The Money Pit!The Money Pit!

Carr, Chapter 6Carr, Chapter 6

How Dependent are we on How Dependent are we on infrastructures?infrastructures?

Imagine having no Imagine having no running water --running water --

How about no How about no electricity --electricity --

http://www.livinghistoryfarm.org/farminginthe20s/life_01.htm

What happens when power fails?What happens when power fails?

How about the 2003 power How about the 2003 power failure?failure?– Technology failureTechnology failure– HurricanesHurricanes

http://www.learnersonline.com/weekly/lessons03/week30/081803-1.jpg

http://www.4theworld.org/disasters_hurricanes.htm

How about the transport system?How about the transport system?

– UPS strikeUPS strike– UP rail problemsUP rail problems

These are all critical These are all critical infrastructuresinfrastructures

What contingency What contingency plans can we have?plans can we have?

http://july.fixedreference.org/en/20040724/wikipedia/Rail_transport

Review: Proprietary to Review: Proprietary to InfrastructureInfrastructure

First, a new tech is a proprietary First, a new tech is a proprietary competitive advantagecompetitive advantage– Competitors rush to copyCompetitors rush to copy– Standards are established Standards are established – Best practices become commonBest practices become common

Widespread adoption and it becomes Widespread adoption and it becomes an item of infrastructurean item of infrastructure– Telephone, railroad, networks, etc.Telephone, railroad, networks, etc.

When new technology becomes an When new technology becomes an infrastructure commodityinfrastructure commodity

What does Carr suggest we do with What does Carr suggest we do with commodity infrastructures?commodity infrastructures?– They are They are essentialessential to competing to competing– Becomes irrelevant to strategy!Becomes irrelevant to strategy!– Risks of failure outweigh the competitive Risks of failure outweigh the competitive

advantages!advantages!

Consider ElectricityConsider Electricity

It is mandatory for business successIt is mandatory for business success– It provides no basis for competitive It provides no basis for competitive

advantageadvantage

Then how do we purchase and use it?Then how do we purchase and use it?– We prepare for failureWe prepare for failure

Generator, battery backup, candlesGenerator, battery backup, candles

– We buy as cheaply as possibleWe buy as cheaply as possibleSubject to reliability Subject to reliability

Adapting InfrastructureAdapting Infrastructure

At first, the technology is new, un-triedAt first, the technology is new, un-tried

– It is prone to failure, unstableIt is prone to failure, unstable

– This has been typical of IT during the past This has been typical of IT during the past 30 years.30 years.

IT projects often appear to be very high IT projects often appear to be very high risk – and modest reward at bestrisk – and modest reward at best

How have IT projects gone?How have IT projects gone?

Most were disasters!Most were disasters!– Most are way over budgetMost are way over budget– 16% considered to be success!16% considered to be success!– 75% took too long to complete75% took too long to complete

Can you imagine if airlines worked Can you imagine if airlines worked like this?like this?– 84% of flights do not make it to the right 84% of flights do not make it to the right

airport or crash?airport or crash?– How about pizza deliveries?How about pizza deliveries?

Reliable InfrastructureReliable Infrastructure

Changing now into a true Changing now into a true infrastructureinfrastructure– Still not as reliable as electric gridStill not as reliable as electric grid

http://www.resultsiowa.org/admin.html

So what is a mother to do?So what is a mother to do?

http://elearning.spu.ac.th/courses/images/computer/FAILURE.jpg

Carr’s Four Points to IT successCarr’s Four Points to IT success

1.1. Spend LessSpend Less

2.2. Follow, Don’t LeadFollow, Don’t Lead

3.3. Innovate when risks are lowInnovate when risks are low

4.4. Focus on vulnerabilities over Focus on vulnerabilities over opportunitiesopportunities

Spend LessSpend Less

Spending Spending too muchtoo much appears to appears to be the biggest risk in ITbe the biggest risk in IT–True for any commodity inputTrue for any commodity input

– Identify the essential from the Identify the essential from the discretionarydiscretionary

–Justify the spending!Justify the spending!

Remember -- Cost JustificationRemember -- Cost Justification

Displaced, tangiblefunction

Displaced, intangiblefunction

Avoidable, intangiblefunction

Avoidable, tangiblefunction

High CERTAINTY Low

High

Low

ME

AS

UR

AB

LE

Justify!Justify!

Focus on the measurableFocus on the measurable– Most projects “sold” on the immeasurable Most projects “sold” on the immeasurable

items!items!

Calculate a true ROI on the projectCalculate a true ROI on the project

Assume Assume all does notall does not go well go well – Prepare for project “surprises”!Prepare for project “surprises”!– What will you tell the CEO when it doesn’t What will you tell the CEO when it doesn’t

work?work?

