Tag Archives: straight-through processing

The IT department we have today is not the IT department we’ll need tomorrow

The IT departments many of us work in today (either as an employee or consultant) are often the result of thirty or more years of diligent labour. These departments are designed, optimised even, to create IT estates populated with large, expensive applications. Unfortunately these departments are also looking a lot like dinosaurs: large, slow and altogether unsuited for the the new normal. The challenge is to reconfigure our departments, transforming them from asset management functions into business (or business-technology) optimisation engines. This transformation should be a keen interest for all of us, as it’s going to drive a dramatic change in staffing profiles which will, in turn, effect our own jobs in the no so distant future.

Delivering large IT solutions is a tricky business. They’re big. They’re expensive. And the projects to create them go off the rails more often than we’d like to admit. IT departments have been built to minimise the risks associated with delivering and operating these applications. This means governance, and usually quite a lot of it. Departments which started off as small scale engineering functions soon picked up an administrative layer responsible to the mechanics of governance.

More recently we’ve been confronted with the challenge with managing the dependancies and interactions between IT applications. Initiatives like straight-through processing require us to take a holistic, rather than a pieces-parts, approach, and we’re all dealing with the problem of having one of each application or middleware product, as well as a few we brewed in the back room ourselves. Planning the operation and evolution of the IT estate became more important, and we picked up an enterprise architecture capability to manage the evolution of our IT estate.

It’s common to visualise these various departmental functions and roles as a triangle (or a pyramid, if you prefer). At the bottom we have engineering: the developers and other technical personnel who do the actual work to build and maintain our applications. Next layer up is governance, the project and operational administrators who schedule the work and check that it’s done to spec. Second from the top are the planners, the architects responsible for shaping the work to be done as well as acting as design authority. Capping of the triangle (or pyramid) is the IT leadership team who decide what should be done.

The departmental skills triangle

While specific techniques and technologies might come and go, the overall composition of the triangle has remained the same. From the sixties and seventies through to even quite recently, we’ve staffed our IT departments with many technical doers, a few less administrators, a smaller planning team, and a small IT leadership group. The career path for most of us been a progression from the bottom layers – when we were fresh out of school – to the highest point in the triangle that we can manage.

The emergence of off-shore and outsourcing put a spanner in the works. We all understand the rational: migrate the more junior positions – the positions with the least direct (if any) contact with the business proper – to a cheaper country. Many companies under intense cost pressure broke the triangle in two, keeping the upper planning and decision roles, while pushing the majority of the manage and all the do roles out of the country, or even out of the company.

Our first attempt at out-sourcing

Ignoring whether or not this drive to externalise the lower roles provided the expected savings or not, what it did do is break the career ladder for IT staff. Where does you next generation of senior IT personnel come from if you’ve pushed the lower ranks out of the business? Many companies found themselves with an awkward skills shortage a few years into an outsourcing / off-shore arrangement, as they were no longer able to train or promote senior personnel to replace those who were leaving through natural attrition.

The solution to this was to change how we brake-up the skills triangle; rather than a simple horizontal cut, we took a slice down the side. Retaining a portion of all skills in-house allows companies provide a career path and on the job training for their staff.

A second, improved, go at out-sourcing
A second, improved, go at out-sourcing

Many companies have tweaked this model, adding a bulge in the middle to provide a large enough resource pool to manage both internal projects, as well as those run by out-sourced and off-shore resources.

Factoring in the effort required to manage out-sourced projects
Factoring in the effort required to manage out-sourced projects

This model is now common in a lot of large companies, and it has served us well. However, the world has a funny habit of changing just when you’ve everything working smoothly.

The recent global financial criss has fundamentally changed the business landscape. We are experiencing not merely another turn of the business cycle, but a restructuring of the economic order. Many are even talking about the emergence of a new normal. The impact this will have on how we run our businesses (and our IT departments) is still being discussed, but we can see the outline of this impact already.

Companies are becoming more focused, while leaning more heavily on partners and services companies (BPO, out-sourcers, consultants, and so on) to cover those areas of the business they don’t want to focus on. We can see this from the global companies who have effectively moved to a franchise model, though to the small end of town where startups are using on-line services such as Amazon S3, rather than building internal capabilities. While this trend might have initially started as a cost saving, most of the benefit is in management time saved, which can then be used to focus on more important issues. We’re all finding that the limiting factor in our business is management time, so being able to hand off the management of less important tasks can help provide that edge you need.

We’re also seeing faster business change: what used to take years now takes months, or even weeks. The constant value-chain optimisation we’ve been working on since the 70s has finally cumulated in product and regulatory life-cycles that change faster than we can keep up. Nowhere is this more evident than the regulated industries (finance, utilities …), where updates in government regulation has changed from a generational to a quarterly occurrence as governments attempt to use regulation change to steer the economic boat.

