Whose math is it anyway?

A quality most admired during these troubling days is persistence. After all, who can't help but admire the industry's dogged determination to find the "killer app" that ends IT's (the telecom sector in particular) nuclear winter. Maybe the industry should hire O.J. to help when he is not searching for the killers of Ron and Nicole.

At issue, however, is the fact that what we are looking at is not a technology problem, but a math one. The business model is broken, and the numbers do not add up. Worse, vendors and customers don't add, subtract, multiply and divide the same way. Persistence is not going to be the answer to this one. Changed behavior is the only solution. Read on.

Vendors now say that the world going forward is not about technology for technology's sake, but is about value. As my kids say, "Duh!" Better late than never. 

The two tightly coupled and consistently stressed components of this sudden insight about value are return on investment (ROI), and productivity gains. In fact, there are grandiose marketing pitches based on the notion that if the customer will purchase the next generation of stuff--software, hardware, services et al--the ability to seamlessly operate in a more efficient and effective "E"vironment will unleash a torrent of applications that cause a quantum leap in productivity and spectacular ROIs.

Customers are saying, "This is all very interesting, however..."

1. Previous promises on ROI and productivity have not panned out because projects and services were underestimated in terms of time to implement, time-to-return, etc., or were just abandoned because they were too complex or didn't work.

2. These days, return on assets (ROA), already owned, are how IT asset managers are being measured by management.

3. Until further notice, the way productivity is measured will continue to be the old-fashioned way, e.g., not on expectation but on execution. This means dividing total revenues and/or profits by the number of employees. If revenue and/or profits per employee are going up, ipso facto, so is productivity. The world seems to believe that next-generation IT-based ROI is an interesting concept, but shareholders want results now. This means cutting headcount, and not buying problematic returns in the future, is the fastest way to prove increased productivity. It is also a non-career limiting alternative way to run a business.

A simple example highlights the problem. Say I own a Honda Civic that has relatively low mileage and a low total cost of ownership (TCO) based on the expected cost of repairs. In the estimation of my mechanic, the car will provide me with reliable and safe transportation for many, many years. However, I am a car nut. I'd love one of those BMWs. The prestige could get me more clients. I could go zero to 60 much faster so getting on freeways would not be as nerve-wracking. The new navigation system would insure I never got lost, and that I could be easily found if I were in trouble. The dealer offered free loaner cars, etc. I could have a new car with very high and long resale value based on its reputation instead of the unsexy and inexpensive one I have now that will be worthless in a few years. The added expenses could be a business write-off. If I were happier with my car I know I would be more productive. In other words, on a straight ROI view, I could justify buying a brand new BMW.

The only little problem is right now my cash flow stinks. I can barely afford a map never mind a navigation system. And, after all, ultimately this is about transportation, not what I do once I get there. In addition, if I put off buying a new car, I can still afford to pay to have my driveway shoveled, my grass cut, business clothes dry cleaned, hair cut, pay for the kids various lessons, etc. The bottom line is the bottom line. The BMW is going to have to wait. The underlying value of making the switch just is not there. I need ROA and not ROI.

Obviously, this is where IT and the communications industry are stuck today. Vendor math says, "Buy the car, you deserve a superior driving experience and it will generate lots of tangible value over its lifetime." Customers are saying, "Thanks, but I own a car, and based on the fact that nobody is raising the speed limits any time soon, all I really need is basic transportation and this will suit me just fine." Do the math!

What is interesting in this little analogy is the seed for the solution is in the telling. What was left out was whether the car was to be purchased or leased, and what the nature of the warrantee was going to be. Reality is that leasing a new car, thereby cutting the monthly payments significantly for one thing, based on the payments I am making on my old car, which I started when interest rates were high, might make a lot of sense. And it might make a lot of sense for a whole host of reasons relating to servicing, reliability and accountability.

The same is true in IT. Remember the customer math and the productivity calculation. Maybe the customer can have their cake and eat it too. Outsource much of their operations thereby cutting headcount and increasing the paper view of productivity seen by investors, and get the advantage of a new infostructure that someone else is accountable for that given the right amount of time and attention actually could yield something more than incremental value at something less than excremental costs.

Applying some new logic to some old math, may be the way to go. It certainly is directionally correct. The industry only needs a compass and not a sophisticated GPS-based system to figure it out. Indeed, if the struggling service providers have learned nothing from the past few years, it should be that when you are selling a commodity capability, how you package it and enhance the ownership experience is what generates business, profits and satisfied customers. The real new math is calculating the value of enriched relationships as the foundation for life cycle profit generation.

Peter Bernstein is President of Infonautics Consulting Inc. He can be reached at pb111451@optonline.net.