This chapter first proposes that in order to remain successful to the emerging trend of less overall technology spending, sellers must take new initiatives. It seems to me the need for changes and reforms buyers experienced after years of reckless spending are nearly through and have now shifted to sellers. The needed changes, cutting expenses, changing selling models, and focusing on small markets to name a few, are drastic, but rapid implementation is needed.
At first, I was shocked to see focusing on smaller markets and planning to be acquired as a recommendation. Since technological investments are predicted to be less, then the greater the market, the greater the sales. However, I made this assumption before I discovered the distinction between the two types of sellers. The first composed of large companies offering broad ranges of products will be seeking to acquire the second, which consists of smaller sellers that focus on a specific business or function. I think the main challenge for larger companies will be choosing which companies to acquire and when. Acquiring a company with different business goals or attitudes could do more harm than help. Conflict between acquired employees and current ones could be detrimental, and management should prove the need for the acquisition and cooperation from the start. Next, I see timing acquisitions as an issue. For example, if word spreads of IBM’s new acquisition, Microsoft, SAP, and everyone else will need to do the same. Jumping on the latest trend without analyzing if it meets company goals can be damaging as shown by buyers in the 1990’s. Before acquisition, these companies should determine if they have enough money, time, and skills to implement the acquisition now or if it could be handled best at a later time. Despite these challenges for large companies, I think those of smaller companies will be much greater. With a threat of acquisition lying over their heads, these companies may be stressed and do things without thinking. The best approach I think they could take would be: avoid the possibility of an acquisition, limit target market, stall new product developments, and focus on products and services they perform best.
In conclusion, the substantial reduction in technology investments will challenge sellers who have enjoyed great demand for years. Since this book was copyrighted in 2004, I was curious if technological investments did in fact decline and if sellers experienced less demand. In another class, we study the economy using financial indicators from the Dismal Scientist. The report on durable goods for October showed the third consecutive drop in orders, and although weakness was caused by several components, the report claims the weakest segment computer products where orders fell 8.4%. Even though this is just October’s results, I think the reduction in investment will continue into the future encouraging sellers to revolutionize.
Friday, December 7, 2007
Tuesday, November 20, 2007
Ch 10: Reaching the Path of Profits
This chapter defines the potential for savings according to existing IT business inefficiency; the greater the inefficiencies, the greater the cut. The first solution for companies with little inefficiency including those on the path of pennies or the path of profits should cut 10-20% of costs. With little to cut, reduction can be handled from a technological approach with little input from business groups. This includes increased efficiency in operations, re-negotiation of contracts, limited off-shoring, and re-examination of labor. The next group, where most reside, lies between the path of profits problems and needs to cut spending by 20 to 40%. Unlike the first, business groups should be combined with IT staff in the cost analysis because more of the expenses cut will come from daily operations in which business groups have the most experience. Combining business units and IT staff could create conflict where some units don’t want their budgets cut, but management should emphasize that spending less will benefit the entire company. The final group includes companies burdened with a 40% or more cut because they’ve let spending get out of control for many years. This group has the same savings opportunities as the former groups, but unlike the rest, this group has to change almost everything! With most people resistant to any change, this is a tough issue to overcome.
Next, the chapter introduces a three step process to cutting costs effectively. First, IT groups examine capacity to examine ways to maximize current technologies. I see this step as a way to cut costs in the long run, but in the short run, this step could incur possible costs such as re-training, re-programming, etc. The second step, capital, includes business units and IT groups reaching agreement on which technologies address business needs. This creates conflict as favorite applications that don’t generate return will be challenged. Hopefully, a fair compromise can be reached because I see resentment stemming from this step if a unit’s favorite technology is cut. If departmental mindsets really create a problem, management could create a reward system based on department savings. The amount of money saved through reduced IT spending could be partially re-imbursed to employees in the department. Money would be spent on rewards, but amount spent would be much less than the amount saved by providing employees an incentive. Clear goals with deadlines and feedback are beneficial as well. The final step, cleverness, is led by business units focusing on return and whether a technology provides benefits. I am sure companies commonly used ROI and sales during this step, but evaluation must include measures of customer satisfaction since they are such a large provider of ROI and sales.
