Mark McDonald

Demonstrating the business value of IT is challenging CIO’s, CEO’s, CFO’s and other managers.  The problem is not that IT creates no value; it is just how do I measure and communicate that value.  Current practices in IT measurement and metrics do not help as they concentrate on reporting how IT spends money (projects on time on budget) rather than the value created from those expenditures.

IT metrics concentrate on reporting IT value in a point in time.  This is a fundamental weakness in current IT metrics approaches.  Point in time reporting concentrates IT on financial and status measures that fail to capture the changes in performance and productivity created by information technology.

The value of IT at any one point in time is essentially zero at best and often negative.  Take the IT assets on you balance sheet and mark them to the market to see their value. Turn your attention to the IT investment portfolio and you get a similar story as expenditures on active projects that have not completed outweigh the value of completed projects in a given year.

IT creates little value at any one particular point in time.  IT metrics that concentrate on point in time measures naturally have trouble communicating value.  Instead they focus on demonstrating that IT is not wasting money and not disrupting the business.  That is the essence behind reporting project status, systems availability and budget based statistics in IT scorecards.

Enterprises see the value of IT over time.

IT value comes from a sustained change in business performance rather than a single transformation.  You cannot see this performance via point in time measures.  You only see this impact by comparing performance in the current period with past performance.  This enables you to see the impact of new business capabilities on business performance.

A control chart provides a way to see the changes in business performance over time.  Highlighting the release of new capabilities on a control chart gives executives the ability to see the impact of IT and other changes on performance over time.  The figure below illustrates this type of control chart.

A control chart illustrates the relationship between business performance and new IT based capabilities.  Ideally new capabilities would establish a new process performance profile, shown as the new upper/lower limits in the figure above.  The point here is that I can see the value of IT because I can see the change in performance only over time.

A caution when using this approach.

There is a fallacy of “false precision” where business and finance leaders will say that IT cannot take all the credit for these improvements.  They are right.  No one person can take credit for performance improvement because it’s the result of coordinated and collaborative changes not any singe change.  The same goes for when performance deteriorates and falls outside the lower control limit.  The point here is that you want to demonstrate that business performance improves when IT creates new capability over time.

You may want consider a collection of other comments about management pitfalls in this other post  Signs of Weak Management

There is more to showing the value of IT than we can discuss in this single post.  Demonstrating the business value of IT starts with recognizing and reporting on the source of IT value which is changes in business performance over time not IT performance at any one particular point in time.

Leading beyond tomorrow requires more than managing change.  It requires building people’s ability to change and that is the difference between change management and change leadership.  One of the techniques for leading beyond tomorrow I learned from Michael Doyle who unfortunately passed away in 2007 and is the author of Making Meetings Work.

Reflective reciprocity sounds like a complex process – perfect for a consultant – but its pretty straight forward.  The principle is this:

You cannot lead people to a new future, until you understand their shared history by honoring their past.

The reflective part concentrates on understanding peoples past.  Allowing them to reflect on their history, their accomplishments, the events and stories you allow them to tell you what makes them who they are.  By listening and paying attention, you show your interest and give that past value.

The reciprocity part is the implicit promise that if you listen to who I am, then I will be willing to listen to you about how we move forward together.  Building from that shared past you can now take the organization forward.

Applying reflective reciprocity

Apply reflective reciprocity in workshops, focus group or even 1:1 interview situations.  The technique is simple.

• Let people know that you are interested in understanding the company, their role, their successes and how they overcame challenges.

• Hold a session to discuss the current context and invite people who are the key influencers of company culture and experience.  If everyone listens to bob, then make sure bob is there.

• Start the meeting by asking the group to share their successes going back over a period that is at least equal to the duration of the change initiative.  A one year change initiative probably involves going back 3 – 5 years, a three year change go back 10 years.

• Sit back and listen, ask questions, seek stories and show people that you want to understand who they are and how they got to where they are today.

