Archive for August, 2008

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Fighting IT’s "The Grass Is Greener" Syndrome

Thursday, August 28th, 2008

When an IT department lets a business leave its core market to seek higher profits, the company can stall.
Businesses and IT departments can be going along just fine when all of a sudden, the business goes into what is called a “stall”. Just like being in an airplane that goes into a stall, this is by no means a good thing! When a business goes into a stall, more often than not it won’t recover. The most dangerous part about a stall is that you don’t see them coming – everything is fine until it isn’t. We’ve talked about some different causes of stalls including having a premium product; however, there’s another reason and the IT department plays a big role in this one.

Most companies have a small set of products or markets that they currently serve. If the company is successful, then they are probably doing a good job. The IT department has probably become optimized to support both the products and the teams that are serving these markets. All is good. Then the “… grass is greener on the other side of the fence…” syndrome strikes senior management and they decide to take the company in a new direction in order to pursue more profitable markets. Of course what this means is that you need to abandon the core markets that are currently serving you so well. By doing this you won’t be able to exploit any future growth that occurs in your existing markets.

Now lets be honest here, these kinds of right hand turns made by businesses rarely show up all that dramatically – at first. Instead they have a habit of sneaking in from the sides as purchases of other companies or top down mandated growth initiatives in brand new areas of business that seem to have nothing to do with the company’s current customers, or products, or partners (can anyone say “Ebay buys Skype?”).

If you are looking for proof that this kind of abandonment of successful markets still goes on in today’s modern business environment, just open the paper and see all of the articles that are talking about public companies being bought out by private equity firms. Clearly something went terribly wrong and outsiders were able to step in. In almost every case when this kind of takeover happens, the new owners of the firm will implement a strategy for returning to what originally made the company successful and growing the core again.

Why do companies and their IT departments make these mistakes? There are two primary reasons. The first is that the company mistakenly believes that their core market(s) has become saturated. This belief is due in part to the information that the senior management is receiving from the IT department. It’s the CIO’s responsibility to evaluate the data that his/her department is producing and understand what it is saying. Just because it looks like a market is all tapped out, does not necessarily mean that it is so. Instead, this is when the CIO needs to work closely with the marketing team to find different ways to measure the market.

The second cause of a firm leaving a successful market is because they feel that there are operational impediments in their core business model. This happens when senior management just despairs of being able to solve business problems that are currently confronting the company. Instead of trying to solve them, they instead decide to move to other markets which won’t have the same problems. Once again, the CIO and the IT department play a big role in this decision. There should be no business problems that the IT department can’t help the rest of the company come to grips with. Whether it’s tracking sales and who is buying products more closely or collecting data on how the competition is doing, the IT department can help to create solutions to almost any business problem.

Leaving a successful market is never a good idea. IT staff should be on the alert whenever they start to hear the word “mature” being used to describe the company’s business situation. IT has a role to play in making sure that the company sticks with markets and customers that will serve it for a long time.

Have you ever worked for a firm that left it’s successful market in search of greener pastures? How did this all turn out in the end? Has a IT department in which you worked ever been able to stop a company from making a bad business direction decision? Leave a comment and let me know what you think.

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Posted in business, business opportunity, CIO, leadership, new profit | 3 Comments »

A New CIO Job: Panning For Legal Gold

Monday, August 25th, 2008

A CIO who prepares for legal lawsuits before they happen is valuable indeed
One of the worst things that can happen to a modern company is to for it to get sued. Here in the 21st Century more often than not, lawsuits require that the firm being sued produce electronic documents early on in the whole messy legal process. Good examples of how tricky this can get are the White house’s attempt to retrieve firing emails, Intel’s fight with AMD, and Morgan Stanley’s issues with the SEC. As the Morgan Stanley case shows, if a firm can’t produce the email and electronic records that are asked for it can end up costing the company a lot ($10M in the case of Morgan Stanley). What does all of this legal stuff have to do with a CIO?

Michael Lunch is the CEO of Autonomy Corp. and he does a good job of describing how the search for electronic documents is currently done:

“The old-fashioned way of doing this was having a lot of lawyers doing a lot of simple things, you would literally have lawyers reading though things saying ‘there was chicken for lunch.’ You don’t need lawyers to know that it’s a lunch menu.”

Ouch – what kind of hourly rate does a firm have to pay to have lawyers read old email? This is exactly the type of situation that begs for the IT department to step in and lend a hand. Recognizing that this is an issue, the good folks at HP, Xerox, and IBM are getting ready to jump in and offer products and services.

