Wednesday, January 21, 2009

Pettit - Come the Hour, Come the Leaders

By Ross Pettit - 21 January 2009

It’s pretty obvious by now that we’re not in an ordinary downturn. The US Federal Reserve and the Bank of England have invested well over $1 trillion propping up their respective financial services sectors, and every indication is that there is more yet to be spent on asset purchases and guarantees. For all intents and purposes, the domestic US auto industry has failed (with, as of this writing, the notable exception of Ford Motor). The Baltic Dry index has fallen 96% from its peak and there are indications that global container shipping is effectively free. Deflationary forces – with which few of us have any first hand experience – are evident in everything including volumes, prices, salaries, staffing levels and asset values. Add to the landscape completely unexpected large-scale incidents of fraud such as Satyam and Madoff and there is no denying that we live in very challenging times, with few precedents or patterns.

The headlines today are dominated by bailouts. Before long, they’ll be about bankruptcies. This will create a new business landscape, the shape of which none of us can fully predict. One thing we do know is that before the dust settles, businesses both healthy and unhealthy will have to go about the task of restructuring.

Restructuring will extend to IT. IT can keep pace and perhaps even get slightly ahead of the trend. But that requires leadership, and leaders are in short supply in all areas of business. This is obvious from the predominance of two common attitudes: complacency and elective ignorance.

First is complacency, often bordering on denial. There are quite a few people taking a “wait and see” attitude, believing that the economic situation isn’t as bad as is being reported (lots of business is still being transacted), governments are stepping in (weren’t we taught in history class there could never be another “great depression?”), there’s been a change in US leadership, and so forth. The prevailing attitude in this camp is that the economy will work itself out and that businesses are not at wholesale risk.

There are also a fair few willing to ignore what's happening, electing to focus exclusively on execution. Since none of us control the economy, the thinking goes, better that we just get on with the things we do control, such as day-to-day execution. We need to step up our efforts and fight the good fight. Times will be tough, but putting our nose to the grindstone will see us through. Cut costs. Sacrifice. Be positive and optimistic.

In the current economic context, both of these attitudes are acts of capitulation. They substitute “hope” and “aggressiveness” for genuine leadership.

As leaders of IT organizations, we’re several steps removed from the line-of-business of our partners, making it difficult for us to be true business leaders. It also places us in a vulnerable situation: if IT is perceived as a utility (and not a strategic partner) we’re seen as a draw on revenues rather than a core competency in long-term success. The CEO and the board won’t look to us for strategic contribution as much as they’ll look for a budget request consistent with the deflationary times.

This is a frustrating environment in which to try to lead as traditional market and operational moves are acts of blind faith or wild ambition. What we can do today to provide leadership for our business partners and our teams?

  • Have a firm but malleable business vision founded in facts.
  • Pick a timeframe that can be monitored and adjusted.
  • Restructure operations for responsiveness.

Here are six practical things we can do to execute a leadership agenda.