Two other things I have experienced using this tool.  First the farther back you go in terms of understanding the history the farther forward the group is willing to go in envisioning the future.  The other point is that the deeper the analysis you do of the past – the more radical the audience is willing to be about the future.  The combination of honoring the past and understanding it sets the stage for innovative and forward leading thinking.  The graphic below illustrates this concept:

Where to use reflective reciprocity

Reflective reciprocity works because you first seek to understand who they are and why they are that way.  This understanding matters in situations where there is a deep resistance to change based on one of the following situations:

• A historically successful company that is facing new challenges.  For example traditional market leader facing the need to change.

• A company with experienced and deeply tenured employees who have a vested interest in the current state.  For example a public sector agency or not-for profit.

• A company with culture based on consensus and group decision-making.  For example a company moving from decentralized business units to centralized operations or shared services.

• A company facing the need to make deep changes in its culture and business model.  For example a products company extending their model to include services.

I have found reflective reciprocity particularly effective in situations people are heavily invested in past success and any change represents an implied threat to themselves or more importantly their beliefs and assumptions.

Reflective reciprocity demonstrates that you are interested in who they are and you are willing to take the time to understand them before you look to change them.  It also can create recognition that things need to change without every having to talk about the ‘burning platform’.  Here is how.

As people discuss their past, their successes and their accomplishments they will invariably recognize things that did not work so well.  While these will elicit a chuckle or a ‘remember when …” they remind the audience that everything was not perfect and that there is a need for change.

Effective leadership requires more than a vision of the future it requires an appreciation of the past.

An observation.

I applaud ICANN’s decision to support Internet domain names in people’s local language and character set. The decision achieves the goal of making the Internet more accessible and global.  But, it also tells us more about the nature of the web than just a move to accommodating the majority of the world using a non-latin alphabet.

While moving to local language domain names is great, its impact on the web and web usage may not be as great as predicted.  One can argue that the move to local language/character set domain names is a little late in the game for the simple reason…

Who types in a full domain name anymore?

Few people do.  Most access the web via a default browser portal, or a search engine or following a link rather than retyping domain names into their browser.

Creating domain names in non-Latin characters will increase the accessibility of the web, no doubt, but it will strengthen the importance of these default portals, search engines and links particularly for those with Latin based keyboards.

What does this say about the web?

Well that the web has moved from an almost infinite undiscovered country, to an information superhighway with defined onramps and infinite off ramps.  These are the embedded web links and search engine results that really control access to the web.

Control is a tough word in the web.  However, realistically gateway web sites in every country (not just Google, MSN or Yahoo) form the basis for how we get around the web.  These are the non-governmental organizations NGO’s of the Internet.  We have seen how their interactions with national governments form the basis for managing web access and information flows.

ICANN’s decision is the right one and a step in the right direction.  Technically it reflects the way the web works through URL addresses.  Functionally that means of direct navigation gave way to portals, search engines and links a long time ago.   This is something to consider as we continue to evolve a communications network that just took another step to being global.

Lightweight technologies, those that do not require a heavy upfront investment or operational requirements, will meet many management and strategic applications needs.  Technologies, such as social computing and software as a service, give business unprecedented levels of choice in how they provision their technology.  Executives are making that choice not for back office commodity systems but for strategic applications that drive customer engagement.

The BBC World Service is an example as they are using Face book as their primary customer engagement application.  BBC World Service announcers routinely ask questions of that audience as a follow-up to a particular story.  For example, a story on elections in a country is followed by the closing “What do you think?  Tell us what you are doing?”  The announcer closes these statements with ‘go to our page on Face book and have your say.”  Latter in the program the announcer provides feedback by reading posts as a way of showing that BBC is paying attention.
There are multiple lessons from BBC’s use of Face book around how to engage consumers of broadcast media and create a loop that builds stickiness.  But, the lesson for this post is about the choices the BBC made in creating the applications it uses to engage its listeners on a global basis.