Spending less on:Spending less on:

Do all employees really “need” to be on the Do all employees really “need” to be on the Internet?Internet?– NO – they waste time!NO – they waste time!– Cutting access may yield vast savingsCutting access may yield vast savings

Can we outsource non-strategic projects?Can we outsource non-strategic projects?– Yes – given that IT is increasingly a commodity, Yes – given that IT is increasingly a commodity,

expect MORE outsourcingexpect MORE outsourcing– GM no longer even employs programmers GM no longer even employs programmers (of (of

course, they just reported a $1 billion quarterly course, they just reported a $1 billion quarterly loss)loss)

Spend even less—Spend even less—

Should you build when you can buy?Should you build when you can buy?– Probably not- unless a competitive Probably not- unless a competitive

advantage resultsadvantage results

Focus on generic itemsFocus on generic items– Use LinuxUse Linux– Generic servers systemsGeneric servers systems

Buyer power increases when item is a Buyer power increases when item is a commodity – USE IT!commodity – USE IT!

How much to save?How much to save?

E-Trade spent $14 million in 1998 for E-Trade spent $14 million in 1998 for SUN servers + $1.5 million a year in SUN servers + $1.5 million a year in serviceservice

In 2002, they replaced the SUN servers In 2002, they replaced the SUN servers with generic servers for $320,000 total!with generic servers for $320,000 total!– They saved $13+ million AND 1.5 million They saved $13+ million AND 1.5 million

on annual maintenanceon annual maintenance– Think of the Cost of Ownership Think of the Cost of Ownership

justification on that!justification on that!

Follow, Don’t LeadFollow, Don’t Lead

Spend slowly! Spend slowly!

Avoid the “bleeding edge”Avoid the “bleeding edge”– Leading edge stuff often become obsoleteLeading edge stuff often become obsolete– Compare to HDTV – waiting is goodCompare to HDTV – waiting is good

When should you be a first mover?When should you be a first mover?– When you reap a competitive advantageWhen you reap a competitive advantage– If IT is a commodity, there is little If IT is a commodity, there is little

advantage available.advantage available.

UPS vs. FEDEXUPS vs. FEDEX

Fedex spent plenty to build their site:Fedex spent plenty to build their site:– http://www.fedex.com/Tracking?cntry_codhttp://www.fedex.com/Tracking?cntry_cod

e=use=us

UPS waited a bit and followed:UPS waited a bit and followed:– http://www.ups.com/tracking/tracking.htmlhttp://www.ups.com/tracking/tracking.html

UPS saved a ton of $$$UPS saved a ton of $$$

UPS vs FedExUPS vs FedEx

UPS FEDEX

Innovate when Risks are lowInnovate when Risks are low

Innovate when you can have others Innovate when you can have others bear the costs bear the costs – Wal-Mart’s RFID has suppliers bearing Wal-Mart’s RFID has suppliers bearing

much of the costmuch of the cost– If successful, RFID will become a If successful, RFID will become a

commodity and pressure other retails to commodity and pressure other retails to follow Wal-Mart’s leadfollow Wal-Mart’s lead

Focus on VulnerabilityFocus on Vulnerability

Just as when power fails, IT failure can Just as when power fails, IT failure can be catastrophic for a firmbe catastrophic for a firm– IT may not offer a competitive advantage – IT may not offer a competitive advantage –

but it sure offers risksbut it sure offers risks

Must have someone whose job it is to Must have someone whose job it is to plan for contingenciesplan for contingencies– Plan for the worst!Plan for the worst!

Prioritize your risksPrioritize your risks

What happens if:What happens if:– Power fails?Power fails?– Our data center burnsOur data center burns– We get hit by lightning?We get hit by lightning?– A bomb goes off?A bomb goes off?– Someone screws up?Someone screws up?– Software fails?Software fails?– We get hit by a virus? Etc.We get hit by a virus? Etc.

Commodities reward stabilityCommodities reward stability

Think of the power company, airlines, Think of the power company, airlines, trucking, package delivery, etc.trucking, package delivery, etc.

IT will be similarIT will be similar– More focus on securityMore focus on security– Less on developmentLess on development

Which will likely be outsourced?Which will likely be outsourced?– DevelopmentDevelopment

The bottom lineThe bottom line

The key will likely be to not seek first The key will likely be to not seek first advantageadvantage

Instead, focus onInstead, focus on– Cost controlCost control– Managing risks carefullyManaging risks carefully– Be careful to really justify investmentsBe careful to really justify investments– Treat IT as a commodity input and not a Treat IT as a commodity input and not a

strategic advantagestrategic advantage– endend