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October 27, 1998

Your letters to my print column and this E-mail forum ask some serious questions about managing information technology in today's world. Since today's world is essentially absurd, my serious responses may sometimes sound a little whimsical, and my occasional whimsical ones, serious. In any case, if you want to participate, write to me at lovelace@home.com. I'll respond to those letters that I can. I reserve the right to edit for size and content. Just sign your E-mail the way you want it to appear online.

Dear Herb:
Can you share your insights on the shape of the contemporary IS department? Its trends, issues, size, etc.?

Pink

Dear Pink:
In the United States, information technology organizations come in a variety of shapes and sizes. The issues these IT groups face vary as much as the business strategies of their companies. There are, however, certain trends that are evident.

The first is the requirement to show value for the expenditures of the IT organization. Gone are the days--if they ever existed--when an IT organization was given money without having to show concrete plans for bottom-line results. Executives are too knowledgeable of what IT can do for, and to, their businesses.

The second trend is toward re-centralization. It appears that companies are starting to move decentralized decision-making back to the corporate organization as a way of lowering IT costs. The days of "let a thousand flowers bloom" are gone, or at least going quickly.

The third tendency is for the outsourcing boom to be more focused than the prior "get rid of it all" syndrome. What once was an end-run around the CIO is now being conducted under the auspices of that office. As a result, the services outsourced are more specialized. Commodity activities are the ones more likely to be removed from the core business than items viewed as strategic to growth and profitability.

The most common feature, however, of the IT landscape is simultaneously both an issue and a trend. Today, executive management wants the IT structure to mirror the way the business itself functions. The astute CEO has finally realized that the culture and motivators for the IT organization should not differ from other parts of the company: Make a profit for the corporation while sustaining the enterprise.

Dear Herb:
I am manager of the IT department of a midsize and growing aerospace and defense manufacturer. I have not been successful in finding relevant benchmarks of "healthy" IS budgets for my industry segment. I do not think comparisons between a $50 million company (mine) and a $2 billion company are necessarily relevant.

I have seen percent-of-revenue studies and such in business magazines for the Fortune 500 companies. Where can I find meaningful figures to use with my CFO to support my position on the real cost of technology in a smaller, growing business?

We are typically a second-tier supplier, although we do have some prime contracts. We will be at $100 million in 18 months. Besides manufacturing, we also perform a significant level of engineering services with CAD/CAM, etc.

How about training? I have to pull teeth and give up some of my applications maintenance budget to send a programmer or analyst to a class. How can I help the development of my staff when I have such a hard sell on the value of technology training?

Thanks. I love your column.

Tom

Dear Tom:
Thanks for your comment about the column. I enjoy writing it, and I enjoy corresponding with our readers--an obviously enlightened and astute group.

Alas, the more you investigate comparisons among companies, the more you find that they are essentially meaningless. Our organization is a great one for measuring everything; but we view benchmarking with caution. The last time we tried to compare our company's IT spending to our industry, we found that not everyone included the same items; for those that did, the definitions were not necessarily consistent. For example, we found that in some organizations the analysts were part of the business unit and not included in the reported numbers. Then we learned that PC maintenance included package upgrades in some companies, but not in others. Finally, we learned that depreciation was included by some and not by others. Even in the benchmarks that included depreciation, some used a three-year basis while others used a different schedule, significantly impacting the yearly cost. I'm sure you have the picture. The worst part is that even if we got everything consistent, our business goals and strategies are not necessarily the same.

From my perspective, the only sound metric is to determine whether the IT organization is working on the right things and doing them both effectively and efficiently. "Effectively" is measured by the satisfaction of the business units. "Efficiently" is measured best (in my opinion) by using the CIO's own judgment and by periodically asking outside firms what they would charge to do the same work.

So far as training is concerned, any CFO who thinks IT training is not important should be required to explain why CPAs need to attend mandatory courses in order to keep their certification. Of course, you probably can't comfortably ask your CFO that question, but a few articles on how rapidly the technology is changing and some input from the company's audit firm should do the trick. If not, then you've got Dilbert's boss in the job and no one can help you.

Dear Herb:
I would just like to hear an answer to my question about why it is almost next to impossible to get a CIO to look at IT hardware maintenance alternatives.

I work for a firm that is currently saving 30% minimum for companies by utilizing an advance replacement program. Why won't CIOs pay attention to what I can do for them?

Bobette

Dear Bobette:
I can understand your frustration. You have a good service to offer and the CIO (me and others in jobs like mine) shuffle you off to people in their organization who probably don't give you the attention you feel is warranted.

Well, here is how it goes. About half of a CIOs budget is people. Of the other 50%, the new applications take up maybe 20% if you are lucky. Of the remaining 30%, telecommunications, licensing fees, leases, and utilities eat up the bulk. Take the little bit remaining for computer maintenance and from that calculate the 30% savings you project.

Sure, it's a lot of money on an absolute scale, but it pales in comparison to what that new enterprise resource planning system is going to cost and the problems with ensuring that the networks and mail systems can communicate. And besides, the people running the data center and PC support groups are pretty good and are supposed to be worrying about keeping the boxes running well at a low cost--and just to make sure, we cut their budget every once in a while to keep them creative and attentive to people like you.

So that is why the CIOs interest lies elsewhere.

Dear Herb:
I read your article "The Microsoft Solution" and must say that it was good. However, I have a problem with your first proposed step to protect a free enterprise. Why should Microsoft publish its APIs at least one year in advance? What other companies publish their format, models, etc., for their competitors to see and use?

This was a subject of a monopolization and dominant-firm court case in 1979, Berkey Photo v. Eastman Kodak. The argument was that, prior to 1954 Kodak included a processing charge in the cost of film that it sold customers. This naked tie-in between film and processing was declared illegal and Kodak's film-processing market share fell from 96% in 1954 to 10% in 1976. Kodak's share of the paper market dropped from 94% to 60%.

By 1976, the company controlled roughly 65% of the small, instant camera market and 85% of the color-film market. In 1972, Kodak introduced the Pocket Instamatic along with a specially designed film for this camera.

Since competitors such as Berkey Photo were given no advance warning of Kodak's introduction, Kodak was given a flying start in the sale of cameras, film, and film developing.

However, the court ruled that Kodak had no obligation to provide competitors with information on its product. According to the ruling, a firm that engages in R&D and assumes the risk of introducing a new product has the right to profit from its invention. The court also stated that invention and development is an entirely legal method of acquiring a monopoly.

Windows is a Microsoft invention and should stay that way.

I do see great merit (my opinion!) in your second point about prohibiting Microsoft from dictating to PC manufacturers what consumers see as the startup screen, though, and you make a great analogy.

I know one thing. Those that do not learn from history are condemned to repeat it.

Regards,
Jeff W.

Dear Jeff:
Thank you for your well-reasoned letter.

I do think, however, that your analogy to the Kodak-Berkey Photo decision is not appropriate. In that decision, nothing that Kodak did invalidated Berkey's ability to continue to process existing film formats. Microsoft, because it controls the desktop environment, has the power to cause other people's products (such as Corel, Lotus, and Netscape) to work improperly or inconsistently, thus severely injuring them.

With respect to George Santayana's comment that "Those who cannot remember the past are condemned to repeat it" ("The Life of Reason," vol. I), I suspect Microsoft should pay attention to what happened to other large high-tech firms such as IBM, Digital Equipment, and Lotus when they were perceived as trying to crush their competition to the potential detriment of their customers.

Herbert W. Lovelace is CIO at a multibillion-dollar international company. Herb practices his day job under an alias and has changed the names of colleagues to protect the guilty.

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