Delete that “About Us” slide

Do consultants really add value to a business?

Lately, my limited television viewing has included the House of Lies series. Its interesting to watch real life  consulting situations melded with all the jokes and anecdotes about consultants that you have heard. And while this may be a comedy series, it does have a lot of factual details to can make consultants smile and wince in cognizance to the situations depicted.

Which brings me to the question – Do we add value to your business?

Executives I’ve spoken to are varied in their opinion, depending upon which side of the change they’re on. Some swear by the consultants they’ve hired and sing praises in every forum they find. The majority however have a not-so-favourable opinion of the value delivered.

In all honesty, we as consultants are also guilty of doing too little to change the perception that the world has of us. Its time we project and publicise the value we bring to customers, not just the size of the deals. Not just get the business, but create evangelists among clients.

 

So we can have our reputation for bringing value precede us. So we waste less time proving who we are and spend more time doing what we can do.

So we can get rid of that “About Us” slide in our presentation deck.

Mapping the true value of IT

Most analyses of IT value consider the quantitative aspects of the IT investment as parameters for evaluation. The quantitative parameters like Capital and Operational cost, revenue increase etc. are strong indicators of the value of any investment. Using these parameters is a strong starting step towards understanding how valuable a particular IT investment is to the organization. However, relying solely on the quantitative benefits of an IT investment is an incomplete evaluation of the value. Quantitative benefits would only indicate the dollar worth of the investment. However, how valuable the particular investment is to the organization is dependent on other factors, which may enhance or even degrade the true value of an investment.

 

IT Value

 

The IT Investment Value Tetrad, depicted above, extends the value of IT investments across four specific areas which affect a particular investment’s value to the organization. The four factors individually increase or decrease the value of an IT investment and their sum total is a very close approximation of the true value of the IT investment.

 

The IT Investment Tetrad defines the following four factors which contribute to the value of any investment:

Quantitative Benefits – The net financial savings or gains that can be easily quantified in monetary value. These benefits essentially include savings in costs or directly attributable increases in revenue of the organization.

Qualitative Benefits – Savings or benefits from the IT investment that are more difficult to quantify in financial terms, but are still significant to business goals, strategy or operations. These include benefits like Brand enhancement, organization and operational efficiency and knowledge capital enhancement.

Risk – The risks of implementing the solution, especially the managing of costs and the achievement of identified benefits. This includes risks of delays, adverse exigencies and risk of obsolescence. Value of the investment is inversely proportional to the magnitude of risk identified.  

Stakeholder Reach – The number of stakeholders, both in terms of number and type, which are impacted, positively or negatively, by the IT Investment. For example, core network equipment, which would benefit the working of the entire branch office, is ordinarily rated higher that software procured for the exclusive use of a particular department.

The above mentioned factors, when evaluated objectively, present a true picture of the potential value that an IT investment brings to the organization. Also, as this evaluation does not rely on any one type of factor but rather represents all the factors, this type of value finds acceptance to all stakeholders.

The most important characteristic of this evaluation is that the single value arrived at the end of the analysis allows an objective comparison of different investment opportunities which may be of different types. A comparison based on the pure quantitative value would be possible only between investments of the same type. Using the IT Investment Value Tetrad, an objective comparison and prioritization of an investment opportunity to buy networking equipment can be done vis-à-vis an investment opportunity to buy software. Given the current economic scenario and the ever increasing need to classify and prioritize IT investments, the Tetrad based analysis is a powerful tool to ensure better business value.

Benefits across the table

As defined above, the IT Investment Value Tetrad can enable a rational decision making process based on the true value of any IT Investment. The specific benefits for both types of stakeholders helps the process of Business IT fitment within the organization.