Money is also becoming (or has become) more expensive, causing companies and deals to operate with less leverage. This means that there is less capital available for major projects, pushing companies to favour renting over buying, as well as creating a preference for smaller, incremental change over the major business transformation of the past.

And finally, companies are starting to take a truly global outlook and operate as one cohesive business across the globe, rather than as a family of cloned business who operate more-or-less independently in each region.

We can draw a few general conclusions on the potential impact on IT departments of these trends.

  • The increase reliance on partners, the broader partner ecosystem this implies, and an increasingly global approach to business will create more complex operational environments, increasing the importance of planning the IT estate and steering a company’s IT in the right direction.
  • The need to reduce leverage, and free up working capital, is pushing companies toward BPO and SaaS solutions, rather than the traditional on-premisses solutions, where the solution provider is paid per-seat, or might even be only paid a success fee.
  • The need for rapid project turn-around is pushing us toward running large portfolios of small projects, rather than a small number of large projects.
  • A lot of the admin work we used to do is now baked into web delivered solutions (BaseCamp et al).

This will trigger us to break up a the skills triangle in a different way.

A skills/roles triangle for the new normal
A skills/roles triangle for the new normal

While we’ll still take a slice down the side of the triangle, the buldge will move to the ends of the slice, giving it a skinny waist. The more complex operational environment means that we need to beef up planning (though we don’t want to get all dogmatic about our approach, as existing asset-centric IT planning methodologies won’t work in the new normal). A shift to large numbers of small projects (where the projects are potentially more technically complex) means that we’ll beef up our internal delivery capability, providing team leads with more autonomy. The move to smaller projects also means that we can reduce our administration and governance overhead.

We’ll replace some skills with automated (SaaS) solutions. Tools like BaseCamp will enable us to devolve responsibility for reporting and management to the team at the coalface. It will also reduce the need to develop and maintain infrastructure. Cloud technology is a good example of this, as it takes a lot of the tacit knowledge required to manage a fleet of servers and bakes it into software, placing it in the hands of the developers. Rumor has it that that a cloud admin can support 10,000 servers to a more traditional admin’s 500.

And finally, our suppliers act as a layer through the middle, a flex resource for us to call on. They can also provide us with a broader, cross-industry view, of how to best leverage technology.

This thinning out of the middle ranks is part of a trend we’re seeing elsewhere. Web2.0/E2.0/et al are causing organisations to remove knowledge workers — the traditional white collar middle layers of the organisaiton – leaving companies with a strategy/leadership group and task workers.

Update: Andy Mulholland has an interesting build on this post over at the Capgemini CTO blog. I particularly like the Holm service launched by Ford and Microsoft, a service that it’s hard to imagine a traditional IT department fielding.

Accelerate along the road to happiness

Our ability to effectively manage time is central to success in today’s hype-competitive business environment. The streamlined and high velocity value-chains we’ve created are designed to invest as little time (and money) as possible in unproductive business activities. However, being fast, being good at optimizing our day-to-day operations, is no longer enough. We’ve reached a point where managing the acceleration of our business—the ability to change direction, redeploy resources to meet new opportunities more rapidly than our competition—is the driver for best in category performance. If we can react faster than our competition then we can capitalize on a business opportunity (or disruption, as they are often the same) and harvest any value the opportunity created.

Time is our overarching business driver at the moment. We hope to be the first to approve a mortgage, capturing the customer before our competitors have even responded to the original application. We strive to be first to market with a new portable music device (Walkman or iPod), establishing early mover advantage and taking the dominant position in the market. Or we might simply want to quickly restore essential services—power, gas or water—to our customers, as they have become intensely dependent upon them. Globalization has leveled the playing field, as we’re all working from the same play book and leveraging the same resources. The most significant factor for success in this environment is the ability to execute faster than our competition—harvesting the value in an opportunity before they can.

This focus on time is a recent phenomena. Not long ago, no further back than the early nineties, we were more concerned with mass. The challenge was too get the job done. Keep the wheels turning in the factories. Keep the workers busy in their cubicles. Time is money, so we’re told, and we need to ensure that we don’t waste money by laying idle. Mass was the key to success—ensuring that we had enough work to do, enough raw materials to work on, to keep our business busy and productive.

When mass is the focus, then bigger is better. This is a world where global conglomerates rule, as size is the driver for success. Supply chains were designed so that enough stuff was available right next to the factory, where supply can be ensured, that the factory would never run out of raw materials and grind to a halt. Whether shuffling paperwork or shifting widgets, the ability to move more stuff around the business was always seen as an improvement.

This is also the world that created a pile of shipping containers too behold in the Persian Gulf, during the Gulf War in the early nineties. With no known destination, some containers couldn’t be delivered. Without a clear understanding of where they came from, others couldn’t be returned. A few of these orphaned containers were opened in an attempt to determine their destination or origin; however the sweltering Arabian sun was not kind to their contents, which included items such as raw poultry, so a stop was soon put to that. The containers just kept piling up. 22,000 of 50,000 containers simply became invisible, collecting in a pile that went by the jaunty name of Iron Mountain.

