Dec VAX and the like, from various PC OS’s and word processors to MS-DOS and Word, economies of scale and standardization has provided efficiency (though some argue about the cost of lost effectiveness or economies of scope).

Standardized business processes for IT are also a key method to be efficient and effective. ITIL, COBit, CMM and similar approaches create a lexicon and a definition of what best practices are. They enable measurement, training, review and audit for continuous improvement. They help limit home-grown innovation to those areas of IT management that particularly need it. But they can be overused and over applied. CMM Level 5 is almost certainly overkill as a general standard although for certain business units at certain times it may be a requirement. ITIL 3.0 won’t save you costs if your needs are pieces of 2.0, a slice of 3.0 in one or two key areas, and leaving the rest alone. Targeting the scope and sophistication of an applied standard says much about efficiency and effectiveness.

Here is, admittedly, a moderately academic question. Why must it be so that raising the ROI of IT requires both value creation and cost cutting at the same time? Can’t one keep efficiency constant in return for continuous value creation? For a short time, perhaps, but long term the math won’t let you.

Working on Step 2

The reason why enhancing the ROI of IT mandates both value creation and cost cutting is that each new item of value built today requires both operations and support resources and maintenance and enhancement resources for the useful life of the system, application or feature that’s been built.

There are in today’s world myriad options for how systems are developed, the environments in which they are run and the methods used to keep the systems current and to enhance or adjust them for changing business opportunities. Because of this “your mileage may vary” but the dynamic of needing to reduce the cost of owning systems in order to create budget to develop new ones won’t. Left unchanged in efficiency and effectiveness and IT budget is starved of funds for innovation.

If you change the efficiency by which you maintain and enhance systems over time you can have significant impact on IT spending over time. The traditional assumption is that for every 5 person team building a system one person must be allocated to maintain that system over time. In other words, each Development dollar, on average, results in 20 cents of Maintenance and Enhancement (M+E) dollars. D --> M+E = 20%.

Some organizations claim 15% or lower impact. On the other hand, Bart Perkins of Leverage Partners points out that if you buy a package that is a mis-fit in function or scale the M+E load can be significant. He cites a company with a small IT team and a small IT budget that implemented PeopleSoft when a more middle-market solution may have been advisable. The result is a 40% D --> M+E ratio for that firm. Similarly a large company could buy a middle-market solution and enhance it themselves, when they should have bought PeopleSoft or its equivalent, with a like result. Fit is important.

In the initial versions of this analysis when “IT Operations” meant data centers, the ratio of Development dollars to Production dollars was one half. D --> P = 50%. Anyone who has priced out the cost of a secure data center knows that prices can be all over the map.

In one situation I observed a customer in the financial services market had such stringent requirements for back-up, recovery, fail-over and the like that the projected cost of operations for a major new system doubled over the configuration normally seen by its vendor. Policies have an impact. In another example, one client’s charge-back policies were not regularly modified leading them to under-charge for services that required relatively high manual activities and to over-charge for once leading-edge technologies that were now highly reliable and required little IT Operations personnel to operate. Their costs for like applications portfolios were double their peers’.

If you assume $1,000 spend on development each year and D --> M + E ratios and D --> P ratios of 20%, 30% and 40% in subsequent years you get quite a spread. The development spending is the same but the total IT spend over the term is 20% higher or lower based on lower or higher efficiency by which systems are operated, maintained or enhanced.

If you project into the endless future, especially with moderate to low efficiency assumptions, the IT spend quickly outpaces any prediction you may have for increases in overall company revenue. “Straight line” a model like this and soon all spending is IT spending and that’s a problem. Relying on Moore’s Law to reduce the cost of technology is not enough. This is why IBM found what they found. Unless the IT organization constantly pays attention to efficiencies their budget will be consumed by Maintenance and Operations. Development requests will go un-served and IT management will soon be replaced by people who can get something done.

As the man said, “the balance between new projects and cost control is the dichotomy of my life.”

What Makes a Successful CIO?

2009-11-03T08:15:00.000-08:00

It’s been a little over 20 years since the role of CIO came into common usage. What has become known as Information Technology had been getting increasingly important across businesses through the 60’s and 70’s and into the 80’s. It had started directly impacting relationships with customers, suppliers and partners as well as internal operations and capabilities. The title, role, and importance of the leader of the IT groups had advanced in a progression from MIS Manager to Director of Data Processing to VP of IT and finally CIO.