Next, the chapter introduces a three step process to cutting costs effectively. First, IT groups examine capacity to examine ways to maximize current technologies. I see this step as a way to cut costs in the long run, but in the short run, this step could incur possible costs such as re-training, re-programming, etc. The second step, capital, includes business units and IT groups reaching agreement on which technologies address business needs. This creates conflict as favorite applications that don’t generate return will be challenged. Hopefully, a fair compromise can be reached because I see resentment stemming from this step if a unit’s favorite technology is cut. If departmental mindsets really create a problem, management could create a reward system based on department savings. The amount of money saved through reduced IT spending could be partially re-imbursed to employees in the department. Money would be spent on rewards, but amount spent would be much less than the amount saved by providing employees an incentive. Clear goals with deadlines and feedback are beneficial as well. The final step, cleverness, is led by business units focusing on return and whether a technology provides benefits. I am sure companies commonly used ROI and sales during this step, but evaluation must include measures of customer satisfaction since they are such a large provider of ROI and sales.
Ch 9: The Four Paths of IT Spending
This chapter classifies the IT spending practices of companies into four distinct approaches: path of propaganda, path of problems, path of pennies, and path of profits. First, the path of propaganda, probably occurs in companies lacking strong knowledge in IT. Because the sellers say the software will provide a positive ROI in months, they buy. Even when management is aware that the seller is acting in their own interest, industry spending averages can be a dangerous promoter of this approach. “If their company spends less than the industry average, they will lose profits” is an inaccurate assumption. Next, due to poor technology management in the 1990’s, it makes sense that many companies still struggle on the path of problems. I think an important process companies on this path could do is a serious asset/inventory reduction to rid unused technologies adding to costs. Then, there’s the path of pennies where companies consider the little picture (cost) and not the big one (how IT can be a powerful strategic tool). Conservative spending is great but spending the bare minimum can cost in the long run when cheap systems are updated and improved. Finally, the difficult yet beneficial path of profits. On this path, companies combine the strengths of previous paths by using caution with how they spend but aggressiveness with how they use IT. I found the importance difference to be a strong focus on business goals and what should be obtained by any expenditure.
Reading how different companies, Harrah’s and JetBlue, followed the path of profits was interesting because some practices were similar where others varied. I found Harrah’s most valuable practice to be using a single technology for many uses. Their CRM system integrates all customer information into a single repository for the marketing, operations, finance, customer service, restaurant, and other departments to use. So instead of buying a system for the finance department to evaluate pricing, another system for the marketing department to determine promotions, an additional system for operations to predict demand, etc., Harrah’s buys one system and has the staff using it customize it to their own likings. Also, by profiling customers individually, this system enhances the experience of the customer. This is impressive since consumers often view technology as a barrier to service.
Next, I was impressed that despite the weakness of the airline industry, JetBlue operates at a cost model 40% below traditional airlines but enjoys much higher returns. I think its best cost-savings approach is their partnership with Microsoft. My only concern is in a past chapter, Microsoft has proven to work best with smaller companies. JetBlue is not a small company but does practice simplicity in their IT processes. As the business continues to rapidly grow, will the Microsoft systems and IT spending practices currently used need to be updated? Finally, I love how their customer service agents operate from their homes using VOIP technology. This innovative idea must save tons in rent and labor expenses.
Reading how different companies, Harrah’s and JetBlue, followed the path of profits was interesting because some practices were similar where others varied. I found Harrah’s most valuable practice to be using a single technology for many uses. Their CRM system integrates all customer information into a single repository for the marketing, operations, finance, customer service, restaurant, and other departments to use. So instead of buying a system for the finance department to evaluate pricing, another system for the marketing department to determine promotions, an additional system for operations to predict demand, etc., Harrah’s buys one system and has the staff using it customize it to their own likings. Also, by profiling customers individually, this system enhances the experience of the customer. This is impressive since consumers often view technology as a barrier to service. 
Next, I was impressed that despite the weakness of the airline industry, JetBlue operates at a cost model 40% below traditional airlines but enjoys much higher returns. I think its best cost-savings approach is their partnership with Microsoft. My only concern is in a past chapter, Microsoft has proven to work best with smaller companies. JetBlue is not a small company but does practice simplicity in their IT processes. As the business continues to rapidly grow, will the Microsoft systems and IT spending practices currently used need to be updated? Finally, I love how their customer service agents operate from their homes using VOIP technology. This innovative idea must save tons in rent and labor expenses. Monday, November 19, 2007
Ch 8: Cutting the IT Budget
This chapter discusses the reasons and rational for the contraction in technology spending in the future and different approaches to cost savings companies will take. The contraction in technology spending is due to so many factors such as off-shoring, standardized hardware, new conservative spending patterns, open-source software, etc., and the combination of these trends makes me worry about the future of the IT industry. If these current trends continue, new trends emerge, and companies aggressively cut IT spending, will the IT industry come to an end?