Iron Mountain: 22,000 containers that became invisible
Iron Mountain: 22,000 containers that became invisible

Our answer was to stop focusing on mass, on having enough stuff on hand to keep the wheels of industry turning. We have to admit that Iron Mountain proves that we could move sufficient mass. The next challenge was to ensure that materials arrived at just the right time for them to be consumed by the business. We moved from worrying about mass, to managing velocity.

Total quality management and process improvement efforts finally found their niche. LEAN and Six Sigma rolled through the business landscape ripping cost out businesses where-ever they went. Equipped with books on Toyota’s Production System and kanban cards, we ripped excess material from the supply chain. Raw materials arrive just-in-time, and we avoid the costs associated with storing and handling vast warehouses of material, as well as the working capital tied up in the stored material itself. Quality went up, process cycle times shrunk, and the pace of business accelerated. Much like the tea clippers from China in the 1800s, with the annual race to get the first crop back to London for the maximum profit (with skipper paid a profit share as an incentive along with their salary), we’re focused on cranking the handle of business as fast as possible.

Zara, a fashion retailer, is the poster child for this generation of business. The fashion industry is built around a value-chain that tries to push out regular product updates, beating up demand via runway shows and media coverage to support a seasonal marketing cycle. Zara takes a different approach, tracking customer preferences and trends as they happen in the stores and trying to deliver an appropriate design as rapidly as possible, allowing customer demand to pull fashion. By focusing on responding to customer demand, wherever it is, Zara has built an organization designed too minimize time from design to marketed product. For example, onshore, high-tech, agile production is preferred to low-tech but low cost, offshore production which involves long production delays. Zara takes two weeks to take a product to market, where the industry average is six months; the lifetime of Zara’s products is measured in weeks, rather than months; and the products offered in each store are tailored to the interests of the community it serves rather than a long term marketing plan.

The change in product life-cycle has created a material change to customer buying habits. Traditionally customers’ will visit a fashion store a few times a year to see what a new season brings. There is no real pressure to buy in any particular visit, as they know they can return to buy the same garment later. Zara, however, with it’s dramatically shortened product cycles, drives different behavior. Customer visit more often, as they can expect to see a new range each visit. They are also more likely too buy, as they know that there is little chance of the same garment being available the next time. This approach has made Zara the most profitable arm of Inditex, a holding company of eight retail brands, and one of the biggest success stories in Spanish business.

The dirty secret of high velocity, lean businesses is that they are fragile: small disturbances can create massive knock-on effects. As we’ve ripped fat from the value chain, we’ve also weakened its ability to react to, and resolve, disruptions. A stockout can now flow all the way back along the supply chain to the literal coal face, stalling the entire business value-chain. Restoring an essential service is delayed while we scramble to procure the vital missing part. Mortgage approvals are deferred while we try reallocate the work load of a valuer dealing with a personal emergency. Or our carefully synchronized product launch falls apart for what seems like a trivial reason somewhere on the other side of the globe.

Our most powerful tools in creating todays high velocity businesses—tools like straight-through processing, LEAN and Six Sigma—worked by removing variation from business processes to increase throughput. The same tools prevent us from effectively responding to these disruptions.

Opportunities today are more frequent, but disruptive and fleeting. An open air festival in the country might represent an opportunity for a tolling operator to manage parking in an adjacent field, if the solution can be deployed as sufficient scale rapidly enough. Or the current trend for pop-up retail stores (if new products rapidly come and go, then why not stores) could be moved from an exceptional, special occasion marketing tool, into the mainstream as a means to optimize sales day-by-day. Responding to these opportunities implies reconfiguring our business on the fly—rapidly integrating business exceptions into the core of our business. This might range from reconfiguring our carefully designed global supply chain, through changing core mortgage approval criteria and processes to modifying category management strategies in (near) real time.

Sam: Waiting while his bank sorts itself out
Sam: Waiting while his bank sorts itself out

We’re entering a time when our ability to change direction, adapting to and leveraging changes in the commercial environment as they occur, will drive our success. If we can react faster than the competition then we can capitalize on a business opportunity and harvest any value the opportunity creates. Our focus will become acceleration: working too build businesses with the flexibility and spare energy required to turn and respond rapidly. These businesses will be the F1 cars of business, providing a massive step in performance over more conventional organizations. And, just like F1, they will also require a new level of performance from our knowledge workers. If acceleration is our focus, then our biggest challenge will be creating time and space required by our knowledge workers to identify these opportunities, turn the steering wheel and leverage them as they occur.

Update: A friend of mine just pointed out that the logical progression of mass → velocity → acceleration naturally leads to jerk, which is an informal unit of measurement for the third derivative.