6/07/2004

Spooky Action Predicts: Nick Carr has your number! (.8 probability)

If you’re in IT management or consulting, your blood pressure is now 40 points higher than before you got here. If you’re a CEO/CFO/CXO whose span of control includes IT, you may have one of those wry, one-corner-of-your-mouth-turned-up smiles on your face. If you’re none of the above, a) Hi Mom kids!, or b) thanks for stopping by randomly; I hope I make it worth your while.

Hindsight is always 20-20 – in the eye of the beholder.

Close your eyes and imagine that it’s 1998. You are the CEO of a public corporation. You make a very nice living. Now imagine one day your IT guy comes into your office and says that there’s this thing called Y2K, and if you don’t spend millions of dollars on I.T., the world is going to come to a screeching halt, and your personal fortune will go ‘poof’, as will the fortunes of thousands of litigious shareholders. You dismiss him, only to find that Business Week, Forbes, and HBR are all painting the same picture of doom. So you call your friendly audit partner, who paints an even gloomier picture, but then offers to solve the problem – for a seven-figure fee.

What do you do?

Throw money at the problem! No one will remember you as the one who spent millions on a successful Y2K conversion. But if you’re the one who doesn’t spend the money and ends up in a smoking pile of technorubble, say goodbye to the country club and say hello to the entire membership of the American Trial Lawyers Association.

So you pay the money; willingly, happily, and with a clear conscience.

Fast forward to 2000. The same cast of characters is telling you that Jeff Bezos and a bunch of greasy-haired, pizza-gobbling, latte-swilling programmers are going to dot.com your company into oblivion.

Options?

Time is more important than money! Spend now and damn the downstream consequences (there’s always plausible deniability)! So you spend the money, and everyone is happy.

Then a funny thing happens. Dot Bomb. All that technoblather disappears in the foam of a billion dollars going down the drain.

Then the economy starts to falter, and spending needs to be reduce. Guess who first? You give the CIO a stern lecture, ending with the dictum: DO MORE WITH LESS.

And cut the IT budget 10%.

2002 rolls around. Repeat Do More With Less speech and cut the budget again.

2003; ditto.

Wow, three years of cutting the IT budget and no technopocalypse. In fact, no major business interruptions at all. Oh, you had to spend plenty on that Sarbanes-Oxley nonsense, but you’ll sleep a lot better knowing that Elliot Spitzer won’t be serving any warrants on YOUR watch!

Then along comes the May 2003 issue of Harvard Business Review. It contains an article by Mr. Nicholas G. Carr entitled “I.T. Doesn’t Matter”. The text of the article doesn’t go quite as far as the title. The author argues that I.T. is essential to business and has become nearly ubiquitous, but that these circumstances now make it nearly impossible to use I.T. as a source of strategic competitive advantage. All the big first-mover opportunities are gone, and even if they weren’t most companies don’t have the change management skills to exploit them effectively. And he cites research showing how better performing companies spend relatively less on technology. His advice:

  • Spend less on I.T.

  • Be an I.T. follower, not a leader

  • Focus on minimizing I.T. risks, not maximizing I.T. opportunity.


After your experience of the past few years, the article seems unremarkable.

But down in the CIO’s office the article had a decidedly different effect: complete cognitive dissonance, accompanied by spluttering invective, mixed with panic.

Think of the Inquisition’s reaction to Galileo’s “Dialogs”.

Think of Einstein’s reaction to Bell’s Theorem (Spooky Action at a Distance).

Think of Cubs fans’ reaction to Steve Bartman snatching the ball from Moises Alou and a trip to the World Series from the Cubs in last year’s NL Championship Game 6.

Most CIOs believe with a passion that I.T. is without question a strategic weapon. In fact, they don’t just believe it, they KNOW it. So they reacted with righteous fury. They wrote literally millions of words of rebuttal, and are still writing them, because they cannot reconcile Carr’s arguments with two bedrock foundations of their professional belief system:

  1. I.T. has had a profound, positive effect on nearly every aspect of business. This belief is unassailable, because they all have first hand experience of this positive effect.

  2. Technology will continue to evolve forever, so there will always be new opportunities to gain strategic advantage.


Carr detractors also argue that the strategic value of I.T. is not the technology itself, but what an organization does with it. This is a corollary of the first belief, and Spooky Action agrees that it is absolutely, positively, unarguably true.

It is also the central reason that Spooky Action can so confidently state its prediction. Because once you introduce that dependency, you have to overcome three obstacles to be successful:

  • Employees

  • Management

  • The fundamental structure of the organization itself


And like Cerberus, the three-headed guardian of the Greek underworld, this trio can only be overcome by Herculean effort.

