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Posts Tagged ‘business’

The Cost of Making Decisions

September 25, 2009 Comments off

How much does a decision cost to make? Do we know? Do we care? The time and money spent analyzing options must be considered against the overall risk of the decision. Failure to understand the risk and cost will result in less value realized for each decision.

For example, consider an investment decision of $50,000. In justifying this amount, how many hours of time should be consumed in analysis? If we assume $50/hour cost of time (for easy math), 1,000 man hours matches the entire risk of the decision. It would have been less expensive for the decision to be made blindly!

How much should we spend? I suggest a general rule as 10% of the risk. For the above example, this would be no more than 100 hours. After which it should be put to a Go/No Go decision. This reduces the true total investment to $55,000 rather than $100,000 in the example.

This practice is often described as analysis paralysis for projects and new products. But this is also important, but far less visible, in the day to day decisions in a business. How much time money do we spend talking about decisions and when should we just commit?

Categories: IT Governance, Leadership Tags: , ,

Guaranteed Mediocrity

April 27, 2009 Comments off
I have long been an advocate of replacing large, complex IT processes with many small flexible ones. A colleague of mine shared this video with me from Barry Schwartz at the TED conference, discussing how processes and incentives are “put in place to protect against failure, but only guarantees mediocrity.”

While watching this video, think of the people in your IT organization that go through Change Management, Product Development, or Project Management processes, and ask yourself if they are as morally wise as Mike the Janitor.

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Build for Competitive Advantage; Buy for Competitive Parity

February 20, 2009 Comments off

ThisĀ  is a well-known business mantra. If WalMart competes based on its supply chain, then it shouldn’t outsource its supply chain to FedEx. Alternatively, Family Dollar, or other companies in the retain industry, may have a reason to outsource logistics if that is not how they intend to compete.

This philosophy is not always properly reflected in the world of IT. IT architecture and priority decisions must follow the strategy of the company:

  • Build applications that enhance or automate a process that is a competitive advantage for the firm.
  • Buy applications that only need to provide competitive parity for the firm.

For example, Walmart should (and probably does) build their own logistics tracking and forecasting applications, while they probably purchase their HR management tools.

For every IT project, this distinction should be clear.

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Google and Internet Advertising

February 19, 2009 Comments off

I often ponder what it would be like BG. Before Google. How small and confusing the world would be if we couldn’t find the answer to all our questions after a few short keystrokes. In today’s world, understanding how to find information quickly is the most important skill.

What does Google get for this?

Google pioneered a new form of search advertising that is more effective at driving conversions (customers buying something) than any other method of advertising. It is effective because when a user conducts a search, unlike watching TV or even viewing a webpage, the user has provided intent to discover a product or service.

When I’m watching Hero’s, have I shown intent to buy a new car?

When I’m reading the newspaper, have I shown intent to buy groceries?

When I search Google for appliances in Minneapolis, I have shown intent to find (and perhaps buy) appliances in a specific city.

Last week, I, along with my study group, prepared a delivered a presentation on this topic to the Management of Technology program at the University of Minnesota. Below are my slides from that presentations. Enjoy!

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US Government Spending on IT Services

February 16, 2009 Comments off

I recently conducted an extensive case study of the US Federal Government’s spending on IT services as a part of my graduate studies. It includes a summary of the market, how it is segmented, and opportunities for expansion. Here is a snippet from the report:

Market Overview
The market for IT services in the US Federal Government is over $68 billion in 2009 and continues to grow at 5% annually. IT demand from the government is segmented between two very different concerns:

  • Defense information and intelligence systems
  • Line-of-Business application deployments

These concerns, and the skills required to deliver them, segment this market as shown in the figure below. Defense suppliers specialize in the design and deployment of the advanced custom systems market segment, which is over $32 billion in revenue annually. The handful of suppliers competing for a single buyer of services creates a monopsony and significant cooperation between the suppliers.

US Government IT Market Segmentation

US Government IT Market Segmentation

The commercial IT market for Line-of-Business applications, which primarily serves the civilian agencies of the government, has a far larger customer base that includes companies around the globe. This creates intense competition on cost and efficiency in the delivery of these standard services.

I am offering up the report free for non-commercial use to anyone who finds this interesting or valuable. If you find inaccuracies in the report, or if you would like to discuss this topic further, please leave a comment!

You can download the full report here. Enjoy!

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