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|In: Career Management|Last Updated:

IT management and business leadership often think differently about investing in the business. How about you?

Here’s an exercise worth doing for any IT leader:

Canvas your company’s top executives. The question: They have $1 million to allocate. They can invest it in revenue enhancement, cost reduction, or risk management — the three bottom-line metrics for any for-profit business. How much do they put in each category.

If you have an IT Steering Committee and its members aren’t the company’s top executives, ask its members, too.

Finally, ask your IT leadership team members the same question: If they were running the company, how would they invest?

Average the results for each group and graph them. They’ll probably look something like the figure.

What’s going on? In my experience, business executives tend to focus more of their attention on cost-reduction than anything else. That’s because it’s generally possible connect the results of a project that’s supposed to reduce costs to actual cost reductions.

Projects that are supposed to increase revenue? Unless it’s a direct marketing campaign, a website change tested through the use of software that presents the old view to one set of visitors and the new view to a different set, or a new product, it’s embarrassingly difficult to prove that any particular action a company takes results in more revenue.

Strange to say, investments in revenue are riskier than investments in cost reduction.

Entrepreneurs are different: They tend to emphasize revenue enhancement more than cost reduction.

And risk management? For both entrepreneurs and business executives, investments in risk management are beyond risky. Here’s why:

There are three ways to invest in risk management: Prevention (aka Avoidance), which reduces the odds of a bad thing happening; mitigation, which reduces the damage done by a bad thing that happens; and insurance, which spreads the cost if a bad thing happens.

If a bad thing doesn’t happen, there’s no way to know if it didn’t happen because of the company’s prevention efforts, because there was no risk in the first place, or the company was just lucky.

If a bad thing does happen, there’s no way to tell whether, without its risk mitigation efforts, the cost would have been higher or not.

It is true that if a bad thing happens then at least the company knows whether it insured for the right amount. But if a bad thing doesn’t happen then the money paid for insurance that year was wasted. Maybe the risk isn’t high enough to warrant the cost of the insurance.

Or maybe the company was just lucky this year. There’s no way to tell.

IT’s investment profile tends to be quite different. IT tends to get beat up all the time about What Technology Costs. More, since businesses first started to invest in computers the rationale has mostly been increased productivity — information technology is supposed to reduce costs. It’s no wonder IT management tends to focus heavily on cost reduction.

But even though we get beat up about What Technology Costs, that doesn’t hold a candle to the extent we’re beat up about when something bad happens to our technology. Whether our systems are hacked, a virus invades, or the systems are down for some other reason, we get beat up. And even if we don’t, we expect to get beaten up.

So IT management’s instinct is to invest in risk management more than in anything else.

That, coupled with what’s invested in cost reduction, doesn’t leave very much to help increase revenue.

Go through the exercise — make the numbers real. If your company’s business executives and IT management line up well, good for you. You’ve achieved “IT/business alignment” and are ready to take the next step: Business/IT integration, if you haven’t already.

If not, it would appear you have work to do.

One place to start: During each business planning cycle, suggest the strategic plan include investment targets for each of the three categories of investment: Revenue, cost, and risk.

You might even guide everyone involved through the exercise of listing the major ways to invest in each of them to get to a finer-grained level of investment planning.

However you approach this, your goal is to get everyone thinking about this subject the same way.

Because if you don’t succeed at this, it doesn’t matter what anyone said. The moment something bad happens … the moment a risk turns into a reality … all bets are off.

That’s when the blamestorming starts.

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|In: Business Ethics|Last Updated:

“Competition keeps SaaS profits artificially low.”

Authors don’t write their own headlines, so don’t blame Kevin Kwang. Someone at ZDNet stuck this in front of his perfectly reasonable analysis of why so many SaaS vendors aren’t profitable.

Memo to headline-person: You have it backward. Lack of competition keeps profits artificially high. Markets are supposed to have it; thin margins are supposed to result.

In fact, if Kwang is to be believed, the SaaS marketplace exemplifies all that’s good and right about capitalism: Instead of harvesting profits, SaaS vendors are plowing them back into their services to make them more attractive, so as to gain marketshare, so as to either: (1) survive the inevitable marketplace consolidation; or (2) be acquired by a larger, more diversified player, to become part of their product portfolio, to survive the inevitable marketplace consolidation.

We management consultants understand these things.

We management consultants understand many things. Including, it appears, things we don’t understand at all.

My friend Jeevan Sivasubramaniam, executive managing editor at Berrett-Koehler, sent me a reproachful little book titled I’m Sorry I Broke Your Company: When Management Consultants Are the Problem, Not the Solution (Karen Phelan, 2013). It reinforces the old joke that the 90 percent who are bad ruin it for the rest of us.

Which is too bad. Not that the old joke is wrong. It’s that when management consulting engagements go wrong, it’s usually because of an unspoken conspiracy between the consultants and the person who brought them in — a point the book makes well, but that’s likely to get lost by skimmers who read nothing but the title and a few chapter heads.

So here, in my own disorganized way, are three random thoughts on the subject. Ms. Phelan and I mostly agree on them; they are, in any event, my own:

Don’t bring in a consultant to read a script. I’ve had this sort of engagement, not that I knew it when the client asked us in. If you know the right answer, but need an outside voice to explain it to your boss, the board of directors, the IT steering committee or what-have-you, you have a bigger problem than the need for an outside voice to explain it.

You have a credibility problem, and no outside consultant will fix that. My advice: Hire an actor to read the script for you. Actors come a lot cheaper than management consultants and reading scripts convincingly is their job.

Then hire a leadership coach to help you figure out how to fix your credibility problem.

Don’t bring in a consultant who promises measurable improvements. A subtlety here: Measurable improvements are fine. That isn’t the problem.

The problem happens when the management consultant tells you which measure or measures will improve. “We’ll cut waste,” is terrific, so long as you brought in a consultant to cut waste. If what you need is to improve your ability to deliver customized results, though, it isn’t so terrific, especially as many of the “improvements” consultants make to cut waste eliminate the ability to deliver customized results.

Even that isn’t the worst that can happen. I’ve seen process consultants “improve” a process by “discovering the pain points,” making changes and then discovering which measures improved. Whichever ones they were, they’ve delivered on their promise, never mind that other measures their client cared about more got worse.

Measurable improvements? They’re just fine. But deciding what “improve” means is your job. So is insisting you be informed of the trade-offs … of which measures will get worse as part of the process … in advance.

Bringing in a consultant isn’t a sign of weakness: As a manager at any level, you aren’t supposed to be an expert in everything. Sometimes, what the organization needs isn’t where you have your expertise.

For example: Many managers are excellent at operations … at getting the work out the door every day, making quotas, maintaining quality, keeping employees motivated and so on. Many of these managers aren’t all that good at making change happen, because (1) that isn’t their day-to-day job, and (2) making change happen in an organization is complicated.

When what the organization needs isn’t something you’re all that good at, asking for help is a sign of strength.

And oh, by the way: Sometimes, the hardest part is recognizing a need that’s very important but is also outside your repertoire. That just might be the best reason to bring in a consultant — to help you when the problem is that you don’t know what you don’t know.

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