The traditional view of IT spending assumes that with GDP growth of 3% or more, spending should increase by 5 or 6% per year. The author tends to disagree with this traditional view and because of the many factors mentioned in previous chapters, he assumes spending will decline. I am not sure when the author thinks this decline in spending will begin, but I was curious to see if his prediction had begun to occur yet. According to the GDP report from Moody’s, GDP increased 3.9% this quarter with real investment in equipment and software growing 6%. Therefore, the traditional view is dead on, and the author’s prediction of reduced spending has not begun. I still believe his prediction is likely to occur especially since what has happened with hardware over the last thirty years is positioned to occur with software and internal labor. Also, as the risks to the economy increased appreciably over the past few months, it may just take time for the decrease in IT investment to become apparent.
Another reason I support the author’s assumption of a decline in spending is because the next new IT thing, which has included innovations like the Web and Y2K drive IT spending to unnatural levels. However, the new IT thing now includes open-source software, free-ware, and off-shoring, which have the opposite potential to decrease IT spending to unnatural levels. The next new IT things in the past required companies to spend millions on initial costs, implementation, and maintenance, but the new IT things of today focus on saving companies millions. This will allow companies to pay less to get more out of IT.
The traditional view of IT spending assumes that with GDP growth of 3% or more, spending should increase by 5 or 6% per year. The author tends to disagree with this traditional view and because of the many factors mentioned in previous chapters, he assumes spending will decline. I am not sure when the author thinks this decline in spending will begin, but I was curious to see if his prediction had begun to occur yet. According to the GDP report from Moody’s, GDP increased 3.9% this quarter with real investment in equipment and software growing 6%. Therefore, the traditional view is dead on, and the author’s prediction of reduced spending has not begun. I still believe his prediction is likely to occur especially since what has happened with hardware over the last thirty years is positioned to occur with software and internal labor. Also, as the risks to the economy increased appreciably over the past few months, it may just take time for the decrease in IT investment to become apparent.
Another reason I support the author’s assumption of a decline in spending is because the next new IT thing, which has included innovations like the Web and Y2K drive IT spending to unnatural levels. However, the new IT thing now includes open-source software, free-ware, and off-shoring, which have the opposite potential to decrease IT spending to unnatural levels. The next new IT things in the past required companies to spend millions on initial costs, implementation, and maintenance, but the new IT things of today focus on saving companies millions. This will allow companies to pay less to get more out of IT.
Ch 7: Offshoring, The New Trend
This chapter discusses how off-shoring is rapidly emerging as a competitive reality for corporations, workers, and consumers. I definitely see the benefits for U.S. companies; the potential for better quality at a significantly less cost. However, I am weary of how off-shoring will affect the labor market and the overall economy in the future. For IT-related employees, off-shoring will cause their salaries and job security to greatly decrease. According to a McKinsey and Company study, 11% of service jobs could potentially be moved overseas. I see the vast majority of service jobs remaining in the U.S. because the nature of these jobs require face to face customer interactions or a worker’s physical presence. For example, it would be impossible to send the work performed by a dental hygienist or a sales clerk offshore. However, given the growth of high-speed networks, the Internet, and low-cost labor, I would not be surprised if the majority of the 11% of service jobs off-shored were IT-related jobs. Also, as this chapter points out, historical figures of jobs lost when the manufacturing sector was off-shored cannot be used to predict the potential number of IT-related jobs lost. IT-related employment will actually shift from the U.S. at a much faster rate than seen in the manufacturing sector. This fact along with the trend of more conservative IT spending makes me worry about the IT profession in the U.S. I think I would support off-shoring more if their was a better safety net for displaced workers including maybe better unemployment insurance or retraining programs for those who do lose their job.
One section that caught my attention was the “Quality Rules” paragraph. Measuring quality usually seems like a subjective process to me. However, the standardized CMM ratings used by the software industry seem more accurate. With CMM Level 4 and 5 representing the highest levels of quality, I was shocked to find that over 65% of level 4 and 5 certifications are held by Indian companies. This contradicts my allegations that all offshore work is of poor quality. I think I held this assumption because of the many horror stories in the news of recalls of imported products, many that have caused injuries. However, the need for U.S. companies off-shoring to continuously investigate the human rights practices and quality procedures used by the foreign company was greatly understated.
