On a plane flying back from Boston (Mass.), eaten second breakfast of the day, watched a bit of "Where the Wild Things Are", annoying, fractious kid who needs therapy (or a sharp slap) and a bunch of needy, fractious rather dopey creatures, disappointed, switched it off, didn't even care to see if he was reconciled with his poor benighted mother, bored, listening to Muse, need a coffee, some battery life in laptop, here goes...
Recently, I was working with a colleague who exclaimed "You've got to be a professor to understand that page" when looking at a consulting 2x2. Indeed there are some great pages in the world that capture some key thoughts or concepts so concisely that they can be expressed just on one page, but need a voice-over to talk through the layers of meaning embedded, maybe like one of those pointillist paintings or a fractal montages that is made up of pictures that are made up of pictures...(but perhaps not a Dali-esque or Picassoid other world view?).
This diagram below (not the one being commented on, I hasten to add), captures the entire eco-system of outsourced application development on both technical & commercial dimensions, ranging from the narrow individual project up to the strategic vendor relationship level
Very clever, of course, but it really deserves to be supported by 20 following pages to unpeel the layers and break out the key concepts, etc., etc.
(oohh, a quick round of orange juice...)
But it looks like this when you morph it Dali-style...
...but that is just plain silly, of course. (but an excuse to try out the Virtual Plastic Surgery Software, why don't you give it a go on one of your favourite photos, and make your self look like your favourite film star, or the Bride of Wildenstein...)
Battery dying....break to watch X-Men Origins: Wolverine, just another load of shouting and uber-angst
Down on the ground now...
However, there are some charts that are very easy to understand, but they do convey a message that is counter-intuitive, and so take a while to get your head round.
This chart is a good example
This shows the output of a model of software development productivity which paradoxically shows that total coding cost falls whilst the developer daily rate increases. This is, of course, quite counter to the expectations of typical Aggressive Sourcing gigs which tend to focus on bashing down the daily rates. The Old Wives and proverb writers of yore new about this since the principle of "Pay peanuts and get Monkeys" is well known.
This is what they used to say, but I do wonder if this phrase might be considered racist in these days of off-shoring, say maybe it should now be "Pay Peanuts, get Numpties" or something like that...
The twist in the tail on this analysis is that in the formula P x Q, where P is Daily Rate, and Q is the number of days needed to complete the project, some people (yes, them) are not aware that Q is inversely proportional to P. This is the essence of the move to Agile development methods, which favours people over process (amongst other things).
Finally, I also offer you the 2x2 I wrote all by myself one day after an afternoon's presentation by one of my erstwhile colleagues, a quite (self) important and entitled sort of chap who gave a long presentation from which I came out reeling with "Framework overload", having survived the discourse from the evolution of Sailing Ships to Dell's policy build to order policy and positive cash to cash resulting...
So I drew this...
So there you go...
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Recently our esteemed Green Knight, Sir Jonathan Porritt was attributed
with saying
"Overweight
people are 'damaging the planet'". Of course it turns out
that he
said something like this in about 2007, in fact building on a
comment by the then
Secretary of State for Health, Alan Johnson. But somebody
else unearthed it again for some typically
twisted reason - nothing can be more topical than mixing global warming
with a bit of "fatty slapping".
The hypothesis behind the hype is that fat people use more resources because they eat more food, but why not then include teenage boys (unfillable, as empty fridges around the country can testify), people with very high metabolic rate, and other some such big eaters. Ah, well, the logic goes that fat people also drive everywhere and so contribute more CO2 than thin people who, of course, walk or cycle everywhere. Well, maybe it applies in towns, but it is certainly not true in the countryside, so drawing a different intersection in the Venn diagram I am sketching out here in hyperspace, maybe the headline should have read "Teenage boys and country people with very high metabolic rates are 'damaging the planet''" - not quite so catchy, or right-on, eh?
But, of course, there is a secondary thesis which is that obese people can be "cured", especially if they all got out of their cars, walked and cycled, and stopped scarfing all the pies, whence their weight would magically drop away and they would join all the normal people in the happy mean.
