What's the difference? A monetary cost-reduction mentality focuses on just that - reducing costs. IT is a cost center. It's a business enabler. Period. This mentality has little awareness or concern for the value function presented by a given decision. On the other hand, a value optimization mentality focuses on optimizing the value function through careful consideration of trade-offs. Every decision presents trade-offs. While a cost-reducer looks at a decision and sees fluctuating costs that must be minimized, a value optimizer sees an outcome spectrum. The optimal outcome is the one where known trade-offs are considered and optimized. One trade-off is cost, but it's not the only one. In my experience, organizations focus on reducing the cost of IT.
Let's take an easy example that seems to come up frequently. One component of IT is employee computing assets. That may include things like smartphones, but most important is their computer(s). This is the primary mechanism through which employees add value to the organization. Different users tax their computers differently. One might run their email suite and spreadsheet app on a regular basis, while the other is running one or more development environments, supporting tools, and related automation. The machine that does the job for the serial emailer is not going to cut it for the software developer. One size does not fit all.
The cost-reducer either fails to recognize or does not care that one size does not fit all. He would also advocate infrequent machine upgrades because of cost. The value-optimizer sees trade-offs abound. Reducing the cost of computing equipment is critical for obvious reasons. Developer (and other power users') time is also a critical cost to the business. Developers are expensive, and their skills always in high demand. The machine that reduces costs leaves the developer twiddling her thumbs while routine tasks complete. Even a modest developer salary will quickly justify a better machine that minimizes thumb-twiddling time. Organizations that don't take this into account are throwing money away and hindering productivity.
A quick sign of an organization focused on cost-reduction rather than value-optimization is one where people and services are centralized. Centralization yields economies of scale, but (you guessed it!) has trade-offs. The primary trade-offs associated with centralization are flexibility, and speed. Mike Cottmeyer wrote this very short, great article called Reuse Creates Bottlenecks, on the topic. Centralization absolutely has its place, but when teams need to deliver, it creates bottlenecks. It creates dependencies that are outside the control of teams trying to deliver, and requires them to attempt to manage them. Outside dependency management can easily cripple a team focused on delivery. In Donald Reinertsen's book called The Principles of Product Development Flow, he succinctly describes the considerations for centralization versus decentralization. He makes several more, but here are two primary points:
I haven't had the chance to read this book yet, but I've talked with colleagues about The New Gold Standard by Joseph Michelli. The focus of the book is the Ritz-Carlton Hotel Company's approach to creating an amazing customer experience. My understanding is that employees are enabled to spend up to $2,000 to make any single guest satisfied with their stay. This is empowerment and decentralized decision making authority at it's best. Solve the problem the instant it's exposed.
Now, let's acknowledge that this is an extreme example. Different organizations are going to have different value functions. The Ritz-Carlton's differentiated market position is unparalleled luxury, quality, and customer experience. That position likely does not mesh well with most cost reduction efforts. They spend, a lot, for extraordinary quality. But I digress...
The Ritz-Carlton is doing what we strive to do as agile teams. As software developers we build quality in by writing tests that assert our expectations and make sure we pass those tests. Code complete features are tested as soon as possible, and if issues are found, they are fixed immediately. When a quality issue arises, nip it in the bud as quickly as possible. In our case, and in the case of the Ritz-Carlton, the optimized approach is achieved through empowered employees with decentralized decision making authority.
Organizations absolutely should consider shared service (i.e. centralized) approaches for infrequent, non-urgent problems. Often times I think of employee benefit services as ideal candidates - functions outside the business value chain. But for business functions and customer solutions, organizations must be structured to optimize the delivery of customer value. Organizations can't just look at the cost reduction because there are trade-offs present and one size does not fit all. Localized empowerment through decentralized decision making achieves the right fit for the problem at hand, and with agility.
Yes, decentralization creates inefficiencies, but often times those inefficiencies are optimal when compared to the bottlenecks of a centralized approach. Realizing this, we can make better decisions that result in better outcomes for organizations as a whole.
Let's take an easy example that seems to come up frequently. One component of IT is employee computing assets. That may include things like smartphones, but most important is their computer(s). This is the primary mechanism through which employees add value to the organization. Different users tax their computers differently. One might run their email suite and spreadsheet app on a regular basis, while the other is running one or more development environments, supporting tools, and related automation. The machine that does the job for the serial emailer is not going to cut it for the software developer. One size does not fit all.
The cost-reducer either fails to recognize or does not care that one size does not fit all. He would also advocate infrequent machine upgrades because of cost. The value-optimizer sees trade-offs abound. Reducing the cost of computing equipment is critical for obvious reasons. Developer (and other power users') time is also a critical cost to the business. Developers are expensive, and their skills always in high demand. The machine that reduces costs leaves the developer twiddling her thumbs while routine tasks complete. Even a modest developer salary will quickly justify a better machine that minimizes thumb-twiddling time. Organizations that don't take this into account are throwing money away and hindering productivity.
A quick sign of an organization focused on cost-reduction rather than value-optimization is one where people and services are centralized. Centralization yields economies of scale, but (you guessed it!) has trade-offs. The primary trade-offs associated with centralization are flexibility, and speed. Mike Cottmeyer wrote this very short, great article called Reuse Creates Bottlenecks, on the topic. Centralization absolutely has its place, but when teams need to deliver, it creates bottlenecks. It creates dependencies that are outside the control of teams trying to deliver, and requires them to attempt to manage them. Outside dependency management can easily cripple a team focused on delivery. In Donald Reinertsen's book called The Principles of Product Development Flow, he succinctly describes the considerations for centralization versus decentralization. He makes several more, but here are two primary points:
- "Decentralize control for problems and opportunities that age poorly."
- "Centralize control for problems that are infrequent, large, or that have significant economies of scale."
I haven't had the chance to read this book yet, but I've talked with colleagues about The New Gold Standard by Joseph Michelli. The focus of the book is the Ritz-Carlton Hotel Company's approach to creating an amazing customer experience. My understanding is that employees are enabled to spend up to $2,000 to make any single guest satisfied with their stay. This is empowerment and decentralized decision making authority at it's best. Solve the problem the instant it's exposed.
Now, let's acknowledge that this is an extreme example. Different organizations are going to have different value functions. The Ritz-Carlton's differentiated market position is unparalleled luxury, quality, and customer experience. That position likely does not mesh well with most cost reduction efforts. They spend, a lot, for extraordinary quality. But I digress...
The Ritz-Carlton is doing what we strive to do as agile teams. As software developers we build quality in by writing tests that assert our expectations and make sure we pass those tests. Code complete features are tested as soon as possible, and if issues are found, they are fixed immediately. When a quality issue arises, nip it in the bud as quickly as possible. In our case, and in the case of the Ritz-Carlton, the optimized approach is achieved through empowered employees with decentralized decision making authority.
Organizations absolutely should consider shared service (i.e. centralized) approaches for infrequent, non-urgent problems. Often times I think of employee benefit services as ideal candidates - functions outside the business value chain. But for business functions and customer solutions, organizations must be structured to optimize the delivery of customer value. Organizations can't just look at the cost reduction because there are trade-offs present and one size does not fit all. Localized empowerment through decentralized decision making achieves the right fit for the problem at hand, and with agility.
Yes, decentralization creates inefficiencies, but often times those inefficiencies are optimal when compared to the bottlenecks of a centralized approach. Realizing this, we can make better decisions that result in better outcomes for organizations as a whole.
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