Sunday, September 26, 2010

Is your IT team multi-lingual?

I had a recent experience that left me more convinced than ever that IT executives still need to do a much better job at articulating business value.  As anyone who has crossed over from pure technology to interacting with business executives can tell you, speaking in pure technical terms won't get you very far.  Yet I continue to be amazed by technology experts who rely too much on technical aspects of their products and services without putting them in a business value context.

A vendor indicated that their product could process transactions in a low latency environment.  They even quoted specific speeds down to the milliseconds.  Sounds great..... to the technical experts in the room.  But they completely lost the non-technical folks in the room.  Never assume that everyone in the room is as technical as you are.  It would have been better if they described their product on both technical and non-technical terms; as in "our product processes a transaction every 8 milliseconds; for your reference, 33 milliseconds is about how long 1 frame flashes on the screen for a video".   This leaves the non-technician with a mental picture of how fast your product works.   It would have been even better if they monetized the feature; as in "Our product processes a transaction every 8 milliseconds.  Our nearest competitor can only process a transaction every 15 milliseconds. We have found this 7 millisecond difference to be worth $5 million per year in additional revenue to our clients."  Now the business executives in the room can start engaging in how your product or service will really help him solve their problem.


If you are the CFO, it would be worth your time to teach the technical folks the language of business: Accounting.  I would start with cost accounting concepts since I believe those bring the most bang-for-buck vocabulary and behaviors.  I would focus extensively on activity-based-costing and then reap the rewards come capital budget development and project execution time.   Learning how the business makes money and the tie between cash coming in the door and the financial statement would do wonders for helping the technologist understand how to better use technology to support the business strategy.  Teaching them some portfolio management and project accounting concepts would help them deliver better results back the business. 
 
You can probably skip lessons on taxation; while you probably won't make CPAs out of programmers, a little education can go a long way towards IT executives being able to communicate business value. 

Tuesday, September 21, 2010

Does your technology platform support your human capital strategy?

A CFO takes the CIO out to lunch.  The CFO asks “how does our technology platform support our business strategy?”  The CIO begins by talking about server uptime, raves about the new cloud storage solution contract that was just signed, and ends by talking about the new upgraded CRM package that will roll out by year end.  You’ve seen this play out.  Most often, the CFO is left scratching their head wondering how important any of that really is. 
I believe that by asking better questions, CFOs can guide the discussion.  Consider this: In China, there is a war for IT talent.  Companies cannot hire good people fast enough, and therefore, cannot scale to meet the market demand.  Thus, the technology platform and IT strategy are hindering the business strategy.  Obviously, the opposite should be true.
The fundamental question for business leaders to ask is this: how does our technology platform reduce our dependence on technical talent?  If you hear your technical leadership team talking about hiring programmers, you need to dig further.  This is one sign that your technology platform is human capital dependent.  As a business leader, you should seek first to purchase software that is configurable.  While there is often a higher upfront cost to purchasing software rather than building it in-house and a slightly longer time to market (but not by much), the long-term hard benefits are often lower and the long-term soft benefits (e.g. ability to scale the business independently of scaling the organization) are greater. 
I see too many organizations hiding under the umbrella of “no one makes software that fits our business need”.  Prior to coming to China, I worked with a company that felt this way.  They had effectively built their own ERP package by building small applications to fit each functional need: pricing, contracting, billing, etc.  Frankly, their IT department and, in particular, the software develop shop was not that good and the often buggy software hurt business.  Here in China, a competitor in the same industry is using SAP for those functions.  The competitor was smaller in market share when they made the decision to purchase SAP which tells me that the decision to invest in a software package versus build their own was even more important for them (they are now the same size in market share with a higher net revenue due to lower cost structure, in part, due to this decision).  The net effect of this is for every 5 programmers that the US company employs, the China company has 1 SAP configuration specialist.   And cost efficiencies don’t stop there: additional efficiency gains are found in a smaller management overhead structure and lower hardware and software licensing costs for IT development
Ultimately, the problem is more than just a software decision.  IT executives need to explain, and business leaders need to demand, how the principles used to build the technology platform support the human capital strategy.  For example, Citigroup announced that they will add 12,000 people in the next 3 years.  If I were in front of the Citigroup leaders today, I would advise the CFO, chief strategist, and other business leaders to ask the technology leaders how their current platforms will support that type of growth and what changes will be needed to reduce the organizational cost to bring each person on board.   

Friday, September 10, 2010

Don't Lose Focus

As someone living in China, I am in the middle of a market that many American companies see as a strategic pillar of growth. With CitiGroup announcing that they will hire 7500 new employees in the region, no doubt there is plenty of capital being invested here. At the same time, economists cannot agree on the state of the US economy: is the US headed for a double dip, are we growing again, or will we face Japan 2.0 with stagnation for the next 10 years. So it is natural for companies to create a growth strategy related to Asia. Regardless, I see companies ignoring underserved markets in their own backyards. As companies enter into their annual capital budgeting processes, the savvy finance executive will utilize their strategy dollars to move into existing markets in new ways.


To this point, I recently received an email describing a service from Wal-Mart (http://www.netbanker.com/2010/09/wal-mart_sells_paper-check_fraud_protection_for_195_per_box.html). For certain, selling checks and fraud protection is not a core competency of Wal-Mart. In fact, I didn’t even know this was a service that Wal-Mart offered at all. However, that hasn’t stopped them from applying their business values (e.g. Every Day Low Price) to new areas. As an example of how a company like Wal-Mart could further exploit other markets, let us consider the utility markets.


Wal-Mart could sell gas/electricity/water in deregulated markets, using buying power to provide lowest cost per therm/khw/gallon/etc. Electricity is probably the easiest since it is highly transportable followed by gas followed by water. Wal-Mart already knows the grocery space, hard and soft-goods retail space, and recently the fuel space. So extending further into the consumer’s wallet would be a natural play and would be too far from their current corporate mission.


But suppose that Wal-Mart doesn’t see that bringing utilities into their portfolio aligns with their corporate mission. There are alternative strategies such as licensing the Wal-Mart name to product and services companies. Subject to the product/service company meeting standards, Wal-Mart gets a revenue stream and they don’t have to worry about inventory, fulfillment or shipping. Wal-Mart just provides the brand.


So returning to our earlier idea, Wal-Mart might marrying the two ideas: find a utility marketer who is a smaller player looking to grow; partner with them by licensing the Wal-Mart brand on top of their billing engine and customer care services, and license on a per therm/khw/gallon/etc. basis.
Consider why Wal-Mart would even want to push beyond being a retailer and develop other service lines: http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/
The % of utilities is the same share of the wallet as groceries. Other than housing, the #2 and #3 biggest expenses are utilities and groceries. Utilities spend is a large share of the wallet going to someone else.


For certain the Asia market and China in particular is booming. While China recently has taken the second spot in the largest global economy rankings, their GDP per capita trails significantly. This tells me there is still money being spent in developed economies and firms would be wise not to ignore opportunities there.