In all the years since people have been trying to develop a complete, comprehensive, useful definition of what makes for success in the role of CIO, and by extension, how does one achieve that success? A recent effort of note is a study from IBM’s Institute for Business Value, “The voice of the CIO” (search at this URL for “CIO Study” and register to get a copy of the study). In conversations with more than 2,500 CIO's from 78 countries and 19 industries IBM has derived a solid model for CIO success.

On the down side some of the observations are not new. They’re mere reflections of the reasons that the CIO role was developed in the first place. For example, the report says that “Successful CIO's are much more actively engaged in setting strategy, enabling flexibility and change, and solving business problems, not just IT problems.” This has always been the case with successful IT leadership.

On the up side, the study has lots of metrics (and one suspects IBM has many more not in the publicly available version of the study) that can help you quantify how well you’re on the path to living the standard of success. Staying on the idea of participation in setting strategy the report says that “Today’s CIO’s spend an impressive 55 percent of their time on activities that spur innovation. These activities include generating buy-in for innovative plans, implementing new technologies and managing non-technology business issues.”

This sort of data can be quite useful. If you know the distribution of time spent of a successful CIO (per IBM’s data) and compared it with your own, or your own CIO’s distribution you can derive gaps and then decide why and how they should be filled. The study has many metrics of this sort.

What I think is the most interesting and insightful part of the study is, conveniently enough, the central finding, a model that describes the CIO’s conflicts between innovation and pragmatism, value creation and cost cutting, business leadership and managing IT.

Source: “The New Voice of the CIO” - IBM Institute for Business Value

Students of CIO’s and their roles well know that the job is inherently conflicted between making a fundamental, dare I say transformational change and getting the basic work out. This conflict goes back to before the role of CIO existed. One old-timer friend was the DP Director at a large manufacturing plant. The plant manager was a believer in computing and was constantly asking for upgrades and changes to systems. The director would make all the changes he could but would tell his developers, “JMSYD[S]UTP” meaning “just make sure you don’t [screw] up the payroll.”

So the basic tenet is that a successful CIO makes innovation real, raises the ROI of IT and expands business impact (of IT or through IT? Not clear). In doing so the CIO is balancing vision for the business with a well grounded understanding of what can be done. While pursuing that vision the successful CIO constantly reduces extant costs (more on this in a future post). And, the successful CIO operates within the overall business ecosystem but also within the culture, style, world-view of IT professionals. IBM’s analysis includes a nifty distinction for a CIO in a high, medium and low growth company or industry and more comparative metrics/methodologies to use in improving your odds of success. 3-D graphs and everything.

Working on Step 2

There’s enough information in the study that few of us can read it without finding something to quibble about, but the analysis is sound and it’s based on a great deal of source data. Staying entirely within the realm of CIO’s and the IT function I can get distracted by causality questions. Do successful CIO’s act this way because it’s in their make-up or is this the only way that CIO’s can be successful in business; other styles failing? It’s a Nature versus Nurture question. Do CIO’s come wired to span the three contradictions or does the business environment reward people who learn how to span the gaps?

More interesting to me is the reusability of the basic model. Intentionally or not IBM seems to have described a general model of management/executive success. Look at the CIO Success chart and replace the word “IT” with “Business.” The model would then state that a successful CEO or business generalist would make innovation real, raise the ROI of the business, and expand business impact. The executive would do so by being both visionary and pragmatic, both value creator and cost cutter and being able to manage to business collaboration (especially outside the company) and manage to the internal nuts and bolts.

Do another test. Change “IT” for “Sales.” The model still holds. Try other functions or geographies (e.g. “EMEA”) or markets. The model, with minor adjustments, still holds. You can imagine that had IBM done their study in a think tank without talking to anyone but only using a general model of managerial success and adjusting it for IT issues they’d have come to roughly the same conclusions.

This is not the model’s weakness. Since it comes from structured conversations across all those countries, industries and CIO’s it’s a reflection of the basic strength of the study. The IBM team has derived a model that says “successful CIO’s are solid business executives who happen to understand the IT function.” However “obvious” that may seem, the core model represents a way for non-IT and IT management, who often stare across a cultural chasm, to be able to talk cooperatively and intelligently. And that’s a good thing.

Some CIO's and the Devil They Know

2009-10-26T13:09:00.001-07:00

On October 26^th Tech Republic published the results of a survey of CIOs that asked “Who do you trust more as a technology partner, Microsoft or Google?” The answer, CIOs trust Microsoft more by a 2-to-1 ratio!

