Reasons For IT-Business Misalignment (Part 3)

July 1, 2008

I my last post I listed 4 causes of the misalignment between business and IT. In this post I continue the list.

Reason 5: Implementers have insufficient domain knowledge.
Obviously IT folk need to understand IT – but that’s the bare minimum required to be effective. It’s important to understand the business and industry that you’re operating in. Without sufficient domain knowledge you can’t communicate effectively with the business and this leads to countless problems (e.g. instead of requirements gathering you ‘take orders’)

Solution: IT folk need to learn the business (and industry) they work in.

Reason 6: IT building itself into solutions.
It’s generally accepted that typical IT Department’s spend roughly 80% of their budget on maintenance and 20% on new initiatives. The are many reasons for this but the main one (I think) is that IT Departments build themselves into solutions. In many cases, IT delivers all the features the business wanted but neglect to factor in all the “behind the scenes” things that are needed to operate the solution (e.g. maintenance screens, report writing tools)

Solution: Build complete, end-to-end solutions that don’t require constant hand-holding from IT.

Reason 7: Line of business instead of enterprise focus.
We know that most IT solutions are developed for a particular business unit. This is largely down to organisational factors (e.g. funding models, governance) and the result is a large number of siloed solutions. And here’s the problem. When a new business initiative starts, every department prepares accordingly (e.g. policies, procedures, staff training etc). Part of the preparation involves burying the IT Department in ‘change requests’. Marketing sends their requests, sales sends their, accounts want changes and so on. And of course IT is notified at the last minute – when everything else has been done. IT can never hope to manage this sudden peak in workload.

Solution: Take an enterprise-wide approach to IT solutions. LOB thinking is not sustainable.

So that’s my 7 reasons why IT cannot keep pace with the changing business needs. It’s not caused by a different pace of change (business changing quicker than IT) – the causes are largely due to timing (business getting a head start) and direction (IT going off on tangents).


Reasons For IT-Business Misalignment (Part 2)

June 30, 2008

I my last post I said that the cause of the misalignment between business and IT is not caused by different pace of change. IT can change as quickly as the business – but it doesn’t. This post lists some of the reasons for this.

Reason 1: Business always gets a head start.
Given its relatively lowly position in most organisations, IT is always the last to know about what is happening – IT isn’t “kept in the loop”. The business can spend months planning something but IT is often contacted at the last minute and is forced to cobble together a solution in impossible timeframes.

Solution: The business must keep IT in the loop. The earlier in the process the better.

Reason 2: Poor solution development methodology.
Many IT Departments are ignoring modern best practice and continue to use outdated waterfall methodologies or work on multi-year projects. It doesn’t work. And history tells us it’s never worked. And I’m not talking software development specifically. The same applies to any IT project (e.g. implementing a new content management system).

Solution: It’s time for IT to get with the times. Develop interactively. Deliver early. Deliver often.

Reason 3: Trying to predict the future.
If you can predict the future I suggest you channel your talents toward pursuits other than trying to predict future business requirements. Most business will prefer to get something functional today than wait for something with bells and whistles. Don’t over-egg the pudding. If you can’t trace the work you’re doing right now to a business requirement then stop doing it.

Solution: Adopt the YAGNI principle. Learn to say “you aint gonna need it”.

Reason 4: Short-sighted views.
Some fall into the exact opposite trap of Reason 3 and build for the ‘here and now’ but don’t even consider what may be needed tomorrow. You need to find a balance. Some changes are easy to predict – factor them into the design.

Solution: Do things today in ways that doesn’t close any doors that may need opening tomorrow. Build extensible and easily maintainable solutions.

Business Ecosystems and the ‘Whole Product’ (Part 2)

June 11, 2008

In my last post I discussed three forces that I think will drive the consumer push for ‘whole products’, thus forcing businesses to change to a business ecosystem. In this post, I’ll explain the implications for businesses.

The three forces I discussed in the previous post are:

  • Perfect information
  • Commoditization of products
  • Time poor consumers

So why do I think that these three things will force businesses into a business ecosystem model of operating? In a nutshell: consumers want more for less. Of course, consumers have ALWAYS wanted more for less, so what’s changed?

1. The definition of ‘Whole Product’ is constantly changing.
Thanks to the Internet, there is almost perfect information in the market. As I’ve mentioned before, mainstream consumers buy “whole products” and thanks to the Internet they now know exactly what the whole product actually is. As consumers get more sophisticated, proving the whole products will require an increasingly elaborate business ecosystem. Businesses not capable of providing whole products (as defined by the consumer) will lose market share to businesses than can.

For example, travel agents used to book flights. But now consumers expect to be able to book entire holidays: flights, cars, transfers, tours, train tickets, accommodation and more. And the ecosystem will continue to expand as consumers demand more.

2. There will be a blurring of the “price” and “differentiation” business strategies.
Traditionally, businesses compete either on “price” or on “differentiation”. It all comes down to cost. If you compete on price then you need to make sure your costs are low. If you compete on differentiation then your costs will be higher but you can charge a premium for your value-add. At the high end I don’t think anything will change – the business that focus on differentiation are typically innovators (to differentiate themselves they need to do what no one else is doing). But I think technology changes the equation at the bottom end. Businesses competing on price will be forced by consumers to offer better service. Generally, consumers don’t expect a lot of value add from low cost providers – but consumers WILL demand additional services if they know it won’t add to the cost. And thanks to technology, the cost of providing additional services need not add to costs.