The task is not impossible, just improbable in many cases (the beauty of the .8!). Solving a difficult problem like this requires a deep understanding of the root cause(s) of the problem. In this case, one of the root causes is: genetics!

The human brain is a computer of truly inscrutable complexity, but did you know that there are over 400 “human universal” characteristics -- such as turn-taking, territoriality, onomatopoeia, overestimation of objectivity of thought (guilty!) and wariness around snakes -- that appear to be hard-wired in us, since they exist in every cultural, no matter how isolated. Surprisingly, resistance to change is NOT on the list.

What DOES appear to be hard-wired is an imperative for self-consistency.

If you take only one idea away from reading this post, make it that previous sentence. In geek speak, violation of self-consistency causes a non-maskable interrupt and the brain “kernel” expunges the new idea completely. And no amount of repetition will change things. The same code runs every time and no-one yet has found a way to reprogram the kernel. Perhaps in years to come neuroscientists will learn the assembly language of the brain, but for now we must operate at a higher level of abstraction.

At this point you may be wondering:

  1. Where are the guys in white coats with butterfly nets when you need them?

  2. What does this have to do with Nick Carr and the business value of I.T.?


The point of the previous paragraphs in non-geek speak is that people cannot change without finding consistency of the new concept with their existing set of beliefs. And I mean CAN.NOT. Literally a physical impossibility. Not a learning disability. Not a character defect. Not a teachable moment. A physical impossibility akin to trying to bend your elbow backwards 90 degrees.

The good news is that the rules defining self-consistency are not nearly as rigid. On the nature vs. nurture scale, the locus of self-consistency seems to be very nurture-based. That is why some people are innovation-craving “sneezers” of new ideas. They define themselves as change agents, for whom new stimuli and activity ARE the constant. On the other end of the scale are people who measure consistency on the physical movement level.

Bloggers and blog readers tend to be on the change agent end of the continuum, so I feel compelled to share an experience to illustrate the other end. Years ago I was leading the implementation of a new ERP system for an old-line company. The Accounts Payable team had been entrenched for quite some time. The newest member of the team had been using the mainframe, green-screen system in the same process for fourteen years. We were planning on introducing a new GUI, PC-based system. The team manager discussed the upcoming change at weekly staff meetings for months, but on the day that the old terminals were being replaced, one of the team members suffered a panic attack and had to be taken to the hospital in an ambulance! Our new system was going to make their jobs easier; what happened?

Mark at Fourboros provides a very useful guide to understanding the internal change process.

I have no idea who William James is, but I find his framework compelling. And completely consistent with every theory of change management I have ever read. Store it away as the second most important thing in this post.

The problem for the “I.T. IS strategic” crowd is that for most technology projects, not one dollar of ROI will be realized until somebody’s behavior changes.

Not. One. Dollar.

The good folks at GE have an equation to put this into perspective:

E = Q x A

Where E is the business effectiveness (e.g., ROI) of an initiative, Q equals the quality of the solution delivered, and A represents the acceptance of the system by those charged with using and managing it. Unless 100% of the users and managers of the system change their behavior as required, the full ROI can never be realized. If 30% don’t change, the payback period on many I.T. projects approaches infinity. In a typical organization, a third of the employees are change agents who will jump on board with any new initiative. Another third will resist change instinctively, calculating from experience that they can ride out the latest management fad if they dig their heels in firmly enough. The other third are fence riders that passively resist change until they are forced to accept its inevitability, at which time they proclaim they’ve been proponents all along.

This means that a perfectly executed, CMM level 5 technology project can be expected to achieve 33% of its expected ROI without significant effort in the ‘A’ area. Yet most project managers are not measured or compensated on the ‘A’ component at all. In fact, a better term than ‘most’ is ‘virtually none’. On the day of system launch, the project team has a big party and disbands to move on to the next initiative. Sure, there is work supporting the system, fixing bugs and maybe even starting work on phase two, but the pressure is off and the laser-like focus of management is gone.

To make matters worse, unless that group of fence sitters can be converted, the initiative usually gets scrapped, resulting in a huge write-off of hard dollars and additional costs to repair the business processes. The good news is that there are very effective change management processes and methodologies for insuring behavior change, but most organizations pay them little more than lip service, often only with one lip.