Source: Tech Republic: IT leaders trust Microsoft more than Google, 2-to-1

On first reading the headline it’s hard to countenance. On reflection it makes its own, quirky sense. The CIOs that fought Microsoft in the 1990's are retiring. The then-young Turks who championed personal computing are increasingly CIOs. The Microsoft universe, from the desktop to SharePoint is in the IT budget and the CIOs direct influence. Google, in large part, is neither. Das Kloud is an externally introduced disruption of scale. Its a natural reaction for most people to initially resist it. Not that they should, long term. But the reaction is not as strange as first reading would lead you to believe. On reflection, not so much dissonance in our cognition.

As we lurch headlong towards 2010, the personal-computing-champions, once barbarians, are now IT executives. As a group they appreciate Microsoft in a similar way that their forebears preferred IBM and the like. Additionally, Microsoft offerings like SharePoint, for Web 2.0, are "inside the firewall" or inside the CIO's control. Google much more represents Das Kloud. Google is an outside-agency. Its go-to-market approach is certainly that of an outside-IT-control agency.

So, its not terribly alarming to find IT as being Microsoft friendly, at least in comparison to Google. This even though Google, by casual observation, is far better positioned to "get" and create leverage-for-business from Web 2.0 than relatively stodgy Microsoft. Microsoft's strengths and benefits aside, the I'm a Mac vs I'm a PC advertisements work for a reason.

At the end of 2008 James Kaplan et al of McKinsey wrote in "Managing IT in a Downturn" that:

"IT has come a long way over the past decade. Budgets grew rapidly during the dot-com boom and the run-up to Y2K, then declined drastically when the bubble burst. Over the following years, CIOs, working with business unit leaders, improved the performance of IT departments by streamlining application portfolios, reducing infrastructure costs, improving governance, consolidating vendors, and outsourcing many activities."

The first reaction of such people will be to take care before they jump right into Das Kloud.

Working on Step 2

However sensible that caution may be, time does not appear to be on their side. There's a mountain of information in Morgan Stanley's recent presentation on Web 2.0. One nugget shows the speed with which the "walled gardens" of the traditional telephony carriers' hold on the market as the portal to the Mobile web broke down in the UK in a one year span, going from a 57% to a 22% share, under the onslaught of a doubling by Google and the entry of Facebook at a 40% share:

Source: Morgan Stanley - Economy + Internet Trends

All of the market trends are towards mobile computing. All of it is towards the use of a dizzying array of technologies in peoples hands and in the devices and tools they use every day. The marketing and sales organizations of all corporations will have to link to, participate and, if possible, take advantage of this. Das Kloud is coming.

Perhaps the question asked by TechRepublic is a bit different from our theme? They asked who CIO's trusted as a business partner. If they asked which vendor will be most involved in transformational technology initiatives they may get a different response. One wonders.

A little over a decade ago I sat in the CIO's staff room at a substantial financial firm and the executive responsible for all IT Operations gave a report on Microsoft. They weren't ready yet, couldn't scale properly, couldn't report properly, couldn't escalate issues properly, but, all the major business units were rushing headlong into Microsoft platforms and both Microsoft and the central IT group was going to have to learn how.

They did.

Google, as a vendor to central IT is in a similar situation as are all uses of social media, Web 2.0 and cloud computing. Theses are innovative technologies and they haven't yet caught up to the concerns any CIO has in managing IT as a business within a business. But they will.

Is "Integration" the word?

2009-10-26T06:06:00.000-07:00

At the Web 2.0 Summit in San Francisco on October 20, Mary Meeker and team at Morgan Stanley presented a market analysis about the trends in the technology industry with a particular emPHAsis on the prospects for and impact of mobile computing. Here's a link to the full report called "Economy + Internet Trends":

The report covers a lot of ground. I was re-reading it this morning and have a thought about the chart below on page 32:

With each new phase or stage or era of computing the number of units sold goes up by an order of magnitude. Whether the numbers are actually this smooth or not the progression reflects what we all see on a day-to-day basis. Information technology is now present in most things that we do. In fact, is so prevalent that many relax or vacation by trying to get away from it.

From a business perspective the mobile phase will have profound impacts in terms of the ways that businesses go to market ("business model change" is the top issue found in a recent IBM survey of CIOs) and thus on how technology is designed, built, deployed and used in business.

