- January 15, 2009
- Posted by: admin
- Categories: Agile Applications, Blog, Business Dynamics, Enterprise Agility, Enterprise Software, Uncategorized
Information technology is a driving fuel for any organization today. As important as sales, marketing, HR or any other supporting department for an organization to survive. In the current financial 
crisis where its difficult to come out of the debt, it has become almost inevitable for organizations to carry out their plans to be on the forefront of I.T. and have a competitive advantage over the competitors. Keeping in perspective this scenario how do you think a company providing technology solutions and a company utilizing the services/solutions can sustain their technological endeavors?
Well, they would have to sacrifice something else to keep the people who actually do the work of their technological endeavors.
Unless they’re willing to cut other areas in order to compensate for it, the next best plan is to prioritize and organize to minimize costs. Perhaps the original technology plan included significant cost over a short period of time. By reorganizing and prioritizing those goals and focusing on putting the most important ideas with the greatest return on investment first, you may be able to diminish costs while increasing your return in the short term. This type of thinking could help to weather the storm so that the lower priority projects can begin to take center stage once the weight of the financial crisis begins to lift.
Companies will need to prioritize their technical initiatives by those that help them differentiate from the competition and/or have an immediate to short-term positive effect on processes/hard and soft cost savings/functionality/etc…
Those that do not meet this criteria will need to be tabled and re-evaluated at a later date.
Your crisis is my business opportunity. There is no such thing as a business crisis: just a different set of parameters for making money.
If one area of your markets is disappearing, then use your products in new ways to open up other markets. A good set of marketing and minor tech changes should have you back on your feet in no time. Find new customers, reduce costs (not cut staff), move to a reduced rent facility, sell off the money-losing division of your company, ask your staff to take a pay cut, ask your CEO to take a pay cut.
The world is full of opportunity and ways to make things work. To me, crisis means ‘opportunity’ and I’ve begun investing in earnest. Buy low, sell high.
I believe it comes down to focusing on what is important. If you’re dealing with budget constraints spend time assessing your business strategy. Make appropriate adjustments that allow you to focus your time and money in core “GROWTH” areas. In other words, “Measure twice and cut once!”
With this said, don’t take your eye of the end game. It’s during these trying times that focused and committed companies leap frog their competition.
Don’t stick with the processes that make things time-consuming, difficult, and error-prone. Adopt methodologies that foster rapid problem-solving, quality, and collaboration. Find what works.
Adopt open source
During recessions, well-managed and prepared companies tend to get stronger, at the expense of the others. Thus, unfortunately, the best answer to Ali’s question requires turning the clock back a couple of years.
For companies not on the brink of disaster, recession can bring great opportunity – to strengthen customer relationships and capture customers from struggling competitors; to pick up talent and assets at bargain prices; to kick off new initiatives when competitors are least able to respond. For companies with some depth of financial strength, this is a great time to aggressively identify and pick off some great opportunities that will pay off when (inevitably) the economy turns around.
For companies that are close to failure … you have to do what you have to do to survive. Resist, however, as long as you can cutting off those But the result is a bit like putting today’s groceries on the credit card – a little relief today at the expense of a larger pain just down the road. It is almost more expensive and more painful to try to rebuild people and capabilities you have eliminated.
The answer, in either case, is to step back, take a deep breath and objectively assess which current activities are vital to your long term prosperity. Do what you must to assure your short term survival, but be sure you focus on preserving and strengthening those things that will make you successful when the economy returns this year (or next).
The recession is simply a time to sow your seeds. Grab those highly skilled people other companies are laying off, start some innovative (but sensible) projects and by the time the recession is over, you can reap the harvest while others are just waking up.
Michael Green
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Look for quick wins – it’s difficult to predict how long this crisis will last, so focus on the value that can be provided now.
Provide forums and mechanisms for the development of innovative solutions from your staff for cutting costs and delivering real value.
Finally, reconsider whether you really want to “sustain their technological endeavours …”. A focus on sustaining your previous strategy in an environment which has radically changed, is likely to make you look irrelevant to the businesses current needs and challenges. You need to be flexible and agile and show that you can change in response to changing circumstances and business needs.
