It looks like nothing was found at this location. Maybe try a search or browse one of our posts below.

“Markets don’t fail. They always allocate goods and services perfectly,” a correspondent explained in response to last week’s column about market failure and how its sources might apply to IT shops that act as independent businesses selling to “internal customers.”

My correspondent’s position was, however, unassailable: Markets do always allocate goods and services perfectly, so long as your definition of “perfect” is “whatever allocations the marketplace delivers.”

With non-circular definitions, though, market failures are very real. Take my favorite example, covered in this space almost a decade ago:

The Dollar Auction

I auction off a dollar. There’s just one change to the usual high-bidder wins auction rules: The runner-up has to pay me his last bid too. So if the winning bid is a nickel and the runner up stopped at 4 cents, the winner would net 95 cents, I’d get 5+4=9 cents, and the runner up would be out 4 cents.

Except the runner up wouldn’t stop. He’d certainly bid 6 cents instead of losing the auction. And so on, and so on, until the high bid is a buck and the next highest is 99 cents. The second highest bidder now has to either bid $1.01 for my dollar — losing a penny on the deal — or stop, losing 99 cents. As losing a penny is better than losing 99 cents, there’s no end to the escalation.

Which, as I wrote in 2007, looks a lot like a politically high-stakes project that’s going off the rails. The sponsor can either throw good money after bad or cut her losses. But as each click of the throw-more-money-at-it ratchet looks to have a better ROI than losing everything invested thus far, and also avoids the political embarrassment of backing a loser, the train wreck continues into the indefinite future.

Customer Incongruence

The term “customer” involves three very different roles: Decision-maker (true customer), consumer, and wallet. When the same person fills all three roles, call it customer congruence, and market forces do what they’re supposed to do.

Customer incongruence (my term) happens when different people occupy the different customer roles, as when the family goes to McDonald’s for a Happy Meal. Be honest. It’s the kids who made the buying decision. Consumers? That’s the whole family. Mom or Dad are merely the wallet.

Healthcare provides another example of customer incongruence. The patient is the consumer, the insurance company is the wallet once co-pays and deductibles have been left behind. But who makes the buying decisions for your health care? For most of us it’s our doctor, who tells us what drugs to take and what surgeries to undergo.

That’s right: The seller of healthcare services holds the most important customer role: decision-maker. Which often leads to such inconveniences as buying a very expensive pharmaceutical solution when a relatively inexpensive alternative would be just as efficacious.

Which is not to suggest we should all prescribe our own treatments. Even with WebMD, few of us know enough. So while neither physicians nor IBM’s Watson are perfect diagnosticians, the alternative — self-diagnosing and self-prescribing patients — would result in a lot of unnecessarily dead people.

It’s a customer incongruity, which explains, at least in part, why the U.S. healthcare system is such a mess.

But IT organizations that act as a sellers to internal customers create customer incongruities that are just as challenging. The parallel with healthcare providers is, I hope, clear: Business executives and managers know where it hurts, but selecting or building IT solutions is complex enough to require professionals who know the field. They have the needed expertise.

As a result, to a very real extent, the IT organization acts as both seller and buyer of the company’s portfolio of information technologies.

The [partial] solution involves both formal governance and informal relationship management: Governance in the form of an IT Steering Committee or the equivalent — business managers who acquire enough expertise to oversee decisions about the company’s IT investments; relationship management in the form of the same trust-building you engage in with your doctor (and vice versa), and for the same reasons.

The better, admittedly partial solution is to not consider the rest of the business to be IT’s customer in the first place. It doesn’t do much for dollar-auction situations — what’s needed there is an executive culture that makes risk-taking safer by accepting that risk means some efforts must fail to pan out.

But customer incongruities go away when IT has no customers — when IT and everyone in the business collaborate to figure out and implement desired business changes.

I don’t know if it’s good economic theory. My experience, though, tells me it works quite well.

According to Yoda, “Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.”

While the road to the dark side of customer relationship management (CRM) — dubbed “customer elimination management” (CEM) by a different Lewis — follows a different path, it also leads to suffering. As evidence:

My broadband service works great, but I’ve been traveling, which means I need dial-up capability. No problem: My ISP has a mobile access option, which I duly set up according to the instructions. Just one glitch: I can receive mail, but can’t send it.

That was over a month ago. Through endless hours with this CEM practitioner’s on-line chat and telephone-based technical support I’ve learned that:

  • The two help channels use different problem management systems and have no access to each others’ records.
  • Level Three support, also known as “Network Operations,” isn’t allowed to talk directly to customers. That’s their policy, and it’s unbreakable.
  • For that matter, Level Three support can’t talk directly to Level Two, either. The telephone system has been carefully engineered to prevent it, even though the two groups work in the same building.

