In the May 1963 issue of Harvard Business Review, the renowned management consultant Peter F. Drucker coined the term business effectiveness as an attempt to achieve the best possible economic results from the available resources. In a similar vein, I refer to IT effectiveness as the strive to achieve the best business outcomes from the available technology spending, including investments and expenses.
Despite the awe-inspiring pace of the digital revolution, mounting evidence suggests that the enterprise IT effectiveness is ailing because of unrealized opportunities due to delays, increasing costs, lagging innovation, growing technical debt, demoralized workforce, rising shadow IT, and diluted technology know-how, among others. The issue is not that enterprise IT is broken. On the contrary, most CIO organizations are performing heroically to keep the lights on while responding to a flood of new requests for digital solutions. However, they are simply not able to keep up with the current demand, and new waves of advanced technologies – AI, IoTs, autonomous machines, blockchain, cybersecurity and the like – are amassing in the horizon.
Conventional wisdom says that culture, leadership, skills-gap, governance, business-IT misalignment, lack of collaboration, and disjointed operational processes are to blame. Although they may contribute to company-specific challenges, these reasons cannot explain why so many enterprises, in so many industry, have been suffering from the same signs of an ailing IT effectiveness for so long.
An alternative explanation
We performed extensive empirical studies on the common and emerging technology management practices; analyzed numerous operating models at leading, complex and global organizations; and conducted workshops with industry practitioners. We found the following:
To get the best value for money, enterprises have long focused on the unit cost efficiency of IT inputs, e.g. $/ developer hrs., with little regard for the volume or pace of IT outputs, e.g., functionality. Consequently, only a portion of today’s IT efforts yields its intended outcome, while the rest falls by the wayside: a significant effort is spent on outputs that are never utilized (i.e., dormant output) or delivered too late with a little value (i.e., cost of delay). These unintended IT byproducts are the natural consequences of the industrial-age and efficient IT management practices, and they cannot be avoided within those practices.
Why can’t we simply eliminate the IT byproducts?
If a similar phenomenon were happening at a products company, e.g., Apple Inc., it would mean that tens of millions of manufactured iPhones couldn’t be sold to customers while a significant portion of the remaining iPhones would arrive at stores after Christmas. A waste of this magnitude could not escape company’s executives and investors. On the other hand, most IT program executives and stakeholders do not know the amount of IT byproducts in their organizations. This raises the question of why.
Dormant output occurs below the management radar
We can detect dormant output – a type of IT byproduct – easier at agile organizations while the traditionally-run, plan-driven IT isn’t immune to it.
Typically, agile initiatives are progressively decomposed into projects, features and stories for execution. The stories are then packaged into product releases for deployment. Technology spending is governed at a project level, whereas expected outcomes are defined per feature and realized only after associated products releases are activated in a real-world environment.
The agile methodology comes with an indispensable ability to bond technology investments and business outcomes – the two ingredients of IT effectiveness – at every step of the project execution from the initial decomposition of initiatives to the packaging of product releases. However, most agile organizations are not leveraging this crucial bond in story prioritization, e.g., product owners may not know what portion of their committed stories are eventually deployed and activated.
Because multiple teams independently work on them, stories contained in the same feature arrive for packaging into product releases at different times. Some of them are never activated because:
- They are completed after the parent feature is released; or,
- The parent feature isn’t ready to be released; hence, stories age in the final work in progress (WIP) inventory and become obsolete when customer needs change.
Stories that are developed but never activated are examples of dormant outputs. They take a significant bite out of IT effectiveness as they incur cost and forfeit business outcomes. Still, they remain undetected by the management radar because:
- Their cost is always recovered since effort is booked to projects, not stories;
- They don’t affect delivery milestones, which are associated with projects, not stories;
- They don’t require a write-off since software capitalization is tied to features, not stories;
- They don’t affect team productivity, velocity and throughput because stories are marked as ‘Done’ regardless of their activation status;
- The expected business outcome effect of stories isn’t captured in any system.
The current IT management practices do not recognize cost of delay
Cost of delay (CoD)— another type of IT byproduct – measures the business outcome that is missed due to a delayed activation of a required functionality in the real-world environment and is therefore paramount to managing IT effectiveness.
Most IT organizations manage key milestones only at a project level, which are proven to be too raw to optimize activity schedules at a lower level, such as individual tasks, stories and scenarios.
CoD did not really matter in the industrial age when IT used to perform a support function, and technology solutions had a multi-year useful-life. Today, technology is front and center of digital opportunities that are extremely perishable, and the first mover advantage is strategic. The omission of the CoD concept is one of the most concrete examples of the outdated technology management practices during digital transformation.
How significant is the value leak from the IT byproducts?
We conducted an empirical study, which is possibly the most comprehensive analysis of the system behavior of enterprise IT organizations to date, to better understand IT byproducts. As our study progressed, we continuously discovered new patterns of management practices causing these byproducts. We then realized the full extent of the associated value leak and captured our findings in a diagram inspired from the modern portfolio theory of finance.
This diagram shows several portfolio frontiers, depicting the best business outcome performance of a given bundle of technology management practices and policies for a defined level of technology investment. The first frontier (the black line) is associated with the efficient IT management practices that are ubiquitously employed by most IT organizations today. We then constructed new policies to minimize the value leak from IT byproducts and associated the ensuing frontier with effective IT (the blue line). The gap between these two frontiers was stunning:
- More than one-fifth of IT outputs are likely to become dormant;
- Up to 40% of expected business outcomes may be missed due to delays;
- Predictive algorithms in work scheduling and capacity management can yield a double-digit productivity gain.
It is a well-known notion that IT organizations frequently end up spending a portion of their effort on tasks that are unnecessary or late, a.k.a., IT byproducts. However, this waste is considered to be a relatively insignificant but necessary cost of running a complex operation.
This article refutes the above assumption by proving that the value leak associated with IT byproducts is neither insignificant nor necessary:
- No conventional IT strategies, like consolidation, rationalization, sourcing, automation, and even cloud can deliver enough productivity or throughput gain to narrow – let alone close – the performance gap between the efficient IT and effective IT.
- Furthermore, most of the data, tools, and know-how to implement the effective IT management practices are already available at most mature enterprises.
To date, digital transformation has been primarily perceived as a technical challenge that led to many advances in enterprise technology. What is slowing down the digital aspirations now is a corresponding wave of innovations in technology management.
IT effectiveness is the engine of digital transformation but still runs on industrial-era management practices; hence, it performs like a typical combustion engine – reliable and gets the job done but expensive and dirty. The innovative and digital-age appropriate management practices, which we used to construct the effective IT frontier, perform like an electric engine – fast, agile, economic, and clean. An upgrade is not necessarily simple but abundantly rewarding and increasingly inevitable.