The Money Pit!

							The Money Pit!

 Carr, Chapter 6
    How Dependent are we on
        infrastructures?
     Imagine having no
        running water --
How about no
electricity --




           http://www.livinghistoryfarm.org/farminginthe20s/life_01.htm
    What happens when power fails?
    How about the 2003 power
    failure?
     – Technology failure
     – Hurricanes




http://www.learnersonline.com/weekly/lessons03/week30/081803-1.jpg
http://www.4theworld.org/disasters_hurricanes.htm
How about the transport system?
– UPS strike
– UP rail problems


These are all critical
infrastructures
What contingency
plans can we have?

http://july.fixedreference.org/en/20040724/wikipedia/Rail_transport
      Review: Proprietary to
          Infrastructure
First, a new tech is a proprietary
competitive advantage
– Competitors rush to copy
– Standards are established
– Best practices become common
Widespread adoption and it becomes
an item of infrastructure
– Telephone, railroad, networks, etc.
When new technology becomes an
   infrastructure commodity
 What does Carr suggest we do with
 commodity infrastructures?
 – They are essential to competing
 – Becomes irrelevant to strategy!
 – Risks of failure outweigh the competitive
   advantages!
       Consider Electricity
It is mandatory for business success
– It provides no basis for competitive
  advantage
Then how do we purchase and use it?
– We prepare for failure
    Generator, battery backup, candles
– We buy as cheaply as possible
    Subject to reliability
      Adapting Infrastructure
At first, the technology is new, un-tried

– It is prone to failure, unstable

– This has been typical of IT during the past
  30 years.

IT projects often appear to be very high
risk – and modest reward at best
How have IT projects gone?
Most were disasters!
– Most are way over budget
– 16% considered to be success!
– 75% took too long to complete
Can you imagine if airlines worked
like this?
– 84% of flights do not make it to the right
  airport or crash?
– How about pizza deliveries?
        Reliable Infrastructure
Changing now into a true
infrastructure
– Still not as reliable as electric grid




http://www.resultsiowa.org/admin.html
     So what is a mother to do?




http://elearning.spu.ac.th/courses/images/computer/FAILURE.jpg
Carr’s Four Points to IT success
1. Spend Less
2. Follow, Don’t Lead
3. Innovate when risks are low
4. Focus on vulnerabilities over
  opportunities
        Spend Less
Spending too much appears to
be the biggest risk in IT
–True for any commodity input
–Identify the essential from the
 discretionary
–Justify the spending!
Remember -- Cost Justification

  Low
   MEASURABLE




                Displaced, intangible Avoidable, intangible
                      function              function



                Displaced, tangible    Avoidable, tangible
                     function               function
  High
                High                                  Low
                               CERTAINTY
                Justify!
Focus on the measurable
– Most projects “sold” on the immeasurable
  items!
Calculate a true ROI on the project
Assume all does not go well
– Prepare for project “surprises”!
– What will you tell the CEO when it doesn’t
  work?
         Spending less on:
Do all employees really “need” to be on the
Internet?
– NO – they waste time!
– Cutting access may yield vast savings
Can we outsource non-strategic projects?
– Yes – given that IT is increasingly a commodity,
  expect MORE outsourcing
– GM no longer even employs programmers (of
  course, they just reported a $1 billion quarterly
  loss)
       Spend even less—
Should you build when you can buy?
– Probably not- unless a competitive
  advantage results
Focus on generic items
– Use Linux
– Generic servers systems
Buyer power increases when item is a
commodity – USE IT!
      How much to save?
E-Trade spent $14 million in 1998 for
SUN servers + $1.5 million a year in
service
In 2002, they replaced the SUN servers
with generic servers for $320,000 total!
– They saved $13+ million AND 1.5 million
  on annual maintenance
– Think of the Cost of Ownership
  justification on that!
       Follow, Don’t Lead
Spend slowly!
Avoid the “bleeding edge”
– Leading edge stuff often become obsolete
– Compare to HDTV – waiting is good
When should you be a first mover?
– When you reap a competitive advantage
– If IT is a commodity, there is little
  advantage available.
         UPS vs. FEDEX
Fedex spent plenty to build their site:
– http://www.fedex.com/Tracking?cntry_cod
  e=us
UPS waited a bit and followed:
– http://www.ups.com/tracking/tracking.html
UPS saved a ton of $$$
      UPS vs FedEx

UPS              FEDEX
Innovate when Risks are low
Innovate when you can have others
bear the costs
– Wal-Mart’s RFID has suppliers bearing
  much of the cost
– If successful, RFID will become a
  commodity and pressure other retails to
  follow Wal-Mart’s lead
     Focus on Vulnerability
Just as when power fails, IT failure can
be catastrophic for a firm
– IT may not offer a competitive advantage –
  but it sure offers risks
Must have someone whose job it is to
plan for contingencies
– Plan for the worst!
         Prioritize your risks
What happens if:
  – Power fails?
  – Our data center burns
  – We get hit by lightning?
  – A bomb goes off?
  – Someone screws up?
  – Software fails?
  – We get hit by a virus? Etc.
Commodities reward stability
Think of the power company, airlines,
trucking, package delivery, etc.
IT will be similar
– More focus on security
– Less on development
Which will likely be outsourced?
– Development
         The bottom line
The key will likely be to not seek first
advantage
Instead, focus on
– Cost control
– Managing risks carefully
– Be careful to really justify investments
– Treat IT as a commodity input and not a
  strategic advantage
– end