I have started looking at ‘Recession’ as a ‘speed breaker’ and as a ‘blessing in disguise’.
Because, this is “the” time for us/companies to review our ‘deeds’ and ‘damages’ done earlier.
– identify ‘show-stoppers’ / ‘pit-falls’ and carefully plan to overcome them,
– identify ‘best-practices’ carried our involuntarily and make it more robust if possible and share it with the community,
– then, move to ‘comfort plateau’ where you can strategically plan for the future using the time available, step-by-step at a reasonable pace,
– explore possibilities to make a planned ‘new product/service’ offering a huge success backed by suitable technology spine,
– identify new or alternative mode/channels of offering existing products/services so that it still not only maintains the current demands but also invites much more,
– continuous monitoring, review, evolution of the previously mentioned activities to do ‘mid-course guidance’ as and when necessary .
– identify and ‘temporarily’ stop/postpone investments in projects that are not going to be complete in next 24 months by any means.
– cutting down staff will result much more costly resources in the near future ~ today’s savings should not lead to next-week’s loss. so think and act.
– in few words, use this ‘plateau’ for carrying out the best ever, practically implementable, IT Strategy, visualize it with a ‘Technology Operating Model’, develop & implement Enterprise Architecture and enforce [IT] Governance, remodel the services delivery, and organizational structure if necessary, develop supporting ‘Risk Management’ framework.
During the course, do not loose sight on, new trends, markets, competition, and of course updating core skills of the manpower behind the technology.
I just spoke my mind out. Hope this is helpful.
Ali,
You have two groups of companies. Those that *are* IT companies and their investment into IT technology are revenue centers, and those companies where the IT department is a cost center and does not directly add to the bottom line.
In the first group, if you don’t continue to re-invest, you’re going to end up falling behind the competition. You may be able to ‘float’ and see what new technologies are emerging and then make a move, however you still need to keep working on your existing revenue streams.
In the second group, the budgets are projected to either remain flat or grow slightly. This means that you need to do more with less and to focus on utilizing technology to gain efficiencies in your core business. Your business runs on computers and unless you have working laptops, phones, etc … you’re going to be in trouble.
Getting more creative in the use of technology to increase sales or cut production costs is still going to be a big issue within the IT Dept, and this requires funding. If you’re talking about existing projects, one of the biggest mistakes is starting and stopping IT projects based on projected earnings. Montgomery Ward did this during the 90’s and each time they stopped a project, they had to spend more money to resurrect the project because the resources had changed. Its better to keep going once you’ve ‘green lighted’ a project.
HTH
Hi Ali,
This is an opportunity to sharpen your priorities, as Jonathan suggested.
One way to do this is to establish a “stagegating” process whereby each project is formally reviewed by a management board at critical junctures. Typically there are an established set of questions that are asked in each round, and a set of minimum metrics that each project needs to meet at each stage. Those projects that are not meeting the metrics get shut down, so that resources can be devoted to the more promising projects. This is a good process to use during both bad times and good.
Another way of stretching resources is to keep an eye out for other companies that are conducting research in areas of your interest. Perhaps you can share resources, and split the costs?
Josh.
What i would suggest, it is a study time & start upgrade your skills ..
After end of this crisis there will be a major technology changes in every industry, an example IT is going to adapt semantic web / web 3. Same going to happen in any industry.
There is a need for investment in research & keep on watching the industry will be really help ful for any company.
Recession is the only real time where the organizations get enough time to re-think and make radical changes to their strategic assets. While in boom the best you can afford to do is continuous improvement; you normally can’t afford to experiment and re-engineer your core business processes (and IT assets supporting them) while you’re overwhelmed with customer orders; you can only tinker them that much.
