The Money Pit!

1
The Money Pit!

• Carr, Chapter 6

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How Dependent are we on infrastructures?

• Imagine having no running water --
• How about no electricity --

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ife_01.htm
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What happens when power fails?

• How about the 2003 power failure?
• Technology failure
• Hurricanes

http//www.learnersonline.com/weekly/lessons03/wee
k30/081803-1.jpg http//www.4theworld.org/disaste
rs_hurricanes.htm
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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/wikiped
ia/Rail_transport
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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.

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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!

7
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

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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

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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?

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Reliable Infrastructure

• Changing now into a true infrastructure
• Still not as reliable as electric grid

http//www.resultsiowa.org/admin.html
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So what is a mother to do?
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/FAILURE.jpg
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Carrs Four Points to IT success

1. Spend Less
2. Follow, Dont Lead
3. Innovate when risks are low
4. Focus on vulnerabilities over opportunities

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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!

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Remember -- Cost Justification
Low
Displaced, intangible function
Avoidable, intangible function
MEASURABLE
Displaced, tangible function
Avoidable, tangible function
High
High
Low
CERTAINTY
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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 doesnt work?

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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)

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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!

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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!

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Follow, Dont 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.

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UPS vs. FEDEX

• Fedex spent plenty to build their site
• http//www.fedex.com/Tracking?cntry_codeus
• UPS waited a bit and followed
• http//www.ups.com/tracking/tracking.html
• UPS saved a ton of

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UPS vs FedEx
UPS
FEDEX
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Innovate when Risks are low

• Innovate when you can have others bear the costs
• Wal-Marts RFID has suppliers bearing much of the
  cost
• If successful, RFID will become a commodity and
  pressure other retails to follow Wal-Marts lead

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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!

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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.

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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

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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