These organizations start out with the best of intentions, and budget time and resources for change management. But sometime during the project approval process, some management Einstein on the steering committee says “cut the budget 10% and it’s a go.” Inevitably and predictably the project team wrestles with its options: “We could cut functionality, but our bodies haven’t completely healed from the bloodletting necessary to get agreement on what we have now.” Suddenly those change management dollars in the budget spreadsheet start to strobe. The project team thinks “we could leverage the H.R. department (gratis) for communication and leverage members of the user community for training” and voila! We make our number, get our funding, and no one will be the wiser because once we go live we’re all on to something else!” My consulting brethren are just as guilty. [geezer voice] If I had a dollar for every time a salesperson cut Change Management services at the first customer price objection, I’d be rich! [/geezer voice]

The irony is that those change management dollars are the most highly leveraged investment in the entire project. Change management typically runs 10-20% of the total project cost, but because of the Effectiveness equation, each of those dollars hais 4-9 times more impact on ROI than each ‘Q’ dollar. From a pure financial standpoint, functionality should be the first thing to go. Spooky Action will share a devious/ingenious strategy for facilitating this in a future post, but for now we use this information as additional fodder for our .8 prediction.


The second obstacle to gaining strategic advantage from I.T. is management, or more precisely best management practices. Note: Spooky Action scoffs at the term ‘best practices’ as commonly abused. If an organization really had a ‘best’ way to do something, why in on Earth would they share that with their competitors or a software vendor to build into their product to sell to their competitors?

Think about it.

Whenever someone says ‘best practices’ we here at Spooky Action hear ‘rest practices’, because generally the practice consists of what the rest of the industry is doing. There’s nothing wrong with rest practices, as we will discuss in the next section, but don’t fool yourself into thinking that there is some inherent virtue to them.

Then again, Professor Robert Cialdini might say that there IS an inherent virtue in rest practices. He wrote a book entitled: Influence: The Psychology of PersuasionInfluence: The Psychology of Persuasion, which is essential reading for any adult whose career aspirations extend beyond hermit. The gist of the book is that Cialdini, an experimental social psychologist, spent 3 years undercover working in various “compliance professional” roles (e.g., sales operator, fundraiser, recruiter, advertiser) to learn the secrets of how to persuade people to agree to things they often would not do without said influence. He found that there are six distinct weapons of influence:

  • Reciprocation

  • Commitment and Consistency (Ho! Ho!)

  • Social Proof

  • Liking

  • Authority

  • Scarcity


Social proof is the tendency to view a behavior as correct in a given situation to the degree that we see others performing it. It works subconsciously, in proportion to the number of people we observe doing it, and we are most influenced by the behavior of those we perceive to be most like ourselves! No wonder industry rest practices are veritable siren songs for managers.

This innate attractiveness of rest practices is amplified by the element of perceived risk in business management. Everyone intellectually acknowledges the old saying: nothing ventured, nothing gained, but applying the principle is an entirely different issue. Another “feature” of the human biocomputer is that we perceive risk in a very non-linear fashion, with a strong bias to exaggerate the downside risk and discount the upside potential of any particular situation. Perhaps this is a mental “change tax”, which adds some negative weight to ANY change, positive or negative. In any case, most managers naturally seek to minimize risk. They have learned through their careers that the key to success is delivering consistent, predictable results. In the era of performance-based compensation, this effect is magnified. Most managers on an annual bonus plan have a fairly good idea of the expected amount of that bonus at the start of the year. They plan for it, as do their families. The upside of the bonus range is usually capped, so betting Jimmy’s 529 college savings plan contribution for some marginal gain does not outweight the negative risk. Managers, like anyone else, make decisions for perfectly valid personal reasons.

Years ago an attorney working at a major corporation put this concept into concrete terms. He said “If we have 10 EEOC actions that each have a potential liability of $10,000, with a 10% probability of our losing each one, our management would rather settle each one for $1,500 than bear the risk of an unlucky roll of the dice.” While paying a 50% premium over expected payout may not seem like a wise business practice, the emotional value of eliminating a potential – though low probability – disaster was deemed a good investment.

The twin forces of self-enlightened risk aversion and social proof affect every aspect of management decision making, not just project selection. Jon Strande at the Business Evolutionist posted The Origins of Unengaged Employees, on the proclivity of many companies to limit employment candidates to specialists with skills exactly matching the specific requirements of a current set of tasks, as opposed to long term cultural fit. While this simplifies the recruiting process and shortens the learning curve for those initial tasks (maximizing short term economic performance), it usually creates long term problems when the employee needs to change to meet new challenges, like implementing new technology for strategic advantage. People are not fungible ‘human capital’.

The book Good to GreatGood to Great documents Jim Collins’ research into what makes companies dramatically outperform their competitors (overview by the author here). His team scoured a list of over 1400 companies to find instances where an organization went from average performance to corporate rock star. They found 11. Then, with fingers crossed, they looked for common characteristics of these companies. They found 6. One of them is: First Who, Then What.

The researchers found that the companies that went from good to great tended to first get the right team on board and then define the vision of where they wanted to go. Why was this one of the keys to outstanding performance? Hint: it usually took these companies years to hit on the exact vision and strategy they needed.