Realizing the fact, that more agile your organization is the more likely it is to survive (and even thrive) in difficult business climate. While the competition due to lack of flexibility and agility might fall over its own weight, an agile company would be able to snatch the market-share from their fat competitors by being more adaptive and hence competitive. This will be true now (during the shrinking market during recessions) as well as tomorrow (when the market expands again)
Therefore before considering an IT investment, its strategic alignment with business objective should be clear. The business objective should be to tranform yourself into a robust and agile enterprise which thrives in changing market conditions. If an IT investment is aligned with this key objective, it should be very seriously considered – even financed from external channels.
One thing is for sure that during tough times tinkerers ought to die! There’s no more room for continuous improvement during crazy times. Its time for making some bold and radical decisions and a strategic alignment of IT investment with such decisions is sure to give both a short-term and long-term advantage.
In light of the need to get both robust and agile, I believe SOA technologies would top the list of IT agenda for the enterprises.
Joshua,
Thank you for the request for clarification because I believe the issue is indeed more complicated. When I refer to “such products,” I mean to speak about open source products in general. Motivations for support vary depending on the license employed by the software producer. For software following the four-freedoms definition of Free Open Source Software (FOSS), the nature of source code control and motivations towards support are different than more commercial-friendly OSS licenses such as IBM’s corp. license and Creative Commons. Denying companies revenue streams related to software licensing can lead to a drop in marginal revenue that could otherwise be used (in a profit-maximizing firm) towards greater support services and developmental QA. Dedicated paid QA becomes an issue then for OSS firms that don’t have these resources, and rely solely on outside QA and support. This raises opportunity costs for said QA staff, leading to a potential for reduced quality that otherwise would be absent in dedicated in-house QA or support.
It’s important also to note that this is not the case for all FOSS/GPL licensed software distributors. As we’ve seen with Linux distributors such as RedHat and Canonical, it’s very possible to provide quality support for enterprise software products under a GPL license. In fact, given the nature of the four freedoms, support is perhaps the best source of revenue when traditional licensing and software sales are impossible (the latter being impossible given that free transmission of software after initial purchase cannot be interrupted under GPL). But Canonical and RedHat’s success is far from universal and is the result of careful planning and deliberation. I don’t believe it’s a rash generalization to say that much of the FOSS available lacks a support structure as robust as their commercial OSS or proprietary counterparts.
I think we’re actually speaking the same language when you talk about TCO. TCO is effectively the same as Total Cost, which contains fixed costs and variable costs as parameters. I completely agree with you also – it’s not easy at all to derive precise answers without some serious work. I don’t think it’s an overstatement of the difficulty even to say that (assuming you’re using a graph theoretic method of calculating costs) it’s on par with the Travelling Salesman problem. If we can assume the problem is then NP-Hard and an extension of Travelling Salesman, there are methods to make calculations simpler (and by effect more precise). Stealing some stuff from computer science, we can use Dynamic Programming to solve for optimal subproblems and reduce the complexity. In translation, we could focus on deriving either the Fixed Cost (much easier) and then the Variable Costs (much harder). The creation of advanced supply chain systems and techniques used by firms like Wall-Mart makes finding Average Variable Costs (AVC – costs per unit of a good produced) much easier also, yielding a wealth of information for firms that have the I.T. and logistical infrastructure to derive such metrics. Even if a firm doesn’t have this logistical capacity, other specialist firms like UPS are getting into the business of providing outsourced logistics and metrics gathering capabilities. This might even be more ideal – giving you Gains from Specialization to focus on software development if you’re a software development firm using these services. Financial gains could then be refocused towards support and development.
I also can’t stress the importance of AVC. If a firm can derive its AVC and can quantify its production costs, calculating optimal production levels for profit maximization and cost minimization are comparatively trivial. For any firm relying on IT or any tech firm, this is dramatically important given the highly competitive and dynamic nature of most high tech markets (both enterprise and consumer).
So while I agree with you that it’s not that simple, I believe it’s theoretically also not obscenely difficult (or at least impossible). Proof that accurate metrics for economic information can be derived from extremely complex multi-national corporations exists plentifully in major firms such as Wall-Mart, UPS, and FedEx. Technology firms relying on the same core economic models (though indeed markedly changed for their competitive market structure and other endogenous variables) should be no different.