When you look at whole populations analytically then of course you usually see some sort of distribution (Normal or otherwise) of whatever factor (weight, in this case) that you might be measuring. So the theory is that by thinning down the fatties, the shape of the distribution will be changed. However, there are flies in this particular ointment, and if you look around you can find suggestions that obesity is actually a structural feature of a/the/any human population, that everybody has got fatter and that you need to treat the population as a whole, not just focus on the upper tail.
All in all, an example of woolly loose thinking gussying up to a political agenda.
BMI is one of the weapons in the "fatty slapping" armoury, a metric with some very well documented short-comings, yet standard (mis-)guidance would label people like Lawrence Dilaglio, Jonah Lomu & Mel Gibson as over-weight or obese. Whilst BMI might have some trivial diagnostic uses, some lard-brained, fat-heads try to use it as a decision-making metric, vide 'Too fat' to donate bone marrow - the 18-stone 5'10" sports teacher with a technical BMI of 36.1 who was ejected from the National Bone Marrow Register. To make a proper health assessment, you need to have a more detailed look at structural features, like waist size, percentage of body fat and so on, before pronouncing.
Thus BMI is a prime example of a benchmark ratio or KPI that is NOT a good basis for making decisions, as it fails to take account of significant structural factors.
This parable provides an important lesson for practitioners in the world of Information Technology Economics, where many a ratio is measured and analysed by pundits including Gartner et al, a classic being "IT Costs as percentage of Revenue", one of their IT Key Metrics.
It is defined quite simply as:
If you dig into the typical drivers of the top and bottom parts of this formula as below, say,
then you might surmise that it is quite possible that the Revenue numerator has significant elements that are certainly outside the direct control of the IT organisation, and indeed outside the control of the company, whereas the IT Costs are defined largely by the structure of the organisation, its distribution channels, and internal policies and practices. The top line is also, I conjecture, more volatile than the denominator, and being mostly outside the control of the IT so a very unfair stick to beat the IT donkey with. So in qualitative logical terms this metric is certainly appears to be a very poor 'apples and oranges' comparator.
If you stretch the analysis further, you can ask the question "what does it mean?" Is the ratio intended to show the importance of IT? or IT leverage/gearing (bang for the buck)?
Well, if it is some level of importance we are trying to assess, then we should analyse the relationship between this benchmark ratio and true measures of business value, such as, Operating Margin. Looking across a range of industries the curve looks like this:
OK, is is a deliberately silly chart, just to make the point that this is clearly a wobbly relationship.
If you do a linear regression analysis of the relationship between Operating Margin% and the IT Cost/Revenue ratio and a sibling ratio "IT Cost as a %age of Total Operating Costs" (or "Systems Intensity" to its friends), then you get these results for R2
What this shows is that there is no particularly significant linear relationship between these two key metrics and Operating Margin, so quantitatively, the ratios do not really tell you anything about how IT costs/investment drive overall business performance at all.
Even within an industry ratio comparisons are fairly meaningless. For example, in the past UK Banks had an average Systems Intensity around 20%. If you were to calculate the Systems Intensity for Egg, the Internet bank, at its height, you would come out with a number ranging from about 17% to 25% depending on how you treat the IT cost component of outsourced product processing and some other structural factors. And I do recall having a conversation with one Investment Bank CIO who declared, "Yes, of course, we do spend 20% of our operating costs on IT, it's how we set the budget!"
The whole averaging process loses information too. Look at the four distributions below, they all have the same mean (i.e., average) but are wildly different in shape.
Without further detail on their parameters than just the mean value of the curves, you cannot make a sensible comparison at all.
So all these ratios give is some rather weak macro illumination of the differing levels of IT spending between industries, like saying to a Bank "Did you know that, on average, Banks spend 7.3 times more on IT than Energy companies" to which the appropriate response is "YEAH, SO WHAT?"...
...Oh, and maybe, some vague diagnostic indication that there may (or may not) be something worth looking at with a more detailed structural review. So, why not just go straight there, and dig out the real gold!
And so the morals of this story, O, Best Beloved, are that just because you can divide two numbers, it doesn't mean that you should, and be prepared to dig into the detail to truly understand how cost and performance could be improved.
Just so.