Benefits for Top Management:

  • Enhanced measurability and valuation of IT Investments
  • Increased objectivity in evaluating IT Investments
  • Increased clarity on the strategic role of IT in the business
  • Compelling business justification for Investments to present to external stakeholders

Benefits for CIOs and IT Managers:

  • Stronger Business based valuation of Technology
  • Objective prioritization of IT investments in relation to Business goals
  • Stronger business case to justify investment requirement
  • Increased contribution to the Organization’s strategic goals

Saying No to the Customer

 

A lot of thought provoking insight comes when you interact with people. People who play various roles: Spouse, parent, leader, subordinate, fellow citizen. As a sales person, the one fundamental role that stays with me is that of a customer. Hardened sales leaders will concur that everyone you meet is a customer and you are always selling.

So then what happens when the customer is being unreasonable? When the customer is bullying you into delivering free services? Or cutting your price way below your cost, just because he’s the bigger guy? What happens when the customer ignores the value of the products or services you deliver and evaluates them as a commodity?

You say NO !!!

Agreed, you may not get the business. Agreed, you may let your competitor win. Agreed, you might fall short of your target this quarter. Agreed, the customer will not want to have anything to do with you henceforth.

The number one reason why you would want to risk all of the above is that you BELIEVE you have something of value to offer. If you believe your product or service is differentiated from its competitors, its relatively easy to avoid succumbing to unreasonable demands from customers.

I do not advocate walking away from every deal that starts to show some sign of trouble. I am assuming you have done everything to ensure that the uniqueness of your product is conveyed to the customer. A detailed, logical comparison between your offering and the competitors convinces most buyers. But to those few customers who will not see reason and unreasonably negotiate like its an agenda, its always noble to shake hands and walk away.

Three things happen here:

  1. You leave with your differentiation and market position intact. You did not succumb to becoming a commodity and hence decrease your chances of being treated as one. Sometimes being a snob is good.

  2. The customer will gain respect for you. When such a buyer is playing unreasonable, she’s not going to expect you to be reasonable and mature. When you walk away from the table, the buyer will be left with an impression that he is missing out on something. Doubt can be good.

  3. Chances are you get what you pay for. If the competitor vendor is going to win the deal on unreasonable terms, 95% of the time, quality will suffer. So the next time the buyer looks for a product or service, they will remember the one vendor who refused to compromise on the product or service they believed in.

But, the primary requirement for taking this stand is your unwavering belief that your product or service is unique and differentiated and can bring genuine value to the buyer.

Comments from readers, especially from the buyer side of the table, are welcome.

Mergers & Acquisitions: Due Diligence – The IT view

Organic growth in organizations is slowly becoming a concept in the past. While many would argue that sustainable growth is only possible organically, the fast paced nature of business today forces organizations to add capabilities, preferably without the delay of  developmental learning. Albeit, there is an entire entrepreneurial business model of developing a niche organization and then selling it to a larger general conglomerate.

Due diligence during M&As are a core area of expertise that have been arguably the holy grail for a lot of Finance and Strategy consultants. Deep expertise in valuation and strategic synergy becomes the core area of focus in the M&A evaluation process. However, a third element, Technology Synergy has become a major supporting factor during the decision process. It is estimated, that up to 38% to 40% of synergy savings in a Merger or Acquisition are enabled by IT synergy.

Every organization today depends on IT systems as a prime enabler for its business efficiency. Therefore, ensuring the ability of the disparate IT systems of merging entities to yield themselves to relatively easy integration, becomes the prime consideration for IT due diligence and subsequently, corporate due diligence as well.

The real life

In reality however, IT would be one of the last things considered during a M&A. I dare say, that IT integration is often given the priority just above Administrative Logistics. After all, as one business leader once told me, “We’re just have to be moving the servers, right?? We can put them with the office furniture.” Not exactly the kind of regard that the CIO would have liked, but usually that’s what happens.

Who should be blamed for this apathy? I think both sides of the table, Business and IT are equally at fault. While business to a large extent, tends to keep IT away from the strategic decision making table, for its part, IT very rarely tries to position and justify itself as a core business driver.

Business IT non-alignmentThe main reason I believe this happens is that everyone is caught up with the operational aspects of the IT organization. Including IT itself!! The working of IT is a hygiene factor. If IT works, nobody really notices it. But if IT stops working, everything is blamed on it. The IT organization ends up becoming a high value back office operation, with no initiative to justify the business enabler value that it really has.

