Some IT Requires Complex Decisions

Consultants’ best value comes not from making decisions for you, but by providing the clay to help shape your own decisions. In this article, McKinsey offers a good gob of clay for helping see the future industrialization of the IT service supply chain. Many pundits, McKinsey included, predict that the service supply chain will atomize just like the manufacturing supply chain did. In that shift, which is still continuing, vertically integrated manufacturing (think Henry Ford’s original River Rouge factory, which had its own supplies of coal and rubber for making steel and tires) gave way to distributed manufacturing, in which companies specialize in different portions of the supply chain (car interiors or steering assemblies, for example) and offer better costs, quality and service for those pieces because they specialize, gain scale and can afford to put more time and R&D into honing a particular piece of the supply chain than a vertically organized manufacturer can.

We’re seeing the same shift in IT, with some pieces of the formerly vertically integrated supply chain being componentized and sent to outsiders who can afford to specialize in them and offer better cost efficiencies (or at least cheaper labor): IT infrastructure, software-as-a-service, help desk, maintenance and lower-level programming, are among the first examples. It has meant internal IT departments have shrunk, as jobs move to outsourcers or to offshore locations–though the overall number of jobs in the supply chain don’t shrink, they just change location.

But there is one area where the atomization of the services and manufacturing supply chains is actually creating more work, and that is coordination. As pieces of the supply chain break off and become more specialized, the need for coordination of the pieces increases. That means the number of jobs that require interaction with others is increasing. It underpins the shift in emphasis in the IT department from solitary programming to relationship manager and coordinator of projects–some of the skills that CIOs said they most needed in a recent survey done by the Society for Information Management (see last week’s blog). Economists call it “tacit” work, which requires the ability to analyze information, grapple with ambiguity, and solve problems, often based on experience in a particular industry or a particular skill. The interactions that these employees have with other are complex (managing a software development project, for example) rather than simple (fielding help desk calls with a script).

These complex, interaction-based jobs have been growing three times faster than employment in the entire national economy, according to McKinsey, and make up 70 percent of all US jobs created since 1998 and 41 percent of the total labor market in the United States.

It’s important to understand how to recognize these kinds of jobs–and train IT people to fill them–and understand the types of jobs that will not fare well during the global industrialization of IT. McKinsey offers three sensible buckets

Transformational–Extracting raw materials or converting them into finished goods

Transactional–Interactions that unfold in a generally rule-based manner and can thus be scripted or automated

Tacit–More complex interactions requiring a higher level of judgment, involving ambiguity, and drawing on tacit, or experiential, knowledge

Of course, many jobs involve elements of all three buckets, but most tend to be centered in one. McKinsey has broken them out to see shifts in employment and wages. Tacit wins in all categories.

The implications for IT are interesting. Tacit IT is not about automation–the meat and drink of IT since its inception and the route to clearest ROI. Tacit IT is all about decision support, knowledge management, business intelligence and artificial intelligence (a category with such opaque ROI that vendors have to change its name every few years to keep from going out of business). That’s a tough way for CIOs to make a steady leaving, especially if relations with the business are strained already. And it’s why we’re going through such a crisis of confidence in IT today. More and more, business people want information rather than systems, new capabilities rather than automation.

As the report states: “Machines can’t recognize uncodified patterns, solve novel problems, or sense emotional responses and react appropriately; that is, they can’t substitute for tacit labor as they did for transactional labor. Instead machines will have to make tacit employees better at their jobs by complementing and extending their tacit capabilities and activities.”

The good news is that structuring and supporting tacit relationships using technology is still very new and virtually unexplored. For example, McKinsey found that companies in the top quartile of growth in labor productivity between 1998-2004 spent $6,200 per employee on technology for tacit work, $7,400 for transformational and $38,200 for transactional. There’s a lot of room to shift that investment as more transactional work starts going out the door. The bad news is that this kind of IT isn’t very good yet. Most BI is still focused on pulling data out of transactional systems and plopping it on someone’s desk rather than becoming intimately involved in the tacit interactions between people.

Not that a tool can accomplish this alone. Succeeding in tacit IT is going to require a combination of things, including an IT architecture so flexible that business people can create services–tacit connections between systems and people–quickly and without handholding from IT. SOA is the best expression of that kind of architecture so far. It’s also going to require insane levels of connectivity–not just between people, but with information–so that meetings and phone conversations have much more value than they do today. McKinsey’s stats show that the variability of company-level performance is more than 50 percent greater in tacit-based sectors than in manufacturing-based ones. In other words, IT networks are now a commodity, but IT supported tacit networks can be a competitive advantage.

What do you think?