The hypothesis behind the hype is that fat people use more resources because they eat more food, but why not then include teenage boys (unfillable, as empty fridges around the country can testify), people with very high metabolic rate, and other some such big eaters. Ah, well, the logic goes that fat people also drive everywhere and so contribute more CO2 than thin people who, of course, walk or cycle everywhere. Well, maybe it applies in towns, but it is certainly not true in the countryside, so drawing a different intersection in the Venn diagram I am sketching out here in hyperspace, maybe the headline should have read "Teenage boys and country people with very high metabolic rates are 'damaging the planet''" - not quite so catchy, or right-on, eh?
But, of course, there is a secondary thesis which is that obese people can be "cured", especially if they all got out of their cars, walked and cycled, and stopped scarfing all the pies, whence their weight would magically drop away and they would join all the normal people in the happy mean.
When you look at whole populations analytically then of course you usually see some sort of distribution (Normal or otherwise) of whatever factor (weight, in this case) that you might be measuring. So the theory is that by thinning down the fatties, the shape of the distribution will be changed. However, there are flies in this particular ointment, and if you look around you can find suggestions that obesity is actually a structural feature of a/the/any human population, that everybody has got fatter and that you need to treat the population as a whole, not just focus on the upper tail.
All in all, an example of woolly loose thinking gussying up to a political agenda.
BMI is one of the weapons in the "fatty slapping" armoury, a metric with some very well documented short-comings, yet standard (mis-)guidance would label people like Lawrence Dilaglio, Jonah Lomu & Mel Gibson as over-weight or obese. Whilst BMI might have some trivial diagnostic uses, some lard-brained, fat-heads try to use it as a decision-making metric, vide 'Too fat' to donate bone marrow - the 18-stone 5'10" sports teacher with a technical BMI of 36.1 who was ejected from the National Bone Marrow Register. To make a proper health assessment, you need to have a more detailed look at structural features, like waist size, percentage of body fat and so on, before pronouncing.
Just pausing a moment to dissect BMI further, it has units of kg/m2 which is not unlike the metric used to define paper thickness.Many organisations these days used 80gsm printer paper which is more environmentally friendly than the more sumptuous 100 paper of oldAnd even less rich feeling than the 120gsm paper that Tier 1 consultants use to create a table-thumping report - the dollars are in the loudness of the thump.As Marshall McLuhan told us, the medium is indeed the message, thickness = quality, and just feel that silky china clay high white finish. Oooohhh...
Sorry, started to get rather indented there, must coach self, control tangents...
So a person who has a BMI of, say, yeah, like 25, is like a piece of 25000gsm paper, no really...equally a piece of A4 paper might have a BMI of about 0.08...
Thus BMI is a prime example of a benchmark ratio or KPI that is NOT a good basis for making decisions, as it fails to take account of significant structural factors.
This parable provides an important lesson for practitioners in the world of Information Technology Economics, where many a ratio is measured and analysed by pundits including Gartner et al, a classic being "IT Costs as percentage of Revenue", one of their IT Key Metrics.
It is defined quite simply as:
If you dig into the typical drivers of the top and bottom parts of this formula as below, say,
| MicroEconomic Drivers - Typical Examples | |
| IT Costs | Revenue |
|
|
then you might surmise that it is quite possible that the Revenue numerator has significant elements that are certainly outside the direct control of the IT organisation, and indeed outside the control of the company, whereas the IT Costs are defined largely by the structure of the organisation, its distribution channels, and internal policies and practices. The top line is also, I conjecture, more volatile than the denominator, and being mostly outside the control of the IT so a very unfair stick to beat the IT donkey with. So in qualitative logical terms this metric is certainly appears to be a very poor 'apples and oranges' comparator.
If you stretch the analysis further, you can ask the question "what does it mean?" Is the ratio intended to show the importance of IT? or IT leverage/gearing (bang for the buck)?
Well, if it is some level of importance we are trying to assess, then we should analyse the relationship between this benchmark ratio and true measures of business value, such as, Operating Margin. Looking across a range of industries the curve looks like this:
OK, is is a deliberately silly chart, just to make the point that this is clearly a wobbly relationship.
If you do a linear regression analysis of the relationship between Operating Margin% and the IT Cost/Revenue ratio and a sibling ratio "IT Cost as a %age of Total Operating Costs" (or "Systems Intensity" to its friends), then you get these results for R2
|
|
R2 |
|
IT Costs as %age of Revenue vs Operating Margin% |
0.175 |
|
IT Costs as %age of Op. Costs vs Operating Margin% |
0.330 |
What this shows is that there is no particularly significant linear relationship between these two key metrics and Operating Margin, so quantitatively, the ratios do not really tell you anything about how IT costs/investment drive overall business performance at all.
