Competitors, mechanics, referees, and economists

“Every system is perfectly designed to produce the results it gets.” – Dr. Paul Batalden

Call it governance. Call it “managing the project portfolio.” Call it whatever dull, uninspired, bureaucracy-invoking name you prefer.

Just don’t ignore it, because it’s one of the most important subjects in any business, one that victimizes … sorry, that profoundly affects … every IT organization in the world.

And it has a deep dependence on the same basic physical principle that governs billiards: The angle of incidence equals the angle of reflection. (They both also depend on a second physical principle that isn’t the subject this week: Spin matters.)

The angle of incidence is the perspective through which the company’s decision-makers view the enterprise. The angle of reflection is the set of investments they decide to make in the business … the outcome, that is, of their governance processes, which turns into the project portfolio.

Too few executives are competitors. Their angle? The marketplace is a playing field and their company is a contestant. (Some, more bloodthirsty, see the marketplace as more of a coliseum and their company as a gladiator).

Many other executives are mechanics. Mechanics think of the business as a machine — that’s their angle of incidence.

Then there are those who see themselves as referees. It’s an all-too-common perspective. When viewed from this direction the organization is the playing field, on which the company’s executives and managers are contestants who play against each other.

There’s another category, which started to emerge with the rise of the leveraged buyout, and whose influence has been expanding with the rise of private equity investment firms and the increasing dominance of the financial sector in our economy. It’s the economist … executives who think of the business solely as an asset, and view their job to be maximizing the value of that asset in an entirely different marketplace … the marketplace of companies that can be bought and sold through mergers and acquisitions.

This isn’t just an abstract set of distinctions. Which of these perspectives a company’s executives take (and this isn’t an exhaustive list) has a profound impact on just about every aspect of how a company is run, including which investments the company makes in itself.

Take the competitors. They’ll assess how other companies are trying to gain mindshare and marketshare at their expense, and plan countermoves so they win more mindshare and marketshare instead. They invest in what’s needed to win in the marketplace.

Mechanics will take a different approach. The gears, cogs, pulleys and levers of their business machines are the company’s processes and practices. What are they most likely to invest in? Projects that make those processes and practices more effective, whether through iterative improvement or fork-lift replacement.

How about referees? They don’t lead organizations. They preside over a collection of independent actors, each with a different opinion of what matters (their organizational silo and, to a lesser extent, the silos their silo depends on) and what doesn’t (everything else).

It isn’t that referees don’t understand the principle that in order to optimize the whole you have to sub-optimize the parts (unlike you, they haven’t read Chapter 1 of the KJR Manifesto). It’s that they’re incapable of understanding it. That being the case, they oversee investment decisions based on a combination of what makes sense in the context of individual organizational silos and whose turn it is to receive CapEx largesse, combined with a generous helping of trying to do everything at once, because after all, they’re all good ideas, so why should we make painful decisions when instead we can share staff among all the projects?

Competitors lead success. Mechanics build companies designed to succeed. Even referees make sure something gets better from time to time. How about the economists?

When the company is an asset, and you’re trying to maximize its value in the M&A marketplace, your focus will be on the balance sheet and share price. Invest in operational improvements, products that are more competitive, or improving the odds that customers will be more likely to come back and bring their friends?

Why do that when we can use our capital to buy back stock or acquire an undervalued company with an attractive balance sheet of its own? Especially when project costs hit our books right now but the returns won’t show up for a year or two.

All of these perspectives are equally valid. The challenge isn’t choosing which one is “right.”

What matters to you is what those responsible for running the company are trying to accomplish. It matters to you because referees and economists are less likely to invest in why IT exists in the first place: Helping every part of the business run better, and helping the company win in the marketplace.