All Posts in Leadership

|In: Leadership|Last Updated:

Culture is the new IT governance.

No. It isn’t. Not yet. Culture should be the new IT governance.

The IT Governance Institute’s definition of IT governance is as good as any: “… leadership, organizational structures and processes to ensure that the organization’s information technology sustains and extends the organization’s strategies and objectives.”

Nothing wrong with the concept. IT’s priorities should be driven by business considerations. Setting them through the consensus of its stakeholders seems sensible.

It is sensible. Where IT governance goes sideways is where oversight usually goes sideways: A failure to understand that Homo sapiens has two subspecies: Steven Spielberg and Jeffrey Lyons. Either you helped make the movie or you’re a critic.

In most companies, most of the time, the IT Steering Committee is Jeffrey Lyons. It doesn’t really exist to set IT’s priorities. It exists to review, critique, and for the most part reject suggestions as to what IT’s priorities might be.

The IT Steering Committee, that is, isn’t a strategy-setting team that collaborates to decide how the company can best take advantage of what IT has to offer. Instead it’s become a group of critics, who see their job as ensuring IT doesn’t go off and waste precious company resources on pointless technological extravagances.

In case the problem still isn’t clear, too often, the IT Steering Committee’s mission isn’t to help put good ideas into practice. It’s to prevent bad ideas from becoming bad practice. The result: It makes sure the business never tries anything except the safest ideas.

Which is one reason, and a very important one, that shadow IT is on the rise: Departments commissioning their own information technology don’t have to jump through any of the IT Steering Committee’s flaming hoops.

There’s another, related reason: The company has to be careful how it allocates its “scarce IT resources” so they provide the maximum return.

This sounds convincing, until you ask why IT resources are so scarce. Usually, they’re scarce for one of two reasons, or both.

The first has been pointed out in this space several times before: Companies try to cut costs by trimming the IT budget, not realizing this is like trying to cool a room by blowing cold air at the thermostat. The more cold air you blow, the more everyone swelters.

The second reason is a terrible trend: IT’s resources are scarce because of the fondness boards of directors and top-level business executives have for financial engineering.

Here’s the math: In its most recent year the Fortune 500 will have earned an aggregate $945 billion in earnings. But as reported by Bloomberg last fall, they’ll “invest” 95% of it in stock buy-backs, leaving only $47 billion for all forms of reinvesting to achieve competitive advantage. All new IT spending has to come out of that residue.

If IT resources are scarce, it’s an artificial and deliberate scarcity. Rather than fight for these artificially scarce resources, business managers at all levels are increasingly walking away from the struggle, instead rolling their own IT through a combination of SaaS solutions and cloud-hosted custom systems written by outside developers.

As pointed out last week, this avoidance of formal IT oversight results in three very real risks: Re-keying of data that should automatically flow through IT’s integration mechanisms; exposure of sensitive corporate data to outsiders who have no business seeing it; and failure to adhere to the company’s painstakingly arrived at set of official data definitions, which will, in turn, make both re-keying and automated integration problematic.

Which in turn leaves only three possible solutions. The first is to live with the problems — probably not a good idea, as they are preventable without all that much additional effort.

The second is to apply existing enforcement mechanisms to shadow IT. They’ll work, but they’ll slow down something whose principle virtue is that it speeds things up.

That leaves the best alternative: Culture. Members of cultures enforcement them through social coercion, greatly reducing the need for official sanctions. It’s efficient, because everyone in the company internalizes its culture without any formal training. Employees know the rules.

The downside: Establishing and maintaining the desired culture is hard work — not hard the way nuclear physics is hard, but hard the way laying cinder block is hard.

But it’s worth it. The right culture delivers the right results without the heavy hand of enforcement, letting leaders apply a much lighter touch.

Comments

|In: Business Ethics|Last Updated:

Target Corporation just laid off 1,700 of the 10,000 employees working at its Minneapolis headquarters, with more layoffs likely to come.

The buzz here in the Twin Cities is that Target headquarters was what you’d expect of a corporate headquarters — too many managers, too few of whom contributed tangible value, resulting in excessive overhead and a culture of complacency.

In principle, a company that’s become bloated, sluggish and complacent in an industry as vicious as discount retailing does have to do something drastic. Also, good for Target for laying off headquarters staff instead of starving its stores of employees and merchandise.

And, while pointing this out isn’t particularly kind, many large enterprises do accumulate employees who mostly “hide behind the herd.” They look just like productive employees except for not actually producing very much.

Sometimes layoffs provide a smokescreen for clearing out the herd-hiders. If that was part of Target’s motivation for its layoffs we’ll never know.

What Brian Cornell, Target’s CEO, and the company’s other top executives say is that this move and related steps should result in a $2 billion reduction in operating costs that would make Target leaner and more agile in an effort to better compete with Walmart and Amazon.

To give you a sense of scale, Target’s capital budget last year — a decent proxy for what it invests in itself — was $1.8 billion. $2 billion isn’t chump change. It provides much-needed funds for Target to invest in increased competitiveness and profitable growth.

How will Target invest it?

Discount retailing lives and dies on competitive pricing. Target sells about $73 billion in merchandise each year. So … let’s see … carry the 1 … its savings could finance a 3% across-the-board reduction in prices or a much bigger reduction if Target targeted (sorry) specific product lines, channels, or geographies.

Or, the $2 billion could finance Target’s planned expansion of its grocery business. This is hardly a blue ocean strategy … there’s nothing novel or particularly interesting about Target’s grocery section. And supermarketry has notoriously high competition and poor margins besides (2% is common). But it would at least be a strategy into which the company is investing.

Instead …

As the StarTribune’s headline explained without a hint of irony, “Inside Target’s growth plan, buybacks play a strong role.” How strong? Over the next five years, Target plans to buy back $14 billion worth of its stock — $1.5 billion next year, $2 billion per year for the following four years.

Target will save $2 billion per year and spend every cent of it buying back its own stock, leaving nothing at all … nothing … to increase its investment in profitable growth.

It’s financial engineering at its finest.

How can you benefit from these insights?

Put yourself in a Target manager’s place. Your company is planning a round of layoffs, and you’re told what your department’s share of the pain is going to be. Four suggestions:

  • Be discreet. As a manager you aren’t a free agent. Quite the opposite, you’re acting as your employer agent. So long as you accept your paycheck, your job is to carry out your employer’s plans, so long as those plans are legal. Disagree vehemently? Keep it to yourself.
  • Do lay off your worst performers. You probably have an employee or three on your teams who you’ve kept because they’re nice people, not because they contribute all that much. You no longer have that luxury.

Yes, it’s a shame. Nice people deserve to make a living. But for reasons I hope are obvious, the workplace has to be a meritocracy, not a … nicetocracy?

  • Don’t wait to tell them. Your nice employees deserved to understand, long before the layoff planning started, that first and foremost they had to be strong contributors and if they couldn’t be strong contributors in their current roles, it was up to them to find some other role in which they could be strong contributors. They’re nice people. You’re a nice person. Telling these nice people they aren’t succeeding in their current roles and need to do something to fix this might be an uncomfortable conversation, but it’s the nice thing to do.

So do it.

  • Plan your own departure. While there are exceptions, companies whose primary strategy is financial engineering usually continue to shrink. When you find out yours is one of them it’s a great time to start exploring your own alternatives.

Because failure is contagious. You can catch it from your employer.

Comments