Monday, September 08, 2014

Value Destruction

For every organization that invests in IT there is an expectation that IT will contribute to one of the outcomes from topline or bottom line improvement, customer or employee satisfaction which in turn impacts profits or revenue, operational efficiency or regulatory compliance or a new capability that creates a differentiation in the competitive market. After all if none of these will be impacted then why invest? Many times there are IT investments labelled “strategic” normally endorsed by named consultants specializing in business transformation or strategy, or the Board.

The company hired one of the premier consulting firms to help them with an IT strategy that would align to their growth objectives. They did not have success retaining talent at the top and had a string of CIOs who took up the challenge and left within 2-3 years unable to create sustainable change. Every CIO to his/her credit tried to approach change in a holistic way and when they realized that the inertia from people was strong, processes rigid and everything required measurement, they were unable to sustain the rigor.

The company had always measured every investment using financial metrics and did not believe that IT should be any different. The owners and management acceded to all new technology solutions and investments but many times changed CIO decisions to select the most cost effective solution which offered the highest ROI. Lumped with at times unaligned solutions or vendors who had been squeezed so badly that they ended up cutting corners, the CIOs had not been able to recoup the situation to create visible success.

After quick succession of CIOs they determined that consultants would be able to help them solve the enigma of unsuccessful IT driven projects. After all they had been diligent in their choices, the loyal CFO had worked hard to create models for measurement of success. Their prudent financial decisions had paid off in many functions which is why they wondered why it is not working in IT. The consultants conducted their diagnostics rummaging through history, talking to business, some of the old timers and the IT staff on the journey.

Their report was presented after a few months; there was a lot of anticipation especially within the IT team who saw a ray of hope in the study. The management had a heated discussion with the consultant refusing to believe what was presented. They debated and defended their past actions and labelled the report biased and the consultant ineffective. They still needed a silver bullet and thus decided to hire another competing consulting firm to repeat the exercise. The consulting firm agreed; they were the best and the most expensive.

One of the beliefs that I have inculcated with my teams and others who I have had the opportunity to work with and mentor, is that everything can be measured. Maybe not always using the conventional measurement criteria of Return on Investment or Return on Capital Employed. There is also a category called soft benefits or non-quantifiable returns which has fuzzy terms like better awareness or connect to people with no defined baseline or clear benchmark against which it can be compared. Even these could have been measured with proper definitions.

D-day arrived and the senior partner from the firm was solemnly ready to present the report. They had also reviewed their competitors report. They had insisted that the entire management team be present. There was suspense in the room and a hush as the presentation began. Through the hour everyone listened with rapt attention as their story unfolded in front of their eyes. When the senior partner completed with an air of authority, there were no questions; the data and evidence presented with benchmarks did not require any clarifications.

The company suffered from wanting to get everything at rock bottom prices; for them L1 pricing was the only way to do business. That is how ROI was always best ! The CFO being in a position that he was everyone was terrified to do it any other way. In the quest for value they took irrational decisions and displayed the fabled “penny wise and pound foolish” behavior. No one dared point this out and the realization came ironically from the most expensive no nonsense consultants. A lesson learned the eminently avoidable hard way.

Value can be created even from high cost investments while value can be destroyed even when you pay less. Value is a perception of price paid and has nothing to do with the price.

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