Working on Step 2

I'd like to quibble with, to question, the arrow in this chart that says "Increasing Integration." At some point, roughly in the transition from mainframes and minicomputers to computing via desktops, the idea that we could achieve and deliver planned, central integration of IT became less tenuous.

Personal computing means individuals do as they please. They still can't "do as they please" with that portion of an Applications Portfolio that is delivered from the IT organization. Its hard to imagine that individuals should with "core" applications. But the PC widely popularized a trend that began with personal time-sharing like VM and TSO and put substantive amounts of the computing that occurs beyond the reach of the IT Architects and their IT Strategist forebears. Mobile computing greatly accelerates that trend.

Instead of "Increasing Integration" the chart could read "Increasing Interconnection," implying a larger portion of "organic" interactions between people and systems. Perhaps corporate IT and the IT Architects will increasingly establish and enable a set of capabilities that customers, partners/suppliers, and internal users will mold to their own use? Morgan Stanley's Internet Retailing Adoption model may be a guide:

For the interconnected mobile world an Enterprise Architect may be concerned with the "integration" of the Infrastructure and the Services but allow that the content used and the retail commerce (or its parallel) will be directed by un-integrated "market actions" or "market forces." Said another way, they're concerned with the interaction between core systems and capabilities and Das Kloud. Its the challenge of influence without control that is at the core of all meaningful governance discussions. But there's no going back. After all, "How can you keep them down on the farm after they've seen [Droid]?"

Will IT and Business Ever Be Aligned?

2009-10-20T13:15:00.001-07:00

In a recent blog post in IT Business Edge by Michael Vizard, Turning the IT Organization on its Side, Vizard writes, “as more lower level IT processes get automated, it allows the IT organization to spend a lot less time doing basic maintenance work. That in turn should give the IT organization the necessary breathing room it needs to rethink its relationship with the business.”

Wouldn’t that be nice! Unfortunately, that’s not the way it goes with the unrelenting reinvention of what IT is, what applications are, and what we can do with them. You can imagine before most of us were born, back in the late 1940’s and early 1950’s, when the first assembler programming language was developed and PhD’s no longer had to re-route wiring boards to change the fantastic programs of the day. Maintenance was going to be eliminated!

Then, those PhDs were poring through dumps of ones and zeros. Later, they were lucky to be reading hexadecimal printouts, trying to find that obscure bug that was keeping the new inventory system from running (in homage to Jim Grant, JMSYDFUTP). Soon enough, Grace Hopper and friends invented COBOL. It had Data Statements, Program Statements, and maintenance was going to be eliminated!

Not so fast, stranger.

And so it has gone through the invention of data base systems (the originals seem like tinker-toys to what we use now), rules-based technologies, code generators, script writers, applets, widgets, APIs, SDKs, SaaS and “Das Kloud.”

All of these inventions are far more than helpful. They’re often fundamental and always important. We’re far better off with them than without them. But, none of them eliminate maintenance. They eliminate the need to maintain applications of the old scopes with the old technologies in the old way and they introduce us to far richer business function… and the need to maintain the new function with the new technology in the new way.

Back to "alignment." Later in his post, assuming maintenance to be contained, Vizard writes, “Aligning IT with the business has been the number-one goal of CIOs in every annual survey as far back as anybody can remember. And yet, we never actually seem to get there.” Vizard suggests that the reason is that IT is organized around technologies, and by extension, vendors. With the "lower level functions" automated and without need of maintenance IT can reorient itself and realign. Maybe so but I think that this is but a symptom of a continuing, larger phenomenon than vendor-affinity among IT and business management and ease of maintenance of a given set of applications.

Working on Step 2

Imagine a perfect instance when all IT and all business is aligned by what ever definition of alignment you choose. Allow time to pass and, because of outside business, market and technological forces, that 100% alignment immediately degrades in the face of new possibilities as yet unrealized. If no work is done to keep IT and Business goals and organizations in tune the half-life to a 50% alignment status is 2-3 years at best (the time it takes a moderately active business to produce a substantive set of yet newer key applications, data bases and networks).

Business, IT and vendor/partner management and staff were involved in building the perfectly aligned environment. None of these people are objective. They want to keep their roles and influence and some will slow innovation, creating misalignment.

If the new function is delivered some will maintain that what already existed is still key (as some is). A similar, but not identical set will build the new systems and the two groups, with many individuals in both camps, will be in conflict. Over the next 2-3 years another layer will get laid on and thus it has been since Burroughs was first to deliver virtual storage (look it up).