Even within an industry ratio comparisons are fairly meaningless. For example, in the past UK Banks had an average Systems Intensity around 20%. If you were to calculate the Systems Intensity for Egg, the Internet bank, at its height, you would come out with a number ranging from about 17% to 25% depending on how you treat the IT cost component of outsourced product processing and some other structural factors. And I do recall having a conversation with one Investment Bank CIO who declared, "Yes, of course, we do spend 20% of our operating costs on IT, it's how we set the budget!"
The whole averaging process loses information too. Look at the four distributions below, they all have the same mean (i.e., average) but are wildly different in shape.
Without further detail on their parameters than just the mean value of the curves, you cannot make a sensible comparison at all.
So all these ratios give is some rather weak macro illumination of the differing levels of IT spending between industries, like saying to a Bank "Did you know that, on average, Banks spend 7.3 times more on IT than Energy companies" to which the appropriate response is "YEAH, SO WHAT?"...
...Oh, and maybe, some vague diagnostic indication that there may (or may not) be something worth looking at with a more detailed structural review. So, why not just go straight there, and dig out the real gold!
And so the morals of this story, O, Best Beloved, are that just because you can divide two numbers, it doesn't mean that you should, and be prepared to dig into the detail to truly understand how cost and performance could be improved.
Just so.
I stayed in an bizarre hotel in Kensington last week and was rather struck by the immense length of the central corridor, and odd green-ness of the lights, creating an institutional, Soviet/Stalinist feel to the place, and the sense that you could walk and walk and never find your room...
...which brings me, of course, to carpets of which this place had many, many hectares.
Carpet stores have always seemed to me to be one of the last hangouts of stone-age man, well, stone-age marketing anyway.
Apart of the never-ending sales, and boring adverts, they seem to harbour troglodytes who have not worked out that it might just be better to treat their customers with a little bit of intelligence. The most insulting manifestation of this is the latest wheeze, the "cut, and then cut some more" sale pricing.
Carpetright have a great deal advertised at the moment at the local store...
50% and then 20% more is, of course, supposed to make us think they are cutting prices by 70%, but, no, by a clever trick of arithmetic it is only 60% (the 20% only applies to something already cut in half).
"Carpet Stupidity" more like...
...which brings me, of course, to carpets of which this place had many, many hectares.
Carpet stores have always seemed to me to be one of the last hangouts of stone-age man, well, stone-age marketing anyway.
Apart of the never-ending sales, and boring adverts, they seem to harbour troglodytes who have not worked out that it might just be better to treat their customers with a little bit of intelligence. The most insulting manifestation of this is the latest wheeze, the "cut, and then cut some more" sale pricing.
Carpetright have a great deal advertised at the moment at the local store...
An interesting aside is that if you go to the Carpetright website and right-click your mouse, instead of the normal menu, you get a big Copyright notice, not obvious what they have to protect so assidiously
50% and then 20% more is, of course, supposed to make us think they are cutting prices by 70%, but, no, by a clever trick of arithmetic it is only 60% (the 20% only applies to something already cut in half).
"Carpet Stupidity" more like...
We've all been through it and know how it goes...
Yes, of course, that old cost-cutting gambit of the offshore call-centre.
Indeed, whilst the overseas call centre pendulum has been swinging back on-shore in the last year or so, now with cost crunch following credit crunch we can expect that trend to reverse somewhat.
Call centres and the customer experience that go with it are not the only things to get crunched when belts are tightened, discretionary project spending is one of the first things to be reduced,with projects either being deferred or cancelled. Whilst this is a very hand tap to close, by turning off spending on projects willy-nilly, as snuffing boring, run-of-the-mill sustaining projects, genuinely innovative activities also usually get the chop.
Conceptually, the unfettered application of cost-cutting measures looks something like this...
... with good stuff getting damaged at the same time as cutting off all the bad, spendthrift behaviours.
In particular, undiscriminating simplistic cost-cutting can be quite short-sighted and have unforeseen effects down the line. Indeed, this process of cost-cutting can accelerate an overall competitive cycle of pain...