This new reality of living in an electronic document lawsuit-happy world opens a unique door of opportunity for forward thinking CIOs. When a firm gets sued, everything has to shut down as it relates to documents while the requested material is searched for. If an enterprising CIO had already set up a system to track and categorize the firm’s electronic records, email included, then a lawsuit’s requests could be easily handled. Being able to produce the requested material the next day instead of weeks or months later and being able to do it for much less than a roomful of lawyers would cost would enhance the CIO’s standing among the company’s senior management.

Careful – there’s a right way and a wrong way to go about doing this. The wrong way is the classic IT way: I don’t need anyone else, I (and my department) can do this all by ourselves. Discovery of records as a part of a legal proceeding is really the domain of the company’s legal department. This is clearly a case where the IT team needs to work WITH the legal department. Since any sort of automated search process will be taking cash out of the pockets of outside law firms who traditionally supply the human resources to do information searches, the CIO is going to need to have the full support of his in-house legal team. The moment the lawsuit is filed, the outside firms will be whispering into the CEO’s ear that he/she really needs their pricey assistance. Without the support of the in-house legal team any IT created solution will be discarded in favor of going with a “sure thing”.

Having a solution in place before it is needed is the key to ensuring that the IT team looks good. If a CIO is running around after the event trying to find a solution, then expensive mistakes are going to be made. Finally we have found one area where a CIO can once and for all show the company the true value of the IT department.

Have you ever worked at a company that got hit with a lawsuit that required electronic documents to be produced? How did it go – was it quickly and easily handled or was it an ongoing nightmare? Did this event have any lasting impact on how the firm handled and tracked its electronic documents? Leave a comment and let me know what you think…

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Posted in business, business alignment, ceo, CIO, document discovery, it strategy, lawsuit | 4 Comments »

W.W.N.M.D.?: What Would Nelson Mandela Do?

Friday, August 22nd, 2008

Nelson Mandela avoided a civil war. IT Managers can learn a lot from how he did this
So what’s a CIO or tech manager to do when they get plopped down in the middle of a battlefield? No matter if internal strife has caused different sides of the house to stop playing together or if a merger has physically brought together teams but not made them members of the same department, a new IT leader has his/her work cut out for them as they try to make the correct judgment calls and forge a single unified department before their time runs out and they are shown the door.

Nelson Mandela found himself in a similar situation in 1994 after South Africa held its first free elections. Mandela’s party had won the election and he was now the president of South Africa. However, he had been elected by the black voters and this meant that the white voters felt alienated. This created a dangerous situation for South Africa because the whites retained both money and weapons and they could rise up and take down Mandela’s fledgling new government if they felt threatened.

In his new book, “Playing The Enemy“, John Carlin talks about what Mandela did to diffuse this volatile situation and I believe that it contains a number of lessons for IT managers who find themselves in the middle of a business civil war.

In Mandela’s case, the game of rugby was a game of the white minority that blacks had pushed for the world to boycott while the previous government was in power. Now that Mandela was president, he reached out to the country’s rugby establishment and offered to host the 1995 World Cup rugby games in South Africa. Mandela then worked to associate himself and his personal charisma to the game of rugby and by doing this he hoped to get all of South Africa excited about trying to win the world championship. It was in this way that Nelson Mandela was able to get both sides to take the first few tentative steps together away from chaos and towards unity.

It was Mandela who said “You don’t address their brains, you address their hearts.” IT managers can learn a great deal from all of this. When placed in a situation where there are multiple warring sides, a good manager needs to move quickly to diffuse the situation. Any time, energy, or effort spent on fighting an internal war will take away from the goal of the IT department which is to help the company move forward. The longer that the department spends battling within itself, the the greater the risk that the rest of the company will determine that it is more of a burden to the company than an asset.

So a great discussion so far, but what’s an IT manager to do? Here are three suggestions for tackling a civil war situation head on and coming out a winner:

  • Do It The Mandela Way: Identify which side is the weaker side (perhaps the purchased company’s IT department). Then do some research and find out what unique event, process, or reward that department used to have which unified it before the civil war broke out. Finally, take that unique identifier and apply it to the entire department so that they can all share in it and come together as they do.
  • Identify A Shared External Threat: Nothing forces teams to come together better than the perception that they are under assault from the outside. If you can identify and describe a valid external condition that could severely impact the IT department then the civil war activities will be forgotten as everyone mobilizes to fend off the threat. By working together to save the department, the civil war issues may be forgotten.
  • Cross Populate: In order to resolve civil war situations, communication between the different sides needs to start. One way to ensure that this will happen is to switch managers: management from one side is placed in charge of workers from the other side and visa versa. Although this will cause a great deal of grumbling at first, over time everyone will settle into their new roles and the distinction between “us” and “them” will become blurred and eventually go away.