Moreover, too much focus has been placed by IT on its operational achievements. A new web portal in 24 hours, new ERP deployment in 12 months, 99.999% uptime, zero downtime, 75% optimum utilization; some of the things you’d hear at an IT review or in an IT departmental newsletter. But does business really care, other than a pat on the back?

This contradicting focus is what builds up distrust among the two towers inside an organization. CFOs and CEOs become increasingly assured of CIOs as money wasters and CIOs correspondingly think of CEOs and CFOs as ignorant, stingy and oppressive. The result, IT and business remain separate.

The solution is communication. Consistent, coherent communication between both parties. CIOs must strive to translate their achievements and needs, operational or otherwise, into business terms, profitability, revenue, and ROI. CEOs and CFOs must invite CIOs into the decision making circle and in many cases, coach them to project business value.

 

IT value in an M&A

A merger and acquisition exercise is an important area where the IT Organization can prove its worth as a true business enabler.  The important aspect for any Merger or Acquisition is synergy – business synergy, market synergy, financial synergy. The biggest aspect that IT can proactively address is Technology Synergy – the possibility of integrating diverse technology systems to work together.

While there is practically no framework to govern what constitutes good value in a Technology Synergy scenario, it is obvious that during a M&A, it is essential to go beyond the obvious. It is easy to look for infrastructure or software integration candidates, however it is essential to take a holistic view of the systems to encompass people, operational processes and data as well.

 

Some of the areas to watch out for while making a technology synergy audit are:

Presence of Legacy Systems

One of the biggest reasons a technology synergy can lose value is when any one of the entities still relies on legacy systems. While it can be argued that the industry did not warrant state-of-the-art technologies, in a merger or acquisition, legacy systems might prove costly to replace and difficult to maintain. In such a scenario, if the IT systems have to merge, the legacy systems have to be replaced by current technology. Usually it would be a question of which of the merging entities has more mature processes and technology. This would be the best candidate for becoming the standard.

 

Use of Open standards for Data Exchange

Every enterprise chooses technology based on a number of parameters, the most common being functionality, ease of use and cost [hopefully in that order]. One more parameter that CIOs and IT decision makers have to keep in mind is Data Exchange standards. Not necessarily in a merger or acquisition scenario, but increasingly enterprises need to integrate with technology landscapes of multiple entities – partners, customers, vendors and of course, the internet. Gone are the days when proprietary data exchange standards were used in the name of data security. Open data standards like XML and ASN.1, thanks to the all-pervasiveness of the internet, have emerged as the glue that integrates disparate technology systems.

 

Areas of consolidation

Most of the time, IT Infrastructure is taken as a given. It would seem as if all the enterprise applications run on their own. That said, the platform on which enterprise applications like Email, ERP, CRM, Web Portals run is as important and signifies a large investment if not planned properly. However, in an M&A scenario, this is arguably an area of relative happiness. When two infrastructure stacks are brought together, the result is more capacity. However the happiness is relative because the governing factor is the combined usability of this capacity. The two systems may not be compatible with each other or the relative capacities might be so far different that the combined capacity is hardly an improvement. CIOs and IT decision makers have to watch for consolidation possibilities, whereby systems can be merged efficiently with maximum reuse.

Cloud services, specifically Infrastructure as a Service offerings, aim to solve these issues. By providing vendor independent infrastructure platforms, IaaS deals solely in infrastructure capacity. As a result, two entities running on IaaS platforms yield themselves much easily to consolidation.

 

Process Reengineering

If technology is considered the heart of the IT organization, operational processes would be the nervous system. Efficient and mature processes, which get the job done, remove inefficiency and redundancy, enable IT to react faster to incidents, address business needs faster and ensure overall functioning of the IT system. The maturity of a process is governed by its ability to reduce redundancy and to adapt to business change. While making an evaluation of IT operational processes, it is worthwhile for the CIOs and IT stakeholders to evaluate processes on the basis of their maturity and depending on the business need, judge the magnitude of process reengineering that would be required on both sides.

