Projected Cuts to Information Technology in 2009 - Part 2

I previously posted about an InfoWorld article that reported projected information technology cuts in 2009. These were primarily in the areas of technology infrastructure and talent. My focus is on the talent component: trying to do more with less. We can state this a bit differently if we said "let's get more value for our IT expenditures in the area of talent".

There are many components to measuring value from talent, I stated it generally in describing productivity per dollar spent, i.e. how much can be accomplished when we assign a person at a certain cost to a certain task. There are many more ways to think about this, and that is what I wanted to elaborate on in this post. Because we are primarily an application development firm, my thoughts and examples are centered on that service, but the weight of the arguments can easily cross the lines into other IT skills.

The question then is: What impacts the value delivered?

There are many factors that determine what value should be delivered, is being delivered, and was delivered. Once again: value is the result productivity per dollar spent. While simple, it is not enough to simply look at dollar per hour as the sole measure; the factors that affect productivity must also be considered. These factors include:

Cost per hour - the simplest way to get a real number, but often the most misleading. This factor is enticing because a manager can say they did the hard thing and cut costs, resulting in a line on their annual review. But they may, and often have, at the same time jettisoned the entire other side of factors and put the initiative at risk. This may not be known until long afterwards. The problem with this approach, which some may call doing "more with less", is that it only focuses on the "less", and avoids the important consideration of the "more".

Functionality produced relative to others at a cost - These factors look at the production side; what is being produced in a unit of time? A higher priced member on the team with a corresponding level of talent and experience adds many dimensions, such as:

• Added value of additional ideas and input gleaned from others - they add to the discussion and provide direction early on, thus improving the rest of the team because of their input and leadership. This positively affects the immediate project goals, and the organization's personnel and long term practices.
  
• Reduced Errors or Omissions - The final product will be a higher quality, more reliable offering. This produces two additional benefits, the first of which is the organization's customers are better satisfied. This is especially true for new product launches or competitive markets where initial trust is the key to gaining and holding market share. The second derived benefit is future cost containment. A project's full cost is not known at the end; a "bug" appearing later on can be much more expensive to fix, as well as reducing the confidence of customers.
  
• Security Issues - Similar to a bug, a lesser talent may introduce embarrassing security issues; allowing malicious access to organizational or customer data. We had a new company call us a few years ago that used less expensive, less experienced talent to create websites for their very high profile clients. A hacker gained access to the customer's data and the private data the customer's were collecting on the sites. They then attempted to extort the company calling us. We dispatched a team of high quality talent who worked through the weekend to assess the damage, and lock everything down so that future access was cut off. The company handled it well, but did unfortunately lose some credibility in the market place.
  
• Increased capabilities to build upon the delivered solution - A lesser talent may develop what appears to be a suitable solution in the development and initial launch environments; but as the organization attempts to leverage it through greater use, they may find it does not perform well, or cannot be extended without significant new costs. The problem is a less experienced talent focuses on the immediate needs, without the vision to know how to also develop a solid base for future scalability. A more experienced person has the needed skills to know how meet both needs, or at least consciously balance the immediate needs and long term prospects. This reduces long term costs and creates greater growth opportunities.
  

Business Value / Benefits:
To summarize, a business that considers the added benefits above can expect to see:

• Predictable pattern of production - estimates and time lines will be more reliable, and the entire production will be more stable. This allows an organization to plan and meet customer, shareholder, and compliance commitment more confidently.
  
• Increased capabilities to expand market presence and offerings - Not only will the initial product or service be of better quality and more predictable, but the organization can confidently meet future needs through the long term capabilities that are added to the organization and product or service offering. This reduces long term costs and ensures continued market competitiveness.

My firm, Paragon Consulting, has what I believe to be the best methodology for identifying the right type of talent to really add value to a client's team or project. You can read more about it here.

Projected Cuts to Information Technology in 2009

I saw an article on Infoworld that reports IT spending is projected to be cut in 2009. According to the studies, two areas are targeted:

• Infrastructure such as basic PC and network hardware
• Talent costs, such as employees and IT service consultants

In regards to the first, that type of expenditure can be delayed to some extent, assuming that going into the delay there has been a consistent investment made so that the organization is not starting out with equipment that is already old and lacking support. Equipment fails, so it needs maintenance, and eventually replacement. Technologies such as virtualization can assist to put more functions on a piece of equipment, reducing the need for multiple devices. An accounting system may share hardware with a sales entry system, each having their own "space", but using one physical server.

The second expenditure can also be managed more tightly. With reason, there is nothing wrong with saying that you need more results from the people that produce or maintain your systems, and if the organizational direction is to ride out an economic storm, then doing more with less is often needed.

But the direction that more with less takes is where you must be careful. The ways a manager might view it are:

• Less people: Reduce headcount by some number to reduce total overall costs, and (hopefully) designate functions across the lower count in a way that maintains the minimal information technology needs of the organization.
• Less expensive people: Find cheaper resources that appear to have similar talents, and (hopefully) transition to them with minimal disruption in service level agreements. These people may be less experienced, or from another culture with different economic factors (off-shore). The goal is to retain a similar headcount and service offering, while reducing overall cost.
• Less commitment to the people: Outsource work to others, so that both employee overhead (both as an accounting ledger function and additional costs such as benefits, training, etc.) and length of commitment are minimized. In some ways this shifts the costs from one bucket to another, and also serves to make it easy to further reduce the workforce as needed by simply ending the use of an outsourced resource, as opposed to the termination of an employee. Additionally, terminating an employee has negative psychological effects on remaining team members that correspondingly terminating an outsourced resource do not create.

But what must be considered in any of these options, or combination of them, is the value delivered. It is easy to assess and reduce cost, but without experience, only later can the real value of those cuts be truly understood. So going in with a thought of value instead of pure cost is essential to long term shareholder return and organizational viability.

Value is not measured just in terms of dollars per hour; it is measured in terms of what was produced for those dollars. I have an option when I go to a mechanic, and can choose between the certified Mr. Goodwrench, or "Jim’s Auto Repair". Jim is less expensive per hour. But repeated trips back, missed work, inability to complete on time, additional ongoing costs, frustration, and potential to still have to go to a certified mechanic after all that lead me to call and schedule with the more expensive mechanic on day one. I know I will pay more up front, but I know I will receive more value measured in multiple ways.

In terms of consultants who are software developers (disclosure: my firm provides that service) I know the difference between the low value developer and the high value one. In terms of rate, it should always be measured against the time factor. You may obtain a consultant for $90/hr, or have a choice of a $140/hr resource. The issue is what each will accomplish over the time needed to deliver.

In a later post, I will try to address the issues that impact the actual value delivered. How do you know which one is going to provide more value? I think I can help you with that, because for years we have been assessing these resources with that key factor in mind.