Notice what they did not choose to do.  They did not choose to build a proprietary or custom system to engage customers. The BBC did not choose to purchase and install package software to manage these customer relationships.

The BBC decided to lease, ostensibly for free, their major customer engagement platform from Face Book a company that did not exist 5 years ago.  BBC does not own Face book, or control the technology that drives the site or their page.  The BBC chooses not to engage their internal IT department to provide this service in a significant way.  Check it out on Facebok BBC World Service

The BBC chose a lightweight technology.

This gives the BBC ready access to an audience that does not require extensive customer acquisition or training costs.  They are getting consumer-engaging functionality that is broadly available on a platform that customers already know and many already use in as part of their daily routine.

In other words they are getting the functionality they need at a radically different cost structure.  Lightweight technologies have a unique value proposition from a customer, revenue and technical perspective

The BBC World Service provides a ready example of what will increasingly become possible as executives exercise their choice and choose lightweight technology.

Gaining scale while remaining close to your customers is something every CEO seeks in their go to market strategy.  The combination is difficult to achieve because of the way we think about solutions and operations. Too often we mix what we do with how we do it and the mix up reduces our ability to gain scale.

Ask someone about their job or a business unit about their operations and you get– what they do – their activities and how they do it — their tools.  While mixing what’s and how’s together is natural, it creates problems when it comes to building solutions.  Here is why:

What’s – the activities we perform exists as part of a complete business capability.  What we do is contextual influenced by the time, place, knowledge, customer, information, among other factors.  These factors provide richness in being able to change what I do by changing these and other factors.

How’s – the tools we use to perform our steps are less contextual, more routine and rules driven.  IT systems are how’s defining information and business rules.  The need for precision and consistency in executing business rules, recording data and providing answers means that there is little wiggle room in this part of the solution.

Enterprises create rigidity when they seek to implement what’s in specific how’s such as information systems.  This happens accidently in systems development when IT professionals as “What do you want the system to do?”  The question is the ‘second most dangerous question’ in IT and generates system requirements that unnecessarily lock companies into their current way of working.

Executives lock companies into subscale solutions when they dictate how something should be done without consideration of the complexity or variability of their environment.  When an executives, particularly those in charge of geographic regions state ‘we are different and therefore need different systems’ they are at least half right.  They have different what’s, but that does not necessarily mean that they have different how’s or systems.

Gaining scale comes from consolidating the how’s into single common systems using the same information and core set of business rules.  Executives can retain local customizations through placing that complexity in other what’s such as personnel skills, local culture, etc.  They can also meet local needs for tools through ancillary systems and services rather creating redundant core applications.

Take order entry as an example.  Taking customer orders is contextual to the industry, customer, geography etc.  This can lead companies to build multiple order entry systems for each contextual environment.  However, when you look at the information involved in an order, the business rules associated with an order most organizations find an 80 – 95% similarity across geographies operating in the same industry.  This means that essentially an order taken in Germany is largely equivalent to an order taken in Singapore, Sydney, or Syracuse NY.

Now if you are saying wait a minute but ….  Think about the objections you will raise.  Are you saying that the information, process and rules are radically different?  Or are you saying the context, skills, people, environment is different.  If the context, culture, environment is different then we are talking about what’s not how’s.

You are right in saying there are different tax, import, and other rules – but can those differences be handled as additions to a common order entry process (how) rather than requiring entirely different applications that drive up operating costs while driving down scale and flexibility.

The order entry example comes from a European company who operates four different business units selling in four different industries – all with the same single instance of their ERP.

When asked how is this possible, the CIO first answered ‘because we have smart people in IT.”  Then he added, these smart people helped the business realize that their operations were essentially the same – manufacturing and selling liquid products – so the systems could be essentially the same.

Asked about the impact of this decision and the CIO replied that separating the what’s and how’s enabled common solutions that have been essential to managing the company’s cost structure, operational improvement and innovation.  They could not achieve global speed and scale if we had to change four different systems even if the changes were largely the same.

An observation.

