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|In: Business Ethics|Last Updated:

Expertise leads to overreach. Some who have it think it qualifies them to hold opinions about other fields in which they have none.

There was Dr. Robert Shockley, co-inventor of the transistor, who thought his opinion about the relationship between IQ and race was worth listening to, entertainers who think their celebrity makes their opinions about foreign policy worthy of our time and attention, and, (this week’s topic) economists, too many of whom consider their thoughts about business management to be worth sharing.

The problem in four steps:

  1. Economists study the behavior of markets.
  2. To understand markets, economists make a simplifying assumption — that humans act to “maximize utility” — to optimize transactions for personal gain.
  3. Most economists, most of the time, use money as a proxy for utility (the economists’ term for “what people value”).
  4. They then force-fit a marketplace perspective onto every phenomenon in human interactions in order to prescribe how we all ought to go about our lives.

Step four is where the trouble starts. Here’s a non-business example: Most of us value friendship. And yet, creating a “friendship marketplace” doesn’t work — renting another person’s time and attention doesn’t make them your friend. (For more on this and related topics, read Michael Sandel’s “How Markets Crowd Out Morals,” Boston Review, May/June edition, and thanks to long-time correspondent Leo Heska for bringing it to our attention.)

When it comes to business …

Economic theory started to encroach on what we laughingly call “management science” during the Japanese invasion of the mid-1970s. That’s when Toyotas and Datsuns turned out to cost less and hold up better than anything GM,  Ford and Chrysler were selling, and buying televisions from Sony and Panasonic provided better value than RCA or Zenith.

Prior to that, business leaders understood that paychecks were what they exchanged for an employee’s effort — “An honest day’s work for an honest day’s pay” — but that they received an employee’s loyalty in exchange for a different coinage.

And so, employers redefined the employer/employee relationship as nothing more than a marketplace, and employee loyalty became a quaint hold-over of a simpler time. It wasn’t that employers didn’t want employee loyalty after that. It’s that they became blind to the coinage needed to get it, namely, their own loyalty toward their employees.

Who but an economist … someone who considers a giving a gift to be a less-efficient alternative to handing over an appropriately calculated wad of cash … could make a mistake like that?

It was at about the same time that boards of directors decided they had to bribe their CEOs to do their jobs, at an ever-increasing level of bribery (you’ll find charts and graphs in “Historical Trends in Executive Compensation, 1936-2005,” Carola Frydman and Raven E. Saks, January 18, 2007).

Is it actually bribery? That depends on your perspective.

Mine is that there really is an employment marketplace, which means that to fill any position, a company has to be willing to pay what the market will bear … or, must offer enough intangible benefits to compensate for the money they aren’t able to offer, remembering that money isn’t utility, it’s a proxy for utility.

Compensation is what companies provide in order to get the right people to work there instead of somewhere else. Using it to change someone’s behavior? That’s a bribe (“Something, such as money or a favor, offered or given to a person in a position of trust to influence that person’s views or conduct,” from The Free Dictionary).

Unless you’re an economist, in which case money is the sole driver of human behavior.

Then there’s the asset view of the enterprise. Prior to the takeover of management by economists, business managers figured they were responsible for running a successful business — one that out-competed other companies that sold similar goods and services.

But no longer. For the most part, business management now tries to maximize “shareholder value,” for which market capitalization is an appropriate metric. Business management became responsible for what a company can be sold for, not for what it does.

This would be just fine were it not for a nice little irony: The path to maximizing a company’s asset value is to ignore it.

The companies that are worth the most aren’t the ones that try to move the price of a share of stock in the right direction. They’re the ones where everyone focuses on selling great products and taking care of customers. That’s everyone. Including the IT staff.

Which means that as an IT leader, part of your job is helping everyone in IT connect the dots that separate their jobs from the company’s products and customers.

Not “internal customers.” The company’s customers.

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|In: Career Management|Last Updated:

A popular outsourcing rationalization has it that companies should “keep the core and outsource the rest.”

I call it rationalization rather than rationale because:

  • It solves nothing: Outsource something you don’t know how to manage and you still don’t know how to manage it, only now, you’re badly managing a company that wants as much of your money as it can get.
  • It suffers from recursion failure.

KJR has already covered the first two points—click on the links or buy yourself a copy of Outsourcing Debunked (Bob Lewis, 2011). But what’s recursion failure? Glad you asked.

Outsourcing is like anything else in business—to succeed, you have to be good at it.

But as anything that isn’t core must be outsourced, and as the notion that managing outsourcers might be a core competency is absurd, the only logical conclusion is that companies that outsource must outsource outsourcing management to an outsourcing management outsourcer.

To succeed at that, the company must be good at outsourcing outsourcing management. And so on, ad infinitum—recursion at its finest.

Okay, I wouldn’t want to try that logic on a business executive weighing the pros and cons of outsourcing, but it was fun, wasn’t it?

What isn’t fun: Why an increasing number of American business managers are receptive to the even-more absurd arguments in favor of IT outsourcing, both the traditional kind and its current commodity end-point, cloud computing.

Look, even those unenlightened IT shops that thought they had internal customers usually involved themselves in the business processes and practices they were helping improve through automation to some extent. Few business analysts strictly limited their conversations to “what do you want the software to do?”

IT outsourcers, in contrast, deliver software that fulfills requirements and meets specifications. If they do that, all is good with the world, whether or not the software does anything useful.

Deep down inside, every business executive who ever endorsed an IT outsource understood this difference, and yet it didn’t matter. They considered overseeing IT to be an aggravation, and so they willingly “kept the core and outsourced the rest.”

Now we have the cloud, and software as a service (SaaS). The “new” question is, “Why should we spend lots of time with IT on a CRM implementation when we can call Salesforce and be up and running the next day?”

What’s sad is that they know the answer to this seemingly rhetorical question: If they do this they’ll be up and running with what we used to call, in more enlightened times, an island of automation.

Multiple islands, really — as many as they have sales representatives configuring Salesforce as they prefer. Add to that a database that’s completely unusable for reporting and analytics, as each sales rep stashes the data they want in whatever data fields appear convenient for that purpose.

Heck, IT could do that in a day, too, if it was amateurish enough to be satisfied with an implementation that banal. It could buy Act! licenses for a fraction of what SalesForce would cost, too, installing the software on individual sales rep laptops with no attempt to integrate them.

Nothing to it.

We in IT have failed in at least three respects, and we’d better fix all three soon, or we won’t be around to say “I told you so.”

The first is that we thought business executives long-ago absorbed the islands-of-automation argument, so we stopped making it. They had absorbed it, but ideas have a half-life, and because we stopped repeating it, this idea long ago lost its potency.

The second is that we argue rather than discuss. Faced with a sales executive who is thinking about Salesforce, too many CIOs say, “You can’t do that. Here’s why …” instead of, “We can do that … in at least three different ways, depending on what you want to accomplish and how much you’re willing to invest to get it.”

Then there’s the third — failing to focus everyone in IT, from the CIO on down to every help desk analyst—on the importance of managing relationships throughout the company. Without this, nobody will give the CIO or anyone else the time to have these discussions, or the patience to listen to the to-them complex engineering issues we need them to engage in.

So of course they outsource, and go to the cloud without involving us.

We’ve given them no reason not to.

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