There you have it – civil wars can be avoided. Nelson Mandela lead South Africa through its most dangerous time and emerged victorious on the other side. IT managers who find themselves in volatile work environments can learn from Mr. Mandela and, hopefully, follow his lead.

Have you ever found yourself caught in a business civil war? What caused it? Did one side win or did Sr. management need to step in to solve the conflict? Leave a comment and let me know what you think.

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Posted in ceo, CIO, conflict resolution, Nelson Mandela, rugby, World Cup | 1 Comment »

Too Much Of A Good Thing Can Kill An IT Department

Tuesday, August 19th, 2008

Being the 900 lb gorilla can be a bad thing for an IT department

If revenue is what feeds a company, then it must also be what keeps an IT department alive. Growing companies need more and more revenue to stay alive – if growth stalls, then there’s a good chance that the party may be over for everyone involved (including the IT department).

But what if everything is going great? What if your firm owns the market – you are the 900 lb gorilla? Do you really have anything to worry about? Well, the answer is yes and in fact history tells us that you are probably in a sinking boat even if you don’t realize it right now.

The fancy term that is used to describe 900 lb market gorillas is “premium-position captivity”. If you think about it, it makes sense. When you are making money hand over fist, you really don’t want to do anything to rock the boat. This means that if a new, low-cost competitor shows up or if your customer suddenly changes how they value your product, you’re not going to be able to react quickly enough to defend the firm. CIOs have a major role to play in this.

This situation is best described in the fantastic book “The Innovator’s Dilemma” that if you haven’t read, you really should. In the book, the hard drive business is examined and one of the points made is that 3.5″ small hard drives originally had less capacity of larger hard drives so who would ever want them? Well, it turns out that small hard drives work perfectly for laptops and when that market exploded, the companies that made only the larger drives got left in the dust.

What’s a CIO to do? If the senior management of a firm are unable to see impending doom, then how can a CIO possibly provide any value? The answer is simple: the CIO has access to tools and data that are not available to the rest of the firm. Awareness of the potential for a revenue stall and the will to keep a vigilant eye out for the signs can make the CIO an invaluable bellwether for the firm.

How can a CIO who works at a firm that has a dominate market position detect when a revenue stall is on the horizon? The key is for the IT department to collect and analyze market data. The data never lies. Rather, senior management who have grown accustom to seeing what they want to see discount the changes that will ultimately result in their downfall. Here is what the IT department needs to sift through the data to find:

  1. Market Share Loss: The first warning signs will be pockets of rapid market share loss. These will generally be found in specific, narrow, customer segments. It will be followed by the emergence of resistance from well-established existing customers to paying premium prices for incremental enhancements to existing products.

  2. Tracking The Wrong Metrics: More often than not, dominate firms like to track profit per customer. However, if they don’t notice that customer acquisition costs have shot up, then they will end up being blindsided. Adjusting the metrics that are being tracked is key to uncovering new trends.
  3. Internal Attitude: how is the company viewing start-up competition? Is it assumed that these new players will never be able to compete with the firm for it’s customers? Are lower end parts of the market being turned over to them so that we can focus on the upper ends of the market with the assumption that they’ll never challenge us for our part of the market?

The companies to watch today are SAP and Oracle. They are the 900 lb gorilla. Other firms such as Salesforce.com and SugarCRM have entered the market and may not be seen as a threat to the established players right now; however, time has shown that they may very well turn into tomorrow’s gorillas. Let’s hope that the CIOs at SAP and Oracle are already taking the correct next steps…

What do you think – once a gorilla, always a gorilla? Do you think that looking for economic stalls is part of the CIO’s job? If not, then who should be doing it? Have you ever worked at a company that went from being dominate in its market to struggling? Leave a comment and let me know what you think.

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Posted in CIO, innovation, new profit, premium position, profit margin | 1 Comment »

Netflix Shipping Problems: The IT Horror Story!

Friday, August 15th, 2008

IT problems at Netflix have caused a massive shipping outage

Just in case you haven’t heard the news, Netflix has basically shut down due to some mysterious internal problem that has halted their ability to ship DVDs. This is fascinating news – it’s similar to having FedEx announce that they had halted delivery of packages because they couldn’t figure out where they were supposed to go. What’s going on here?