  1. Vision: We must forecast a bottom for our business / industry. Relax: any forecast we make is going to be wrong. The point isn’t to be precicely accurate, but to define a floor against which we can reconcile and explain all of the business decisions we will face in the coming months. That floor must be something we arrive at independently, by analyzing the data (macro and micro) at our disposal. It is important that we process every bit of economic data and filter signal from noise, fact from emotion. We cannot selectively pick facts nor emotionally align with an outcome that we would like to be true. If we preface any replay of our analysis with “I believe..." we have failed this test.
  2. Timeframe: We must choose the indicators that we’ll use to monitor and adjust the timing (and the details!) of our forecast. Not only is it important that we forecast a bottom, we must get our fignernails dirty with the data. This will allow us to ascertain whether reality is evolving toward or away from our predicted future state, and give a reasonable time horizon to adjust our execution. To do this, we need data. Headliners such as the S&P 500 and FTSE 500 are interesting, but can bake in stale data such as last quarter’s sales or dividend forecast. Look to leading indicators of economic activity. For example, if we’re heavily exposed to consumer spending, we can look to the Baltic Dry index to see when global trade starts to show sustainable signs of life. Or if we're close to construction or financial services, we can look to see when the Case-Shiller index shows that house values are again consistent with rates of income growth as they were prior to 2003. Better yet, we can create our own composite index out of key indicators specific to our situation, such as the enterprise value or the percentage of toxic-to-tangible assets of our customers.
  3. Vision: We must be specific and direct with everybody – from the board, to the CEO and CFO, to our business peers, to everybody in our teams – about what the data is telling us. Does it appear that our business is shaping up to be a predator, a buyout target, or in a different business entirely? Figure out the business needs that IT must satisfy to support the company that will emerge on the other side, and make sure we are in full agreement with our busienss partners. We must articulate a decoupled vision so that we can explain and focus efforts on the right problem at the right time. We can encourage people to take the initiative in acquiring new skills in alignment with that vision. The data may be negative and it may not make people very happy, but how we act and prepare, and how we explain our actions and preparations, inspires confidence more than all the rah-rah optimism in the world will ever achieve.
  4. Restructuring: We must change the way we work to maximise responsiveness. We cannot predict when recovery will happen or what form that recovery will take. Cutting costs to withstand a downturn in the hope that recovery is around the corner (and with it a return to business as usual) is not leadership. Being sustainably responsive to whatever the economy, the market, governments and the competition deals us is leadership. We can act very boldly to eliminate situational complexity, unaligned gatekeepers, and any other obstacles that make it difficult to get things done. We can also look very closely at Lean principles to not only eliminate waste but to make sure effort is directed toward results.
  5. Restructuring: We must take a long, hard look at the portfolio for any self-targeted missiles. The one thing that will undermine our leadership in the eyes of our business partners is if we are blindsided by something that is in our control. Especially in difficult times, people will do things to contain bad news in the fear of losing their jobs, so we must be vigilent: do we have any projects that could surprise us with a spectacular collapse? Is Bernie Madoff one of our project managers (or worse, our project portfolio manager?) We need to find out now. Right now. We can do this by bringing unrestricted transparency to our projects.
  6. Restructuring: We must identify the top 3 capabilities that will be the most valuable in our future and patiently pursue them. Perhaps our organization has a deficiency in project management, or we envison changing from a custom appdev shop into an integration shop. We can take some long but lightweight positions in these different capabilities. For one thing, we can look internally and identify the people in whom we want to invest for skill development. We can look externally as well: labor supply outweighs demand, so this is an opportune time to advertise for new hires. We can also partner for capability: plenty of firms are coming to grips with the same set of challenges, so there's no need to go it alone. Above all else, we must take our time and make sure we get the right people under the right circumstances. And we mustn't assume that we'll recognize the right people or the right circumstnace especially if we've no experience or a poor track record of acquiring it. We must invest in developing interviewing techniques, and be aggressive but fair in defining terms and opportunities for partners.

This isn't easy to execute. A lot of people in IT lack business fundamentals and may struggle to understand our goals and objectives. We will make mistakes and suffer setbacks. And it can be difficult to explain to people engaged in daily firefighting why this demands attention. But going off in a fit of blind execution is economic "trench warfare," a tactic that has a history of unpleasant consequences. Survival may be at the front of our minds, but as leaders we must be able to articulate a future that is more than just survival. Many IT organizations "survived" the downturn of 2001-3 but never fully "recovered," underperforming for their business partners in the years that followed. We can't ignore threats to survival, but we must restructure and reorganize with informed preparedness, leading toward some vision - even if a bit inconclusive on the details just yet - of a transformed destination. To realize that vision, we're going to need every oar in the water, so it is best that we treat our people with respect and give them full disclosure of our vision and expectation, and the opportunity to take the initiative in sharing in its fulfillment.

At a time when a lot of businesses are on fire, this sounds like a lot of etherial work. And there is no denying that we’re in for a lot of long days and long nights, sacrifices and hard decisions just to stay on top of operations. But this isn’t the time to be tactical. Playing the hand we're dealt and hoping for the best, or simply executing pell-mell in the expectation that something good will come of it, abdicates leadership at the time it is needed the most. Businesses don’t need administrators doubling down on the same techniques, they need leaders ready to invent and innovate in a different and as of yet unknown commercial landscape. Making the effort to shape our situation relative to an informed, forward-looking business context will give us that much more of an opportunity to determine our futures.

About Ross Pettit: Ross has over 15 years' experience as a developer, project manager, and program manager working on enterprise applications. A former COO, Managing Director, and CTO, he also brings extensive experience managing distributed development operations and global consulting companies. His industry background includes investment and retail banking, insurance, manufacturing, distribution, media, utilities, market research and government. He has most recently consulted to global financial services and media companies on transformation programs, with an emphasis on metrics and measurement. Ross is a frequent speaker and active blogger on topics of IT management, governance and innovation. He is also the editor of

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