Posts Tagged ‘B2B’
The Real Cost of One Trillion Dollars in IT Debt: Part I – Value Generation and Recapture
In a recent research note and a corresponding press release, Gartner’s Andrew Kyte assessed the current level of world-wide IT Debt [1] at about $500 billion. Andrew actually considers $500 billion a conservative estimate, expecting it to grow to $1 trillion by 2015. As was pointed out by David Nagel, $1 trillion is more than four times total worldwide enterprise software expenditures this year.
I am publishing two posts in order to put these staggering figures in perspective. This post primarily addresses the business design ramifications of the numbers quoted above. A follow-on post in the coming week will explore the dire repercussions of disregarding the proven practice “an ounce of prevention is worth a pound of cure.” It will also offer an explanation rooted in our business context why this tried and true wisdom has so often been disregarded over the past decade.
The first thing to point out about the Kyte/Gartner figures is that these figures are the cost of fixing, not the value that could be lost due to the myriad malfunctions that a $1 trillion worth of software quality deficits can cause. It is like the loss incurred through fixing the truck in Figure 1 below. The cost of fixing might be $10,000. The corresponding loss of value due to the time it took to carry out the fixing of the truck is vividly captured in the quip written on the back of the sleeper: “Day late $100,000 short.”
Figure 1: “Day late $100,000 short”
Source: http://www.flickr.com/photos/bachir/489090063/
If you accept this premise, one real risk of a high level of IT debt is the deterioration of services provided through the software. An even bigger risk, however, is obsolescence of business designs due to the software systems decaying to the point that adding critical services is next to impossible. For example, consider the following B2B eCommerce services for retailers (taken from an unrelated exchange I recently had with my friend Erik Huddleston):
- Vendor drop ship
- Catalog/data sync
- Vendor management
- Compliance
It is unlikely a 10-year-old eCommerce software system whose upkeep was neglected for the past decade would have enough changeability left in it to enable providing such services. Lacking these services, the business is likely to revert to outdated designs for generating and recapturing value.
The B2B eCommerce situation discussed above is not really different from the classical dynamics of regression in the development of a child. It is, of course, poignant when a child suffers during one phase or another in his/her development. The bigger poignancy, however, is that the struggling child gets stuck. He/she is unable to move on to the next developmental phase(s). Other children surpass him/her.
What it means in less metaphorical terms is that an incumbent with a significant IT debt might fall behind new entrants who are not (yet?) saddled with such debt. The new entrants can utilize the flexibility of their software to satisfy customer needs in ways that the incumbent’s legacy software will be hard pressed to meet. Moreover, the new entrants can modify their software in response to actual customer feedback in a much faster manner than the ‘neglectful incumbent’ can.
As an incumbent, you need to really start worrying about your IT debt if you accept the inevitability of the transformation driven by the confluence of Cloud, Mobile and Social (see Consumerization of Enterprise Software). No matter what industry you are in, the versatility, modularity, flexibility and mobility of the forthcoming consumerized enterprise software apply to every aspect of your business design. The IT debt you did not ‘pay back’ stands in the way of modernizing your business design.
Footnotes:
[1] Kyte/Gartner define IT Debt as “the costs for bringing all the elements [i.e. business applications] in the [IT] portfolio up to a reasonable standard of engineering integrity, or replace them.” In essence, IT Debt differs from the definition of Technical Debt used in The Agile Executive in that it accounts for the possible costs associated with replacing an application. For example, the technical debt calculated through doing code analysis on a certain application might amount to $500K. In contrast, the cost of replacement might be $250K, $1M or some other figure that is not necessarily related to intrinsic quality defects in the current code base.
The Agile Flywheel
Readers of The Agile Executive have been exposed to the “All In!” strategy used by Erik Huddleston to transform the software engineering process at Inovis and make it uniquely streamlined. In this post we follow up on the original discussion of the subject to explore the effect of Agile on IT Operations. As the title implies, Agile at Inovis served as a flywheel which created the momentum required to transform IT Operations and blend the best of Agile with the best of ITIL.
This guest post was written by Ray Riescher – a Six Sigma Black Belt, Agile evangelist and a business process change agent. Ray is currently responsible for business process management and IT governance at Inovis, a leading provider of business-to-business (B2B) e-commerce services, in Alpharetta, GA
Here is Ray:
When we converted to an Agile Scrum software methodology some 24 months ago, I never imagined the lessons I’d learn and the organizational change that would be driven by the adoption of Scrum.
I’ve lived by the philosophy that managing a business is managing its processes and that all of those processes, especially the operational processes, are interconnected. However, I don’t think I was fully prepared for effect Agile Scrum would have on our company operations.
We dove head first into Agile Scrum and adapted to it very quickly. However, it wasn’t until we landed a very large and demanding customer that Scrum was really put to the test. New enhancements, new features, and new configurations were all needed ASAP. Scrum delivered with rapid development and deployment in the form of releases that were moving into production with amazing velocity. Our release cadence hit warp drive and at one point we experienced several months where multiple teams’ production releases were deploying at the end of every two week sprint.
We’ve subscribed to the ITIL service support processes for Release, Change, Incident, Problem and Configuration Management. ITIL has served us well, giving us a common language and a clear understanding of process boundaries.
As the Scrum release cadence kicked in, the downstream ITIL processes had to keep up, adapt, and support the dynamics of rapid production changes. What happened was enlightening and maybe a bit ground breaking.
The Release Management process had to reassess its reliance on artifacts for gate keeping. The levels of sign offs had to be streamlined, the heavyweight deployment documentation had to be lightened, yet the process still had to control the production release to ensure deployment success. The rapidity of the release cycles meant that maintenance window downtime would be experienced too frequently by customers, so “rolling bounce” deployment strategies were devised and implemented.
Change requests could no longer wait for a weekly Change Management review board to approve and schedule the changes. Change management risk models had to be relied on for accurate detection of risky changes.
Early on in this dynamic environment, we weren’t quite as good as we needed to be and our Incident Management process was put to the test. Faster releases meant more opportunity for problems with service degradation and outages. This reality manifested itself more frequently than we’d ever experienced. Monitoring, detecting and repairing became paramount for environment stability and customer satisfaction.
What we found out was that we became very agile at this break/fix game. We developed a small team approach to managing incidents and leveraged the ITIL Problem Management process to rapidly perform root cause analysis. Once the true root cause was determined, a fix would be defined and deployed. Sometimes the fix was software related and went through the Scrum process, sometimes the fix was hardware related and went through the Configuration Management process, other times it was more operational and the fix took the form of training or corrections to procedural documentation.
The point is we’ve become agile across the entire IT spectrum. Whether it’s development via Scrum, the velocity with which we now operate our ITIL processes, or the integrated break/fix operational support processes, we are performing all of these with an agile mindset and discipline. We have small teams, working on priorities, and completing what needs to be completed now.
Scrum set the flywheel in motion and caused the rest of the IT process life cycle to respond. ITIL’s processes still form the solid core of service support and we’ve improved the processes’ capability to handle intense work velocity. The organization adapted by developing unprecedented speed in the ability to deliver production fixes and to solve root cause problems with agility.
What I think we are witnessing is a manifestation of Agile Business Service Management; a holistic agile methodology running across the IT process spectrum that’s delivering eye popping change and tremendous results.
The Agile Executive 