All Posts by Bob Lewis

|In: Architecture|Last Updated:

“I like TCO — Total Cost of Ownership. I feel like it’s a much more accurate economic model of price. Granted, it’s just price, not usefulness, but as long as you know that, then it’s a highly useful metric, much better than manufacturer’s suggested retail price.”

So said Mike M in a comment he posted to a recent KJR, which took some courage given how often I ridicule … uh … critique TCO in this space.

Credit where it’s due, he’s quite correct. TCO is a more accurate measure of spending than MSRP. That doesn’t fix any of TCO’s intrinsic flaws. Quite the opposite, it puts a spotlight on a flaw I ignored in my last missive on the subject: From a 7 C’s perspective, neither MSRP nor TCO are Connected to any important goal.

Wait, wait, wait, wait, wait! I can hear you shouting at your screen. Yes, reducing costs can be painful. It’s still an important goal in most or all businesses, isn’t it?

Well … no, or at least it shouldn’t be.

Increasing value is an important goal. Cost-cutting can be a useful way to increase value, but, as I’ve pointed out enough times to make your eyeballs roll, only when the organization can cut costs without a commensurate reduction in benefits.

As I haven’t pointed out enough times (yet) to make your eyeballs roll, reducing TCO can drive a short-term perspective that can, over time, prove calamitous.

For example …

I have, over the years, run into a handful of companies that (I’m not making this up) wrote their own development languages, transaction processing handlers, and file management software. In some cases these companies used their proprietary platforms to write proprietary applications that underpinned their go-to-market services.

No question — they reduced TCO quite a lot compared to competitors that had to license COBOL, CICS, and VSAM from IBM, not to mention licensing applications instead of relying on their home-grown ones. They passed this reduction along to their clients in the form of lower prices that helped them win and retain business.

What’s not to like?

Let’s start with staffing. Someone has to maintain these proprietary platforms. The folks who wrote them decades ago either have retired or will retire soon. Recruiting programmers qualified to and interested in taking on this sort of work is, in this day and age, pretty close to impossible.

But if you can’t recruit, why not just freeze the platforms in place? They all work, after all.

But that assumes the next IBM mainframe they buy, with any operating system that’s available and maintained by IBM, will run proprietary platforms written before IBM re-named MVS to Z/OS.

So … never mind all that. Nothing lasts forever. It’s time to convert the application to a more modern platform.

A fine idea, made even better by the only other alternative that would work being shuttering the business.

One problem with the conversion strategy is that decades of enhancements made to applications that are directly visible to customers either mean a lot of time and effort adapting a commercial package to service contractual obligations; or else committing the very large investment of capital and effort that would be needed to rewrite the application on a modern platform.

One more challenge: As mentioned, companies like these won and retained business by offering more attractive pricing than their competitors, made possible by avoiding the costs of licensing COTS applications and commercially available development and operating platforms.

No matter what these companies convert the applications to, they’ll be paying non-trivial license fees they’ll have to pass along to their customers in the form of higher prices.

They are, to turn a phrase, borrowing from the future.

Businesses borrow all the time. When it’s money, your average banker will work with companies to restructure debt to improve the odds of being repaid. The future isn’t like that. When the time comes, it demands repayment, often at usurious interest rates, and with mafia-like collection practices.

No argument — this week’s example of TCO reduction gone wild is extreme, and by now increasingly uncommon.

But while your IT shop probably doesn’t rely on proprietary platforms, other forms of technical debt — the term we use in IT for borrowing from the future — are distressingly common just as funding to repay them is distressingly uncommon.

Even TCO’s strongest advocates will agree that accurately calculating it ranges from difficult to Full Employment for Accountants.

But compared to the challenge of accurately measuring and reporting technical debt, TCO calculations look easy. Perhaps that’s why you never see technical debt and other forms of future-debt on company balance sheets.

Or maybe it’s just because reporting future-debt isn’t required, and would make the books look worse than ignoring it.