 

Core personnel

Mergers or acquisitions are a worrying time for employees of both organizations, specifically due to the looming fear of redundancies and as a result, layoffs. Most of the time, the easiest way to show cost reduction during a merger or acquisition is to reduce personnel. While this may seem effective in the short term, it is evident that any merger or acquisition exercise is executed for growth. With growth, eventually there will be the need for additional manpower, more so in the IT organization. To avoid costly recruitment in the future, it is important for CIOs and IT stakeholders to evaluate their teams and decide on two specific groups of individuals. On the one hand, individuals who would automatically fit into roles in the resulting IT organization [including one of the CIOs] and on the other hand, individuals who need to be groomed to fit into existing or future roles. It is important to note, layoffs should be used only as a last measure and only in cases where a candidate is found irrecoverably incompetent. As far as personnel are concerned, reuse of personnel should be the qualifying factor for technology synergy.

 

Dilemma

If the acquiring entity, despite its size, has legacy systems, proprietary data exchange standards, low maturity processes and the acquired entity, relatively smaller, has more modern technology and best of class processes, which becomes the standard??

Focus on Innovation – The need for a focussed view

 

The basic premise of innovation in most organizations happens to be development of something new. A new methodology, a new product, a new service, a new framework or in some cases, a new idea.

While this is not entirely untrue, I happen to observe a large number of organizations innovate for the sake of innovation. One of the following methods prevail in the process:

1. The next buzzword: This is the ‘easy way out’ innovation strategy. One tracks the latest concept in the market and repackages, repositions or redesigns the offering around that concept.

2. The “Ideate” room: I loved the ideate room ad from IBM. It captures the essence of this point so perfectly. The Ideate room points to organizations who put a lot of effort and money into trying to come up with new ideas. Many a time, this translates to free pizza, coffee and no targets for a lot of ‘ideators’. The trouble is there is too much focus on the peripheral infrastructure and enablers for innovation and not the innovation process itself.

3. Noisemaking: A large number of organizations make a lot of noise about every new concept they come up with, without figuring out how they would implement or develop the idea or concept. So all the time you’re bombarded with messages like “we’re doing this”, “we’re offering cutting edge, state of the art, bleeding edge, <insert your favourite phrase here> solutions”. This is like crying wolf too many times. Sooner or later, listeners tend to switch off to your noise.

So what does it take to deliver real innovation? The answer might sound clichéd. While a good idea, product or service is extremely important in the innovation process, the main parameter that defines and separates success and failure is…

 FOCUS

There are generally two aspects to innovation. I like to call them the inner and the outer.

Inner: The inner aspect deals specifically with the WHAT and the HOW. What is the innovation that one wants to develop? And How does one develop the innovation? Innovation is not always doing something new. It can also encompass doing something differently, more effectively or just more simply. Also there are ‘n’ number of ideas that will turn up if asked to brainstorm, but if there is no solid process to sort, classify, test and debate new ideas, then most innovation would tend to be based on whims, buzzwords and fads. 

Outer: The outer aspect deals with the WHO and WHERE. Who are we innovating for? And Where do we want this innovation to have an impact? This aspect is all about having a focussed audience for the innovation and for the innovation to be meaningful.  After all, no one wants to innovate for the sake of innovating. If the innovation does not make meaning for and does not significantly impact an audience, then the viability of the innovation exercise is questionable.  

Most organizations who complain that they are not innovative enough, specifically suffer from too much concentration on one of the two aspects or alternatively, too little concentration on both of them. Too much focus on the inner causes organizations to be too caught up with refining and hammering out details than working on being innovative and being meaningful. Too much focus on the outer causes organizations to make a lot of noise and fluff without concentrating on execution and delivery of ideas. Either approach tends to be dangerous. The best way is to have a rounded approach, looking at both the inner and outer aspects of the innovation process.