To use Vizard’s analogy, each layer or generation has, in its own way, “[turned] the IT organization on its side in order to start managing IT according to a set of integrated technologies tied to distinct sets of business processes.” As processes change those efforts seem less and less effective. The challenge for CIOs, and other business executives, is to find ways to keep the subtle business/IT/vendor networks flexible and fluid enough, invested in the current and the future enough, so that the next generation of advances does not pass the company by.

Keeping the organization “fresh” and keeping it aligned are usually the same thing. A good CIO knows that no one likes too much IT turnover but you don’t want a static, unchanging organization either. There will likely be some roles for one-skill staffers, but people who can do and want to do multiple things are valued. Keeping teams together enhances project and program success. Mixing up players and teams keeps things fresh. Everyone deserves a reward for a job well done but the rewards for the most valuable jobs, the jobs that move us forward, must be stronger. People must want to be in those jobs.

My argument is that alignment is a human event. Perfect alignment is unattainable but strong alignment is a requirement. Misaligned IT/business combinations are oriented towards the legacy systems of the past. This orientation makes it difficult to take advantage of the opportunities of today. Well aligned organizations understand the wisdom of Craig Ferguson when he sings “tomorrow's just your future yesterday” and they constantly and programmatically avoid living entirely in their past by overtly influencing the skills, experiences, organizations and actions of the IT/business combinations to lean towards the future.

Wither Web 2.0?

2009-10-16T12:39:00.001-07:00

Recently McKinsey and company published some summary data from their third annual survey of over 1,700 companies on their use of Web 2.0 technologies. To see McKinsey's summary go to: http://www.mckinseyquarterly.com

Looking at their data there are a few things one can observe:

1. Adoption of Web 2.0 technologies is strong. For both internal and customer focused uses it is increasing but uses involving partners and other external parties has not changed:

Adoption rate by Community of Interest by Year
(source: McKinsey 2009 Web 2.0 Survey)

2. Increased adoption means that most firms are increasing or maintaining their investments in Web 2.0 technologies:

Future Investment Plans for Web 2.0
(source: McKinsey 2009 Web 2.0 Survey)

This section of the survey also indicates that the number of companies who were not sure of their investment direction had dropped significantly from 30% in 2007 to half that today. People are making up their minds that Web 2.0 matters to business.

3. There are a handful of Web 2.0 technologies that make up most of the use:

Web 2.0 Applied Purposes
(source: McKinsey 2009 Web 2.0 Survey)

Social Networking (e.g. Facebook-style technolgies) and blogs lead the list. Video sharing is big, especially with the otherwise tepid Partner/External category of uses. Peer-to-peer uses (e.g. Napster-like technologies) have fallen from being used by 34% of respondents in 2007 to only 10% today.

McKinsey has not published on the public site the business functions that these technologies have been put to. Other sources cite listening to and engaging with customers, in customers' own words, about their thoughts on products, services, values and brands through Facebook and similar services and through blogging and watching the feedback. Video sharing allow for rich communication and is used to help solidify understanding between firm and partners.

The big technology for Internal use is wiki's presumably replacing or extending the capabilities of internal web portals.

Marketing professionals are the most prone to use Web 2.0 at 73%. Leaving IT participation aside, the remaining functions, in descending order, are Sales, R&D, Service and Production/Operation at 51%, 49%, 41% and 34% respectively.

Working on Step 2:

It is apparent that what is collectively known as Web 2.0 technology will be important to business for some time to come. In many cases it will be transformational. In any meeting with marketing professionals it tends to come up and is rarely far from top-of-mind. The rest of us have to catch up and get aware.

One obstacle, the terminologies will be a bit murky for quite a while. If you read the commentary on the McKinsey site (see below for the link) the complaint is made that the names McKinsey has chosen for technologies are not "standard." Nothing is. In discussions with experts they will say "I'm not sure what is meant here by "rating" but..."

The bigger obstacle is that unless you use Web 2.0 in a more serious way than voting for the most attractive head of state (this week on Facebook) its difficult to effectively understand what Marketing is trying to accomplish, how you can help, and how you can extend the impact of their plans.

Sooner, rather than later, a competitor will develop an effective way to take the input from Web 2.0 interactions and directly, swiftly, and in an agile manner inform product development, delivery and service faster and better than others.