Netflix has 8.5 million subscribers who pay a monthly fee to rent DVD movies. The movies that they select are delivered by mail and when they are returned by mail, then the next movie in the subscriber’s queue is mailed to them. From an IT point of view, the heart of the company is their database(s). This truly is an information based company. I have been a happy subscriber for at least 5 years now and I’ve never had a problem with getting my movies. For Netflix to come out and admit that they are having a problem (I’ve even received an email from them) must mean that the problem has existed for several days and they now felt the need to tell the world before people stared wondering where their next movie was. Clearly this kind of outage is going to cost the company – Citi analyst Tony Wible is guessing that the tab will be $1.8 million to $3.6 million in revenue a day. Talk about a melt-down!

One possible source of Netflix’s problems might be the simple fact that they don’t appear to have a CIO! A quick search of both the company web site and Hoovers turned up no likely suspects. Hmm, perhaps this IT ship has nobody at the helm!

Back to the problem — I have no secret insight into how Netflix runs their business. However, Tom Dillon, who had been serving as the company’s COO as well as its CIO, gave some interviews and from these we can piece parts of the story together.

At the core of Netflix’s operations is the ability to automate as much of the process of sending and receiving DVDs as possible. Since the solution that they have in place to automate these tasks is proprietary , it is of course a trade secret. However, we do have some information. When a DVD comes in, the first things that is done is to check it to make sure the right disk is in the right sleeve. Next, the the serial number on the jacket is scanned.

Now that Netflix’s proprietary software knows what DVD it’s dealing with, it can consider the company’s total inventory of that title, the items on customers’ wish lists of movies they want to see, and a host of other factors. At this time, the DVD will either get sent out again, placed in inventory or simply retired. When things are working correctly, Netflix says that it is able to check in a returned DVD and send out a new one within one day more than 90% of the time. The two challenges that Netflix has always been open about are scaling issues and bottlenecks. As Netflix has rapidly grown in the number of subscribers that it has to serve and the number of movies that it has in its inventory, IT challenges will occur. Additionally, bottlenecks in the DVD processing and delivery process can occur at any time. Dillon admitted that bottlenecks can’t be predicted and basically just have to be dealt with as they show up. If Netflix stumbles, the problem will quickly go from bad to worse. The reason is that they receive over 100,000 new disks a day.

So what could have gone so terribly, terribly wrong here? I’m just taking a guess, but based on years of experience in IT I’m thinking that we’re looking at a cascading problem that was started by a software upgrade. A good guess as to how this all started is that some relatively minor piece of Netflix’s proprietary automation system got a routine update. Next, some sequence of events occurred that caused this updated software to fail or behave in some unexpected way. This problem then cascaded up and down the automated DVD processing line. Since Netflix is reporting that all of their distribution centers are impacted, this means that either a core system is down, or they performed the upgrade at each site at the same time.

As horrible as this must be for Netflix, it’s not the first time we’ve seen this type of problem: AT&T has had its frame-relay network shut down due to software issues, XM Radio took a hit for two days, JetBlue’s unromantic Valentine’s Day outage, and of course, any Blackberry outage ends up being front page news. Netflix is reporting that they have their entire technical staff trying to fix this problem. This means that the original issue spread to multiple applications and may have damaged their corporate data.

Now that we’re done pointing fingers, what could have Netflix done to prevent this from happening in the first place?

  1. Have An “Undo” Button: Most IT shops keep a old version of each application in storage even after it has been replaced. If the updated software starts to cause problems, then the old version can be rolled back out and reinstalled.

  2. Don’t Put All Eggs In Single Basket: If indeed Netflix updated all of their distribution operations at the same time, then they were foolish indeed. Instead, upgrades should be done to a single site first in order to determine if there are any unknown issues. Dealing with a single site that is down is much easier than having all of your sites down.
  3. In Case Of Emergency, Go Manual: Although I love automation as much as the next IT worker, it’s always a good idea to know how to perform the automated tasks by hand just in case there is a day that this might be required. Since Netflix has reported that they are down, not just limping along, clearly they don’t have a manual process to fall back on.

I’m confidant that Netflix will solve this problem (but nobody there gets to sleep until they do!); however, afterwords they are going to have to make some changes in their IT shop in order to ensure that this never happens again. Good luck!

Have you ever been caught in a major software outage? How big was your inconvenience – small, medium, or large? Will Netflix’s glitch cause you to run to Blockbuster or are you willing to ride this one out? Leave a comment and let me know!

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Posted in ATT, Blackberry, Blockbuster, CIO, JetBlue, Netflix, outage | 3 Comments »

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