I’ve extracted some lessons for establishing a successful CEM practice in your own organization:

1. Make sure organizational boundaries are high. Use technology and your accounting system to reinforce them. In the case of my service provider they’ve gone the extra mile: While the parent company owns an excellent dial-up ISP with the same core brand, broadband is a different division, so it set up its own dial-up service rather than piggyback on one that works exceptionally well.

2. Institute bad metrics. From my various conversations it’s clear this company only measures the number of problems resolved. This ensures an unrelenting focus on dealing with the easy ones. Letting a few tough ones go for a month or three won’t affect the performance reports.

3. The more policies the better, and make sure every employee knows they’re all that matter. Since my first article on CEM I’ve received an avalanche of CEM stories, and most included at least one episode of “That’s our policy.” A thick policy manual and CEM go together like toast and jam.

If you’re wondering, I tried to offer my provider a chance to respond. Unfortunately, the company keeps its media relations group well-hidden, as carefully sequestered as its Level Three support engineers.

Hey, do you think it’s the same guy?

Consultants are attracted to Mission Statements the way flames attract moths. They always seem like such a good idea … until you get started. Almost inevitably, the roomful of people deteriorates into a squabbling mass. Some are fighting to make sure what they do is included; all argue passionately about the placement of commas and whether “happy” or “glad” is the more appropriate adjective.

I proposed a solution a long time ago (“Mission statements: Their cause and cure,” January 29, 1996) and updated it in Leading IT: The Toughest Job in the World. (Short version: Focus on concepts, not phrasing; make sure each concept is viewed as an alternative, not an embellishment; and insist that each concept describes ends, not means.)

It’s time to wrap up our discussion of organizational optimization. It began with a proposition from the KJR Manifesto: That to optimize the whole you have to sub-optimize the parts. Then we figured out that “optimize” has to be with respect to only one system variable. And last week we found that for real-world businesses, optimization is really a chimera anyway because there’s no practical way to understand a business and its markets well enough to figure out what “optimum” even means.

What business managers need to do, it turns out, is to set their sights a bit lower — to improve. Since “form follows function,” is the touchstone of organizational design, just as it is for any other design discipline, if you want to know what constitutes improvement you have to know what you’re trying to accomplish. That means understanding the enterprise’s mission, vision and strategy. Then you can craft your own organization’s mission, vision and strategy so they further those of the enterprise.

This is why consultants facilitate Mission Statement drafting sessions. It isn’t because we find Mission Statements … and Vision Statements, and strategies … appealing because we lack better ideas for padding our contracts (well, okay, some consultants do that, but at IT Catalysts we would never stoop that low — it would hurt our lumbar vertebrae). It’s because clients hire us to help them improve organizational performance, and we can’t until we know in which direction “improve” lies. (Just to make sure we’re on the same page: Mission is about the present — what you’re supposed to do. Vision and strategy are about the future: Where you’re going and how you’re going to get there.)

Were it not for the future, this wouldn’t be all that difficult. With clarity about what you’re trying to support and how you’re supposed to support it, you can be pretty clear about what you need to improve so you support it better.

But you can’t ignore the future. Businesses have strategies, strategies are about change, and that makes things messy. You and all the other parts of the whole have to figure out how to change in ways that are sufficiently well orchestrated that the business doesn’t tear itself apart, but not so carefully orchestrated that it loses all elasticity. You also have to figure out how to allocate your budget and staff so you don’t stop supporting the present, but also don’t support the present at the expense of the future. There is no magic formula. There is, however, Guideline #2 from the KJR Manifesto: Big solutions that work great generally start as small solutions that work acceptably.

Strategies start with a design and a plan. The successful ones start with an additional item: Recognition that the design, the plan, or both might be flawed.

That being the case, the plan should, if at all possible, be organized into small steps, not giant leaps. Each small step is defined in terms of improvement to one or more parts of the enterprise. Following each small step you reconnoiter, to make sure the design, plan, and company are all holding together.

To illustrate the point, imagine you and a friend decide to attend a Halloween party in one of those two-person horse costumes. Now imagine that the first thing you and your friend try to do is gallop around a path with a lot of twists and turns.

You might make it. More likely, one of you will zig while the other zags, tearing the costume apart. If that happens, both of you will be at fault, for trying to go too far too fast.

But while you both might be responsible for the problem, only one of you will end up looking like the back end of a horse.