...where declining profitability is met by efforts to increase
efficiency through
cutting costs, implementing new technology or whatever, which drives
greater
competition, which leads, to, oh dear, declining profitability, ad
absurdum. [By the by, this cycle was posited by two of my
colleagues at Mitchell Madison
Group, Mark Carrington and Philip Langguth in their seminal
work "The
Banking Revolution: Salvation or Slaughter?"]
However, innovation is one of to primary decelerators of this cycle
So the conundrum is how to go about reducing costs without killing the good stuff, thus...
...to take out cost and
building competitive advantage through innovation and better customer
experience.
The solution generally lies in being more analytical about the cost-cutting process rather than simple "slash and burn", such as:
Meanwhile, back to the phone...
[Dial 0870 ..........]
((((ringing))))
Welcome to British Tap. Please listen carefully as the following options have changed,Subtext: You've not called us before so you wouldn't know that and it makes no difference to you, and all we are doing is wasting your time whilst the call routing system finds somebody who might be able to answer your call.
Please note that calls may be recorded for training and quality purposesSubtext: Because we really don't trust our agents or our customers for that matter and we need to be able to go back and find out what you said and then tell you that you were wrong and that you didn't say what you know you said.
Please select from the following options.
Please dial 1 to buy a new widget, please dial 2 if you would like us to try and cross-sell you some insurance for the widget you bought from us last week, Please dial 3 to report a fault with your widget
[Dial 3]
Your call is being held in a queue and will be answered shortly.
Our agents are busy answering other customers calls
Subtext: The people in front of you who are more important than you and were given a better phone number to call.
Your call is being held in a queue and will be answered shortly.
We value your call.and would love to answer it as soon as we can
Subtext: but we have not staffed our call centre properly and things are getting a bit out of hand because we are operating on the cheap.
Your call is being held in a queue and (click)
(((((ringing)))))))
कॉल करने के लिए धन्यवाद British Tap . मेरा नाम Nigel है . मैं आज की मदद से आप कैसे हो सकता है ?
Eh? Oh? My boiler is leaking.
我很抱歉，您所谓的Whistle的热线电话，我会转移你向锅炉热线。请稍等
Sorry, what did you say?
(((((ringing)))))
[thoughts start to wander]
Yes, of course, that old cost-cutting gambit of the offshore call-centre.
Indeed, whilst the overseas call centre pendulum has been swinging back on-shore in the last year or so, now with cost crunch following credit crunch we can expect that trend to reverse somewhat.
Call centres and the customer experience that go with it are not the only things to get crunched when belts are tightened, discretionary project spending is one of the first things to be reduced,with projects either being deferred or cancelled. Whilst this is a very hand tap to close, by turning off spending on projects willy-nilly, as snuffing boring, run-of-the-mill sustaining projects, genuinely innovative activities also usually get the chop.
Conceptually, the unfettered application of cost-cutting measures looks something like this...
... with good stuff getting damaged at the same time as cutting off all the bad, spendthrift behaviours.
In particular, undiscriminating simplistic cost-cutting can be quite short-sighted and have unforeseen effects down the line. Indeed, this process of cost-cutting can accelerate an overall competitive cycle of pain...
However, innovation is one of to primary decelerators of this cycle
So the conundrum is how to go about reducing costs without killing the good stuff, thus...
The solution generally lies in being more analytical about the cost-cutting process rather than simple "slash and burn", such as:
- Careful prioritisation of projects, for example, choosing to favour of genuine innovation efforts over the projects that just sustain the existing business;
- Taking a system-level view, e.g, over the customer life cycle, and using joined up thinking to ensure that simplistic, functional cost-cutting does not cut across and destroy customer experience, or in the IT software development arena, taking the whole productivity equation into account (rather than focusing solely on daily rates)
- Keeping a focus on profitability, rather than just the bottom-line, so that the overall financial health of the enterprise is improved
Meanwhile, back to the phone...
(((((ringing)))))
(click)
Благодарим ви за свикване на British Tap бойлер гореща линия. Казвам се Tony. Как мога да ви помогне да днес?
Oh, !$R£W"Q^%$£&^%$£&%$£"%^)*&%)(*^%$%^£!!!!
[Slam]
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