Here's a link to a recent post about the obstacle companies face in adopting social media: Five Reasons Corporations are failing at Social Media

Don't fail.

Distributing Sales Leads

2009-10-13T08:43:00.000-07:00

I was reading a McKinsey white paper on managing IT costs in a downturn and was struck by an otherwise typical and innocent statement. In describing a case-study in a retail bank they wrote, “A team of business and IT staffers reviewed branch operations and quickly identified areas where focused action could produce substantial gains. The distribution of leads to the sales staff was automated, and more of them were directed to reps with the best performance in previous campaigns” (italics mine).

In a “normal market,” in a market that Nicholas Taleb might describe as being in Mediocristan, this makes eminent sense. If a group of 100 salespeople are equally given a fair share of leads in a campaign some will flourish, most will produce reasonably, some will fail. In the next campaign we’d all give a few more leads to the flourishers. Most sales management will have dismissed those who failed.

If we applied this logic to recent investment banking events then the sales staff to keep are those who successfully and willfully sold exotic mortgage backed securities and CDO’s. In mortgage banking it’s the brokers who sold Sub-prime and Alt-A products, the “liar” and adjustable loans who would be relied on to lift us out of our doldrums. These were the salespeople with highest revenues. They were also the salespeople who did the most harm to the company.

Working on Step 2:

It seems to me that instead of directing leads to the sales staff with the best performance in previous campaigns one should direct leads to sales staff best aligned with current and future campaigns who also demonstrate the professional ability to perform. Today an investment bank, or a mortgage brokerage, might keep the sales people who can sell AND balance short and long term risk, who can communicate value and transparency.

The company would want to understand the skill sets needed going forward, adjust the sales plan to reflect the behaviors preferred, and reward staff that meet today's needs first and foremost.

Changing Who Orders Appraisals is not Transparency

2009-08-19T05:50:00.000-07:00

Sometimes the fix or repair for a situation gone bad has no apparent material impact and may do more harm than good. Such appears to be the case with the Home Valuation Code of Conduct.

In the middle of the decade when many shady mortgage deals were done one of the participating factors was that a number of independent appraisers fudged their opinions on property values so that mortgages could be approved. Sometimes, one supposes most times that this happened it was in fear of being shut out of the next set of jobs. In some cases, no doubt, money changed hands. Regardless, Andrew Cuomo and others noticed that appraisers were helping mortgage brokers and realtors complete deals on over valued houses or houses with substantive structural problems. The designed solution has been to insist that only lenders can hire appraisers, not mortgage brokers.

It is unclear how, in changing which team the fox plays for, i.e. who orders the appraisal, we have made the hen house any safer.

Arguably, in the not-long-past high-flying days of mortgage exhuberance lenders had more interest in appraisal manipulation than brokers and realtors. Lenders were dealing in billions of dollars. Brokers and realtors were only scratching out their local, individual income. Had the new code of conduct been in place its hard to see how things would have worked out differently. Lenders still would have wanted the "imaginative" deals of 2005-2008 to go through.

The accounting industry provides a better model for transparency and independence. Add a little basic technology for data analysis and we can do much better. As in accounting some percentage of all appraisals should require a second, independent appraisal. When and by whom would in no way be decided, much less known by the participants in a mortgage transaction. When an appraisal is ordered a simple wwweb transaction would be sent to a central system which randomly orders a second appraisal from an appraiser independent of all other players in the transaction at hand. The costs of all second appraisals, and the system to order them and store their results, is shared by all mortgages. If an appraisal costs $500 and 2% are sampled then each mortgage carries a $10 fee for the process plus a fee for the system that manages it. Call it $20/mortgage, all in.

The system then examines the difference between the appraisal ordered by the lender (or, if we go back to the previous system, the broker or realtor). If the variance in two appraised values exceed a set statistical range then many things could happen. Third appraisals could be ordered. Disclosure may be enough, etc.

Over time the data on the appraisal variances, the selling price, and the assessed value, along with data on who were the lender, borrower, broker (and third basemen), and fairly straightforward and inexpensive analysis be constantly done to find outliers, high and low, by company and by individual and then counseling and/or enforcement fun can begin.

But the key is that an agent/entity that is independent of the transaction at hand is randomly ordering second appraisals and that all parties know that this is happening and that the data can and will be used to keep behavior in line with an efficient market's needs. The current plan merely changes the team the fox plays for. Our mortgage appraisal hen house is no safer for it.

Doug Brockway