In the end, this chapter proves whether you’re for or against off-shoring it’s a rapidly approaching reality. Companies failing to off-shore will experience higher costs than reduce overall profits. Companies off-shoring their entire company will lose too much control and lose contact. However, blending domestic and off-shore resources will give companies the best in costs, productivity, quality, and responsiveness.
In another class, a group presented a debate on off-shoring and showed this clip as a joke. I wanted to include it because I kinda thought it was funny.
http://youtube.com/watch?v=YR_-aMVQWZI&feature=related
One section that caught my attention was the “Quality Rules” paragraph. Measuring quality usually seems like a subjective process to me. However, the standardized CMM ratings used by the software industry seem more accurate. With CMM Level 4 and 5 representing the highest levels of quality, I was shocked to find that over 65% of level 4 and 5 certifications are held by Indian companies. This contradicts my allegations that all offshore work is of poor quality. I think I held this assumption because of the many horror stories in the news of recalls of imported products, many that have caused injuries. However, the need for U.S. companies off-shoring to continuously investigate the human rights practices and quality procedures used by the foreign company was greatly understated.
In the end, this chapter proves whether you’re for or against off-shoring it’s a rapidly approaching reality. Companies failing to off-shore will experience higher costs than reduce overall profits. Companies off-shoring their entire company will lose too much control and lose contact. However, blending domestic and off-shore resources will give companies the best in costs, productivity, quality, and responsiveness.
In another class, a group presented a debate on off-shoring and showed this clip as a joke. I wanted to include it because I kinda thought it was funny.
http://youtube.com/watch?v=YR_-aMVQWZI&feature=related
Ch 6: Business Lean & Simple
Because of low-cost alternatives, Microsoft, freeware, and other factors, sellers are experiencing intense pricing pressures. First, the information on Microsoft and its steady spread into the corporate account was new to me. The chapter states, “an accepted rule of thumb has been that Microsoft technology is the most appropriate for small workloads and companies, Unix for medium, and IBM mainframe for large”. At first, this rule seemed to be a threat to Microsoft limiting the size of the company that Microsoft could be used for, but since small businesses represent more than 99% of all employer firms, small companies are the majority. Therefore, Microsoft’s appropriate target market is already much greater than the market for Unix and IBM. In addition to this, the table from Gartner predicts that by 2007, which has already occurred, Microsoft’s operating system will become as good as those offered by Unix and IBM. I was curious if this prediction was true and found mixed results on whether the operating system offered by Microsoft in 2007 is comparable to those offered by Unix and IBM. The lower costs of Microsoft products has saved some companies millions, but on the other side, Robert Schindler, a mechanical engineer for various Fortune 100 companies, wrote, “I believe that Gates and his empire have done more to lower the standards of society than anything else in my lifetime. If my product had the same quality as theirs, airplanes would be falling out of the sky hourly.” I am still up in the air on this issue.
Next, I was aware of open-source software but am shocked at how many companies are adopting it, but with the great debts created by irrational spending patterns in the 90’s, freeware does seem like a logical approach to saving in IT costs. However, my personal experience with freeware proved that the best things in life aren’t always free. I downloaded a freeware program for editing photos, and after I installed the program, my laptop became infected with lots of spy ware. It slowed down my computer so much that I had to spend lots of money at Best Buy having them clean my entire hard drive. If I had read the instruction manual prior to downloading the freeware, I would have seen the recommended list of anti-spy ware programs to download before. Probably the cost of buying software for photo editing would be much less than the costs associated with the problems caused by the freeware. However, in the corporate setting, carefully implementing freeware can save the company millions. As the chapter points out, custom programming accounts for two-thirds of all software spending. With freeware, the source code is available for free which provides a great savings in cost for those companies seeking to build custom solutions from existing software. Internal customization does have costs, but for companies with IT departments capable of evaluating and managing such technologies, internal customization is preferred to the greater costs of external customization.