The importance of First Who, Then What is that it determines the upper limit of a company’s ability to change. Employees who are selected and evaluated on the number of times they have done task X in their career and managers who leverage rest practices to insure their bonuses have no business trying to use technology for strategic competitive advantage. The precise characteristics that make them good at their jobs makes them ill-suited for the uncertainty required to achieve greatness. This is not to say that this is the wrong way to run a business. In fact, for many business processes this is precisely the right way, but the technology implications for these processes are to do as Nick Carr suggests.


Which brings us to the final obstacle to using I.T. for strategic advantage: the fundamental structure of the organization itself.

The objective of any organization is to provide something of value for which other parties (customers) will be willing to make an exchange (usually of money). Business processes that create and deliver customer value are called core, or asset, processes. Improvements to these asset processes generally improve top and bottom line performance, but not always.

An organization also has a set of processes that do not create and deliver customer value, but are necessary for the care and feeding of the asset processes. These would include hiring new employees, the annual budget process, governmental compliance reporting, and IT infrastructure management, to name a few. These processes are known as context, or liability, processes. They are called liability processes because that is what they are to an organization, because they. only get noticed when they break down. The only way a company’s payroll process can affect customer satisfaction is if foul-ups create disgruntled employees who degrade the quality of the asset processes. Nobody’s going to be walking around with extra spring in their step because their direct deposit hit at exactly 12:00:00 a.m., for the exact correct amount!

Improvements in liability processes can translate into improved bottom line performance, but not in strategic advantage. The management strategy for these processes thus becomes to run them at the ‘rest practices’ standard of performance, while continually improving the cost efficiency of the process. Where have we heard that before?

So I.T. can be used for strategic advantage:

  • IF it improves an asset process

  • AND IF an organization has the right management team that will subordinate their own personal interests to the benefit of the entire organization
  • AND IF the organization has hired employees with the capability to adapt to the process changes successfully and invested in the change management activities necessary to facilitate those changes.

Between the triple obstacles and the Q x A = E factor, perhaps that .8 is a bit conservative…

…yet the purpose of this post is not to discourage I.T. organizations, but to encourage them. The past three years have permanently changed the relationship of I.T. to the rest of the organization. There’s no going back to the halcyon days of the 90’s, when the promise of the next killer app elevated the position of CIO to ionospheric levels. Future technology initiatives are going to be treated like any other business investment, and evaluated on their expected business impact – with risk discounts applied for the factors discussed in this post. Unless I.T. organizations can adapt to these new ‘market’ conditions, they will be forced into Carr mode by executive management, or worse: outsourced.

In the book Fierce Conversations: Achieiving Success At Work and In Life One Conversation at a Time, author Susan Scott argues that effective change = effective conversations throughout an organization. The author honed these fierce conversation skills through decades as a mentor to CEOs. She used the skills with them, and taught the skills to them. The book is full of tools for increasing the fierceness/effectiveness of conversation, both one-on-one and in groups. One tool is a process for problem solving in which a key step is asking yourself:

What am I pretending not to know about the situation – particularly my contribution to it?


That really makes you stop and think, doesn’t it? (It should also make you want to buy the book through the link above.) If it doesn’t, enjoy Dilbert-land!

Spooky Action believes that I.T. organizations need to ask themselves this question regarding the perception of I.T. within their companies – and be fiercely honest in answering! It is a critical first step in thriving in the new I.T. reality. This introspection will yield one or more of the following responses:

  • We have problems delivering on our promises

  • Our internal customers have no idea (or conflicting ideas of) what our promises are

  • Our staff has no idea (or conflicting ideas of) what our promises are

  • We make promises on an daily, ad hoc basis

  • Our internal customers don’t care what our promises are


Each of these challenges can be turned into an opportunity, and future posts will discuss ideas on solving them. But for now, as the old psychiatry saw goes: admitting you have a problem is the first step to recovery. Bite the bullet and embrace Nick Carr’s message. Adapt or take your chances against Signore Pareto!

But first ask yourself, are these the odds you'd bet your career on?



posted by Mike at 5:24 PM


6 Comments:

Anonymous Rob said...

Mike,
I think you've probably already seen that quality of writing and traffic don't go hand in hand in the blogosphere any more than they do in the world of business books. Most of the high traffic bloggers were just early on the scene. It's the mathematics of networks.

4:58 PM  
Blogger Troy Worman said...

Ah... Wow.

6:28 AM  
Blogger Mike said...

Hi Troy,

I'll take that as a compliment! It's funny that whenever I think of top posts on this blog, the very first post always rises to the top of the list. I guess when you have the time to collect 20-some years of learning and put it into one essay, it should be good.

Mike

7:35 AM  
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Thanks for sharing.
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