I applaud ICANN’s decision to support Internet domain names in people’s local language and character set.  The decision achieves the goal of making the Internet more accessible and global.  But, it also tells us more about the nature of the web than just a move to accommodating the majority of the world using a non-latin alphabet.

While moving to local language domain names is great, its impact on the web and web usage may not be as great as predicted.  One can argue that the move to local language/character set domain names is a little late in the game for the simple reason…

Who types in a full domain name anymore?

Few people do.  Most access the web via a default browser portal, or a search engine or following a link rather than retyping domain names into their browser.

Creating domain names in non-Latin characters will increase the accessibility of the web, no doubt, but it will strengthen the importance of these default portals, search engines and links particularly for those with Latin based keyboards.

What does this say about the web?

Well that the web has moved from an almost infinite undiscovered country, to an information superhighway with defined onramps and infinite off ramps.  These are the embedded web links and search engine results that really control access to the web.

Control is a tough word in the web.  However, realistically gateway web sites in every country (not just Google, MSN or Yahoo) form the basis for how we get around the web.  These are the non-governmental organizations NGO’s of the Internet.  We have seen how their interactions with national governments form the basis for managing web access and information flows.

ICANN’s decision is the right one and a step in the right direction.  Technically it reflects the way the web works through URL addresses.  Functionally that means of direct navigation gave way to portals, search engines and links a long time ago.   This is something to consider as we continue to evolve a communications network that just took another step to being global.

NOTE: this post is a continuation of a prior discussion on Regulation 1.0.

Regulation 2.0 will be shaped as a direct response to the shortcomings of existing regulatory regimes, the potential of emerging technologies and the desire to incorporate state and non-state actors into regulatory regimes.

Regulation 1.0 is based on prohibitions defining the wrong things in society rather than encouraging people to do the right thing.  Part of Regulation 2.0’s foundation will be based on providing positive incentives for the right behavior rather and Regulation 1.0’s approach to prohibiting behavior.  This can be seen in recent legislation establishing ‘cap and trade’ systems for carbon emissions, tax policy on so called sin goods such as alcohol and tobacco and entitlement programs are all example of a behavioral approach to policy issues.

Policy makers see creating incentives that “allow market forces to work.”  Raise the cost of sin goods and you will lower their consumption, raise the price of pollution and people will pollute less.  However, these same policies create alternative markets for these goods fueling an alternative economy that in turn demand increased resources for law enforcement – creating an escalating cycle of legislation and enforcement.

If Government 2.0 is all about engaging citizens and their self-service, then regulation 2.0 should be able engaging citizens and their self-enforcement – right?

Emerging technologies will give regulators unprecedented opportunities to gather information and apply it to behavioral policy.  I first came across this idea in Frederick Pohl’s book, The Cool War (1983) where every senior citizen is given a video camera to capture ‘illegal’ activities.  Those video cameras are now in just about every cell phone and there are now more than 300,000 Closed Circuit Television (CCT) cameras in the UK capturing the average person walking through London more than 300 times a day.

Regulatory regimes are based on the notion of jurisdictions.  Non-state actors pose an accountability challenge, particularly those working across national and international jurisdictions.  It should come as no surprise that these groups resist direct legislation as much as anyone.  This creates an environment that goes beyond concerns of “who is watching the watchers” to ‘how to you hold someone accountable who is not an accountable part of our system.”

Non-state across pose a particular challenge given the fragmentation of media and the proliferation of communications channels that give these groups asymmetric powers – where a few people have a disproportional influence in public debate and actions.  In the face of such a torrent of opinion, policy makes can easily turn inward to rely on established political and social elites further isolating the rule makers from those expected to follow the rules.

Combine behavioral policy with information, communications and cameras and you can see regulation 2.0 becoming a new version of a society of informants.  People will be doing their patriotic duty by informing the authorities about what their neighbors will do and providing rich media voice, video, GPS and time stamped proof of your crimes against the society.