Next, I was aware of open-source software but am shocked at how many companies are adopting it, but with the great debts created by irrational spending patterns in the 90’s, freeware does seem like a logical approach to saving in IT costs. However, my personal experience with freeware proved that the best things in life aren’t always free. I downloaded a freeware program for editing photos, and after I installed the program, my laptop became infected with lots of spy ware. It slowed down my computer so much that I had to spend lots of money at Best Buy having them clean my entire hard drive. If I had read the instruction manual prior to downloading the freeware, I would have seen the recommended list of anti-spy ware programs to download before. Probably the cost of buying software for photo editing would be much less than the costs associated with the problems caused by the freeware. However, in the corporate setting, carefully implementing freeware can save the company millions. As the chapter points out, custom programming accounts for two-thirds of all software spending. With freeware, the source code is available for free which provides a great savings in cost for those companies seeking to build custom solutions from existing software. Internal customization does have costs, but for companies with IT departments capable of evaluating and managing such technologies, internal customization is preferred to the greater costs of external customization.
Friday, November 16, 2007
Ch 5: Too Much of a Good Thing
My first thoughts were haven’t I already read this chapter? It seems very repetitive of content in the former chapters by declaring that companies will practice more conservative spending because of overbuying in the 1990’s. One new point that caught my attention was maintenance costs. It was uncommon for buyers who initially purchased software at a 50% discount to then incur maintenance costs of 40% or more every year after on the software’s current list price. How had companies not predicted these hidden costs? I guess they used the same lack of attention with negotiating contracts that they had with purchasing new technologies. Hopefully in the future, these contracts will be re-examined and negotiated for savings before signing checks for maintenance with little thought.
The steps mentioned that companies should take in downsizing were wise. In order to inventory assets, manual inventory counts that include IT and business unit members combined with the tools such as those offered by BDNA for discovering hidden and underutilized assets will work. Next, writing off waste could be a painful experience for people not wanting the blame but not nearly as painful as paying for technologies being used. Redundant capabilities including hardware, software, networks, etc. must be eliminated. One idea not mentioned was centrally locating resources. Motorola was mentioned in this chapter as having several different types of Oracle sitting on different hardware platforms at scattered data centers, which is a very inefficient use of resources. With centrally located resources, equipment, applications, facilities, staff, and other resources are together. Rather, instead of downsizing to get more out of the IT buck, relocating to get more through efficiencies and economies of scale. Perhaps, companies should downsize first, and when they cannot downsize any further, centrally locate resources.
In conclusion, I agree with principles discussed in this chapter. IT spending will decrease as companies as technology bills and budgets are being scrutinized. I think this assumption is definitely apparent today because of the recent turmoil in credit markets and continued uncertainty about the future economy. Uncertainty of the future causes concern for consumers who spend less in general. This is likely to spill over into business and IT spending. In the business conditions class that I am currently taking, we read a an article by the research group Gartner that advised CIO’s to create two separate budgets; One regular budget and a back-up one that assumes the need to cut IT spending in response to the arrival of a business slowdown. The potential of a business slowdown combined with harmful spending in the 1990’s will likely cause the growth of IT investments to slow.
The steps mentioned that companies should take in downsizing were wise. In order to inventory assets, manual inventory counts that include IT and business unit members combined with the tools such as those offered by BDNA for discovering hidden and underutilized assets will work. Next, writing off waste could be a painful experience for people not wanting the blame but not nearly as painful as paying for technologies being used. Redundant capabilities including hardware, software, networks, etc. must be eliminated. One idea not mentioned was centrally locating resources. Motorola was mentioned in this chapter as having several different types of Oracle sitting on different hardware platforms at scattered data centers, which is a very inefficient use of resources. With centrally located resources, equipment, applications, facilities, staff, and other resources are together. Rather, instead of downsizing to get more out of the IT buck, relocating to get more through efficiencies and economies of scale. Perhaps, companies should downsize first, and when they cannot downsize any further, centrally locate resources.
In conclusion, I agree with principles discussed in this chapter. IT spending will decrease as companies as technology bills and budgets are being scrutinized. I think this assumption is definitely apparent today because of the recent turmoil in credit markets and continued uncertainty about the future economy. Uncertainty of the future causes concern for consumers who spend less in general. This is likely to spill over into business and IT spending. In the business conditions class that I am currently taking, we read a an article by the research group Gartner that advised CIO’s to create two separate budgets; One regular budget and a back-up one that assumes the need to cut IT spending in response to the arrival of a business slowdown. The potential of a business slowdown combined with harmful spending in the 1990’s will likely cause the growth of IT investments to slow.
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