The adoption of information technology is always a risky business, and the larger the investment the greater the risks are likely to be. There are several variables available to management that offer the prospect of reducing risks and costs, while increasing the likelihood of the expected return. These variables are concerned with timing, the role of the new technology and managements` attitude to IT investments.
A rational approach to technology investment tends to be compromised by the fashion lead nature of the IT industry and the personal agenda of management. It is all too tempting to jump on the latest technology train simply because one’s peers are doing the same. There are strong positive feedbacks that cause management to adopt a technology when timing may not be optimal or when the positioning of a new investment has not been fully thought through.
The history of IT adoption gives clear lessons that are worth looking at, and this paper will consider the variables available to management and provide a method for optimising IT investments.
Overview of Adoption Variables
Perhaps the most obvious variable that management has at its disposal is timing. Should a technology be adopted as soon as possible, or are there good reasons to wait? Good timing would mean that risks and costs are reduced without impacting upon potential benefits. Of equal significance to timing is a consideration of the role an investment is to play within the organisation. Will it affect the competitive position or is it concerned with infrastructure and internal matters? Generally speaking investments that affect competitive positioning tend to be more urgent than infrastructure projects, and there may be good reasons for taking additional risks.
The third major variable is determined my managements’ attitude to technology investment. Where blame cultures are strong there will be less willingness to do something different, and investment may simply be driven by a desire to be seen to be doing the right thing through emulating peers. This is a very strong driver and should not be underestimated. Large suppliers in the IT industry know how to play this game very well with finely tuned presentation that appeal to the “safety in numbers” mentality.
The default dynamic within the IT industry is that most of its customers tend to do the same thing at the same time. Peer pressure and the novelty of the new tend to drive this kind of behaviour, which from an objective point of view is clearly irrational. Could it really have been the case that thousands of large corporations around the globe felt that they needed to implement a Customer Relationship Management (CRM) at the same time? We all know the outcome of this feeding frenzy that took place in the early part of the decade – failed and incomplete projects by the truck load. A consideration of timing might have saved an awful lot of time, effort and money.
A clear opportunity to gain competitive advantage is a solid reason to implement a new system as soon as possible. If the potential gain is large enough then early adoption may be appropriate. The same cannot be said of may infrastructure projects however. Enterprise Resource Planning (ERP) applications are primarily concerned with internal administrative and operational issues. Some ten years on, it is still not clear whether these applications have benefited the organisations that invested in them, and independent research to conform or deny this is sadly lacking. Even so, it would not be reasonable for management to assert that a large investment in ERP was urgent and would affect the competitive positioning of the organisation. Clearly it would have been in the interest of most organisations to wait and let others do the trail blazing – there was not a great deal to lose and possibly a great deal to gain.
When a new fashion hits the IT industry costs are usually high. Vendors can ask high prices for their technology, and with experience being scarce professionals of all types are generally expensive. If an organisation has the will to wait a year or two it will find the market awash with experience and skills that make its decision much easier, and less risky. It was pretty clear within two years that CRM investments tended to be problematical. Armed with this knowledge an organisation might decide to put its CRM investment on hold until the market had matured. By the time it did invest there would be a pool of experience that represented much better value for money than was the case during the early adopter phase.
Whether an IT investment affects the competitive position of an organisation cannot usually be reduced to a black or white answer. Those that score high in this respect tend to be on the edge of the organisation – customer or supplier facing, or providing some new level of capability. They can however be applications that promise new levels of efficacy, such as Business Intelligence (BI). Either way these technology investments are characterised by a real need to get to market.
Contrast this with infrastructure investments. These are usually large and long winded, with no specific functional requirement and no “must have it by” deadline. An organisation can afford to wait until the technology matures, costs less, and has fewer associated risks, and yet history would suggest that this does not happen. From the client/server era of the early nineties to CRM in the early part of this decade we see organisations rushing to get the latest and greatest technology on board – at any cost it would seem. At the time of writing Service Oriented Architectures (SOA) look like the next big thing, and we can expect to see organisations spending heavily during the early adopter phase of what is essentially an infrastructure issue. Why not wait and let others make the mistakes and train the consultants? What is to be gained by rushing head long into uncharted territory?
Most large organisations start life with adventurous, risk taking management and settle down with process focused management whose motto is “execution is everything” – it isn’t by the way. The focus moves from IT investments that support new capability and growth to those that streamline and integrate existing processes. In reality management need to be mindful of both types of investment and accept that each domain requires a different approach. If an investment is meant to make a difference then it had better be different. No point buying the same solution that ten thousand other similar organisations have deployed – where is the advantage in that? Where an investment simply represents a desire for greater efficiency then there is every reason to do as the ten thousand do – skills should be cheaper and risks lower.
The reality of management culture in most large organisations is that most decisions are coloured by a blame culture. As a result IT investments that need to make a difference end up doing what everyone else is doing. In an open and intelligent management environment it would be acknowledged that there was a time for taking risks and a time to do what everyone else was doing.
Perhaps the single largest driver of IT markets is the defensive “me too” attitude of many internal sponsors. With these dynamics in place there is absolutely no point even trying to make rational IT decisions.
We talk about “the organisation” as if it was some real entity. In reality what we have is a collection of people with their own personal agendas trying, as far as possible, to work for the collective good. Where IT is concerned the personal agenda is a very powerful force capable of determining the IT strategy of an organisation simply to enhance the résumés of a handful of managers. There is no doubt about it, having the right experience of a popular technology adds to personal marketability.
In many respects some of the large technology and applications vendors act as recruitment agencies – tracking down skills and placing them in a manner that benefits everyone other than the host organisations.
The problem with personal agendas is that they stifle the deployment of systems that should make a difference to an organisation. What self respecting IT professional wants to gain experience of a fringe technology? And so we see the feeding frenzies that accompany the creation of any new IT giant. Consultants and management adopting technology as early in the wave as possible to further their own ends.
In a rational world we would see new waves of technology adopted in a gradual manner, with most organisations choosing to let the trailblazers iron out all the problems. In reality we see a rush to adopt with high associated costs and risks. Where organisations should be pursuing a strategy to do something different (absolutely necessary if we want to be different), we see herd behaviour.
The problems that are often associated with IT investments (poor returns and high risks) will not go away until the problems outlined in this paper are addressed.
If you and your organisation are capable of a rational approach to IT deployment then here are three steps that will transform the returns and risks associated with your investments:
- Decide whether a project is largely infrastructure or for competitive gain. If it is the former pick the cheapest, safest option. If it is the latter do something different.
- When new technology and applications address infrastructure you can usually wait for others to make the mistakes, and learn from them.
- Investments that need to delver significant competitive advantage should be implemented as soon as possible using strategies that differ from the rest of the market.