Regulation 2.0 should create a framework for thoughtful policy rather than a simple reaction to what has not worked in the past.  Such regulation would involve:

• Creating a regulatory environment that protects society as well as promotes innovation and investment.
• Taking a hard look at the root causes of past failures, the future motivation of those in power and finally one that recognizes that people who take prepared risks are sources of future growth and innovation, not the enemy.
• Initiating a new basis for policy dialogue using communication technologies to create debate rather than to mobilize sides, create division or mock each other via derision.
• Using information to assess the effectiveness of policies and regulations and use that information to trigger objective review and reforms of policies and regulation.

Regulation 2.0 seeks to be proactive through grafting traditional policy approaches onto current social and technical realities.  Some groups would argue that we are already living in such a society.  However, this outlook or even less coercive versions of it are not a foregone conclusion provided that Regulation 2.0 leverages these factors toward a different end – personal and corporate responsibility.

Proctor and Gamble and their Connect + Develop process for innovation is a leading example in the potential of innovation to restore growth and profitability.  Yesterday I was reading The Design of Business by Roger Martin that dedicates a whole chapter on P&G and its innovation process.

Latter that day I read an article in the Wall Street Journal focusing on P&G’s pressured product lines and the ultimatum to brand managers to perform else they will be sold.  (“P&G considers booting some brands” by Jeffrey McCracken and Ellen Byron10/29/2009 p.B1)  The article comments that now CEO Robert Mc Donald has been “trying to shake up P&G’s slow, process-heavy culture.”  A culture that innovation authors said was forever changed in their case studies of P&G.

The description of P&G’s current state where consumers are favoring cheaper private labels, brands losing market share, etc sounds exactly like conditions in 2000 when innovation was the answer.  What is striking in the article is that divestiture and acquisition are the answer this go around and not innovation.

So what do innovation advocates do with this?

First, we all have to recognize that change happens and that the answer to issues back in 2000 may not be the formula for today.  Innovation exists to solve a set of situations.  It is not a panacea for any and every business problem.  That may be difficult for innovation advocates to understand, but if innovation worked everywhere every time then once you were good at it, like P&G, then you would keep doing it to overcome future business challenges.

Second, innovation advocates should study both innovations success, which appear in more books than you can imagine, but also innovations failures – the business failures both in terms of new products/technologies like Apple’s Newton and the Segway but also the business model failures like WebVan, or People’s Express.  These are a few which pop into mind.  Innovation advocates should use these experiences not to say “avoid this” but rather to explain what happens when you pursue technology without need or a business model that cannot readily scale.

Finally, innovation advocates should go back to these hallmark case studies and continue to study the company and its fortunes.  Advocating innovation requires providing executives with examples of what is possible, what people did etc.  P&G’s Connect + Develop is a great approach.  But once you use and example, the next question out of any executive’s mouth is “what are they doing now?”  You must be able to answer about the company’s current fortunes and the reasons how those fortunes apply to your situation.

Is innovation dead and P&G.  I doubt it.  Does this mean that innovation is no longer a viable business tool/strategy?  No.  But, what it does mean is that innovation advocates have to be on top of both the innovation game and know what is going on in a changing world as case study companies will change.

Regardless of your political philosophy, the role of government in today’s economy is a reality in most if not all countries.  The challenge for elected and government officials, in my opinion, is not the need for regulatory change, but how will they use technology  tools to create proactive rather than reactive policies and legislation.

Regulation 1.0 was responsibly reactive

Traditional policymaking is reactive – protecting against the last crisis and making sure that what happened will never happen again.  Sarbanes-Oxley and other regulatory requirements demonstrate how regulation applies remedies where the wounds used to be and not where new stresses and bruises are forming.

Ex post facto based regulation is understandable considering the complexity of regulating dynamic economies and the relative acuity of hindsight versus the real risk of stymieing future growth.

Reactive policy and regulation were effective to a point when nation-states and national economies were relatively separated from each other.  Now that the world is ‘flat’ in Tom Friedman’s terms, we face a world where preventing problems in one country does not eliminate the risk in any country.