For example, when you want to buy a new dishwasher you pick your model and then shop around. You go with the cheapest price so whitegoods retailers generally compete on price. But even though you went with the cheapest retailer you still expect someone to deliver it and install it. You don’t mind paying for delivery and installation – but you want the retailer to organise it for you. These services require an ecosystem and technology should make the provision of these services low cost.

3. Time poor consumers are realising that disintermediation is not always ideal.
The Internet ushered in an era of disintermediation – we could finally cut out the middle man. This has proved to be a double edged sword. In cases where the middle man was ‘Mr 10%’ and provided no value-add, this was a good thing. But in some cases we’ve realised that the middle man actually earned his 10%. Most people are time-poor and are increasingly looking for “one stop shops”.

Again travel sites are an excellent example. We could book out flights, cars and hotels separately but we don’t want to. We want to do it all in one place, deal with one company and pay with one bill. What’s more consumers are willing to pay a small premium for this. If the business charges too much for this, consumers will go directly to the provider. Technology means that you can provide one-stop-shops cost effectively.

So that’s it. The reasons why I think we will have to move from linear supply chains to complex business ecosystems. This change is a challenges to businesses – but it’s also an opportunity for IT. There’s never been a better time to realise the true promise of IT – a source of competitive advantage.

Business Ecosystems and the ‘Whole Product’ (Part 1)

June 10, 2008

In my last post I said that “businesses will be forced to move from the traditional (linear) supply chain to a business ecosystem”. I’ve had a couple of questions about this statement so I thought I’d post an explanation of my reasoning.

The reason I think businesses will be “forced” to move to ecosystems is based around the concept of “whole product”. This is a marketing term and it essentially means “the core product PLUS anything needed to give customers a compelling reason to buy.” The core product might be a computer but the whole product may be the computer plus installation, support, pre-installed software, warranty and training. Mainstream consumers buy ‘whole products’ not ‘core products’.

In order to supply a ‘whole product’ businesses will have to move to an ecosystem model because no single business that can efficiently supply all the ancillary products and services needed to create a whole product.

It’s true that consumers have always demanded whole products – and business have been able to provide them – but I think this demand will increase markedly in the coming years. Three forces in particular will exert pressure on businesses to move to ecosystems:

I’ll explain each one in turn.

1. Perfect Information
“Perfect Information” is an economic term which basically means that all market participants know everything about the market. Thanks to the Internet information is easy to get. With a bit of effort anyone can find out what products are available in the market and where to get the cheapest price.

2. Commoditization of Products
Commoditization is the process where the sales strategy of a product changes from ‘competition through differentiation’ to ‘competition on price’.

Where products are competing on price there is a “race to the bottom” – each market participant looks for ways to lower the price of their product – usually through cheaper manufacturing (e.g. China).

But even high-end, branded products will eventually become commoditized because of the “race to the top”. It works like this. Everyone is trying to outdo their competitors by producing the latest and greatest product but it’s not long before competitors respond with an even better product. The cycle continues as products get better and better. But eventually the market will reach a situation of “performance oversupply”. Consumers will no longer be prepared to pay a premium for all of the bells and whistles if they have no use for them – and the market will begin competing on price at the level of product performance that the mainstream market demands.

3. Time-Poor Consumers
This one doesn’t need any explanation. The one thing every consumer (rich or poor) has in common is that there aren’t enough hours in the day to do everything.

That’s the theory out of the way. In my next post I will explain how I think the increasing demand for whole products will affect businesses.

From Supply Chain to Business Ecosystem via SOA

June 8, 2008

Most of the discussions surrounding SOA focus on the individual organisation. It appears that people are looking to service-orient their own business before looking outside. There’s certainly nothing wrong with this. However, it seems that focussing internally is the ‘default’ position, rather than a considered decision.

Supply chains are complex things and they are the lifeblood of any business. While there’s always room for improvement most organisations have a pretty good handle on them (if they didn’t they’d be out of business).

A traditional supply chain looks like this (simplified):

simple supply chain

But things are changing.

Technology is improving at a rapid rate and we’re living in an increasingly connected world. Consequently, businesses will come under increasing pressure to connect to the outside world. Businesses will be forced to move from the traditional (linear) supply chain to a business ecosystem:

business ecosystem

A linear supply chain is relatively easy to manage. You have two touch points with the outside world. The procurement/logistics functions deal with suppliers and the sales/accounts receivable functions deal with customers. Businesses have been doing this for a long time.

Business ecosystems, on the other hand, have a complex array of relationships and each relationship has to be managed. This can’t be done without the help of technology. Notice I didn’t say it can’t be done efficiently. I said it can’t be done at all.

Service oriented architectures are ideally suited to providing the technical foundation for a business ecosystem. The ROI of outward looking projects may far exceed the ROI of any internal project. There’s no rule that says you must ALWAYS start internally.

Something to think about.