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|In: Cognitive Enterprise|Last Updated:

Pop quiz!

Question #1: In the past 20 years, the proportion of the world population living in extreme poverty has (A) almost doubled; (B) Remained more or less the same; (C) almost halved.

Question #2: Worldwide, 30-year-old men have spent 10 years in school. How many years have women of the same age spent in school? (A) 9 years; (B) 6 years; (C) 3 years.

The correct answers are C and A. If you got them wrong, you have a lot of company. Across a wide variety of groups worldwide, faced with these and many more questions with factual answers, people do far worse than they would by choosing responses at random.

Which brings us to the next addition to your KJR bookshelf: Factfulness: Ten Reasons We’re Wrong About the World — and Why Things are Better Than You Think (Hans Rosling with Ola Rosling and Anna Rosling Rönnlund, Flatiron Books 2018). Unlike books that rely on cognitive science to explain why we’re all so illogical so often, Rosling focuses on the how of it. Factfulness is about the mistakes we make when data are available to guide us but, for one reason or another, we don’t consult it to form our opinions. Viewed through this lens, it appears we’re all prone to these ten bad mental habits:

  1. Gaps: We expect to find chasms separating one group from another. Most of the time the data show a continuum. Our category boundaries are arbitrary.
  2. Negativity: We expect news, and especially trends, to be bad.
  3. Extrapolation: We expect trend lines to be straight. Most real-world trends are S-shaped, asymptotic, or exponential.
  4. Fear: What we’re afraid of and what the most important risks actually are often don’t line up.
  5. Size: We often fall for numbers that seem alarmingly big or small, but for which we’re given no scale. Especially, we fall for quantities that are better expressed as ratios.
  6. Generalization: We often use categories to inappropriately lump unlike things together and fail to lump like things together. Likewise we use them to imagine an anecdote or individual is representative of a category we more or less arbitrarily assign them to when it’s just as reasonable to consider them to be members of an entirely different group.
  7. Destiny: It’s easy to think people are in the circumstances they’re in because it’s inevitable. In KJR-land we’ve called this the Assumption of the Present.
  8. Single Perspective: Beware the hammer and nail error, although right-thinking KJR members know the correct formulation is “If all you have are thumbs, every hammer looks like a problem.” Roslund’s advice: Make sure you have a toolbox, not just one tool.
  9. Blame: For most people, most of the time, assigning it is our favorite form of root-cause analysis.
  10. Urgency: The sales rep’s favorite. In most situations we have time to think, if we’d only have the presence of mind to use it. While analysis paralysis can certainly be deadly, mistaking reasonable due diligence for analysis paralysis is at least as problematic.

The book certainly isn’t perfect. There were times that, adopting my Mr. Yeahbut persona, I wanted to strangle the author, or at least have the opportunity for a heated argument. Example:

Question #3: In 1996, tigers, giant pandas, and black rhinos were all listed as endangered. How many of these three species are more critically endangered today? (A) Two of them; (B) One of them; (C) None of them.

The answer is C — none are more critically endangered, which might lead an unwary reader to conclude we’re making progress on mass species extinction. It made me wonder why Roslund chose these three species and not, say, Hawksbill sea turtles, Sumatran orangutans, and African elephants, all of which are more endangered than they were twenty years ago.

Yeahbut, this seems like a deliberate generalization error to me, especially as, in contrast to the book’s many data-supported trends, it provides no species loss trend analysis.

But enough griping. Factfulness is worth reading just because it’s interesting, and surprisingly engaging given how hard it is to write about statistical trends without a soporific result.

It’s also illustrates well why big data, analytics, and business intelligence matter, providing cautionary tales of the mistakes we make when we don’t rely on data to inform our opinions.

I’ll finish with a Factfulness suggestion that would substantially improve our world, if only everyone would adopt it: In the absence of data it’s downright relaxing to not form, let alone express, strongly held opinions.

Not having to listen to them? Even more relaxing.

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