This has led to greater policy coordination and oversight across national boundaries.  This has already happened recently in the range of reforms and representation in the G20 and their attempt to define a new system of capital, currency and other regimes.

Regulation 2.0 will seek to be reliably proactive

Proactive policy and regulation would seem to be the answer.  If being reactive does not work, then its opposite must be the way to go!   Such reflexive logic sits behind thinking about new forms of regulation that I will call Regulation 2.0.

Policy thinkers are beginning to see that such a benevolent approach must becoming possible as we enter into the second decade of the information age.  The idea of an all seeing, knowing and proactive regulatory environment that keeps use from making big mistakes is appealing.  It is an intrinsically populist idea where the government protects use from abuse and our mistakes.

The intellectual support for proactive and invasive policies has already been established in a range of disciplines.  Public policy think tanks are busy writing white papers redefining the role of government as Congress ponders legislation with sweeping new powers.  They are supported by the scientific research in brain science and behavioral economists who demonstrate that people do not always behave rationally.   Their logic is that if people are not rational, then they need the government to behave rationally to prevent them from hurting themselves.

The fundamental flaw in this logic is to view government as a dispassionate objective institution that is somehow more rational than its creators.  If anything, government is an institution driven by passion, power, emotion and irrationality.  Just talk to a politician, an activist and you see that government is the most human of all of our institutions.

Asking such a human institution to be the super-rational player in society is asking government to deny itself, its source of authority and our sense of citizenship.  It is an unnatural act that those in power will encourage – at least as long as they are in power.

So what about the future of regulation?  How do we create effective and forward looking regulatory approach within the limitations of our system – some ideas in the next post.

Prioritizing and managing the demands on IT resources is complex and fraught with risk. IT executives balance across multiple factors making IT planning complex and time consuming. The plan, also known as demand management seeks to address the imbalance between fixed IT resources and an apparent infinite demand for IT solutions.

Business executives can find demand management baffling because it sets tactical requests against strategic initiatives.

The two are not the same.

Postponing tactical changes in favor of larger strategic projects makes IT appear non-responsive. The result is pent up demand for daily operational changes that add to business frustration with IT.

IT needs a set of techniques that manages demand for strategic projects.

IT also needs a way of managing the daily changes and improvements that drive business performance. But how can you balance both planned strategic initiatives and unplanned operational enhancements across a single workforce?

You can’t. At least on easily.

Enter the Job Jar.

The term, which I understand originated in GE, borrows on the analogy that a household has a jar filled with slips of paper describing various jobs to be done. The family reaches into the ‘job jar’, pulls out a slip and completes the job.

The concept is simple.

Except in IT, the concept runs backwards.

Here is what I mean.

In IT the Jar is filled with resources not tasks. IT defines the jar by assigning resources for a specific period of time. For example three people for three months. People rotate into a job jar team to keep resources fresh. In this example, the job jar contains about 400 hours of capacity.

The business assigns resources out of the job jar to tactical projects based on their priorities and needs. This business has control of the tactical priorities and projects supported by job jar resources.

Job Jar projects carry a few important rules:

• They must be completed before the resources in the job jar expire.

• They cannot carry over into future job jars, so no XYZ project v1, then a v2, etc.

• They cannot introduce new technologies or require exceptions to the enterprise architecture

• They will follow accepted IT practices and processes, e.g.: testing, change control, etc.

When a job jar project involves more than tactical changes it is referred back into the governance process. By the way, IT has its own Job Jars to handle its tactical changes and upgrades.

Approaches like the job jar give the business greater control over the tactical changes they need to run day-to-day processes. It relieves ‘pent up demand’ for IT and manages IT resources in a fixed time box governed by simple rules.

Not every project is strategic. Tactical projects are important and create value. Using an approach, like a Job Jar, helps IT tap into both sources of value and gives the business a tool for addressing the needs they see as immediate.