Local system evolution

If you talk with anyone who has been IT world for a while and has actually listened to what is going around, you will hear a lot of stories of projects going wrong. Lots of money wasted, lots of good initiatives botched, lots of tasks unfulfilled. And especially true it is about big projects - bigger it is, more often you will hear that company x has cancelled project after millions of euros invested and several calendar years spent. Or government agency awarding too big money to fishy company to deliver something needed in theory, but never finishing, or overspending, or some other company suing said agency and delaying everything by seven years. Or combination of everything mentioned and some other progress thwarting nonsense thrown in. And everything too waterfall to ever reach finishing line, or too agile to ever gasp the whole scope of the project.

So, familiar stuff. What I want to suggest is taking more natural approach. And by natural I mean something that we could probably see in nature, not something that is natural in project management, government contracting and corporate life.

I want to think local and introduce some competition. First draft of my idea applies to local governments - in Europe we have thousands and thousands of local governments. Provinces, cities, suburbs, parishes, counties, townships and even occasional micro duchy. What makes all of those political entities similar is the level of independence they always strive for. Most of European countries have it written in their most sacred laws and most certainly every locally elected person does want to have as much local control as possible. And all that ends in hundreds of thousands of similar contracts awarded to similar IT vendors to build similar software that performs similar functions.

Of course, I bet there have been initiatives by national, federal and higher up government bodies to try and unify various software platforms. And most likely results have been either over budget, over deadline or without all functionality being delivered. And most likely all three factors combined. I might be wrong, but it certainly feels that nothing else can come out of solution that is imposed top-down to lots of slightly different entities.

My suggestion is to do build software locally, but with certain rules. Rules or framework, that is imposed top-down from as top down body as possible. Rules that govern such things as general architecture - modularity, interface standards, security level, source control, needed documentation, stuff like that. All that then is made publicly available for comments, ridicule and revisions. Next step is removing at least half of it - threat such rules like a good novel during editing, not as usually - by adding more and more adendums, extensions and clarifications. Make it a good read instead.

Next, push it down to each smallest municipal entity in a form of law. And force every single IT contract awarded to include this framework. And when software gets built, enforce framework by using spirit of the law,  not the letter. And yes, it is possible - why not to include reference to special arbitration court in case of any disputes. Arbitration court that would consist of wide jury of actual peers of vendor - geeks, scientists, developers and IT contractors of all levels. Once framework gets traction, it anyway will be easier to develop for that, instead of doing some hackish workarounds. And we will have achieved our result. Actually, we will be at the half way.

At this point, if we have for example HR system or payroll system, that is built using the same framework across hundred or two hundred organisations, but the same amount of contractors, we will have one or two hundred systems. Similar, but with different prices, support models, look and feels, functions and general user experience. Very different in many aspects - but, most importantly, comparable in apples-to-apples fashion. So, we let systems work for a year or most likely two - delivery times will differ from one place to another, anyway - and then we compare. And during those couple of years we do not let too much new changes ordered, so there is some backlog and some need for improvement is felt.

Then comes important bit - we do not make country wide beauty pageant to determine who did best, no, because choosing one would bring us back to the bloated mega project we discussed at the beginning. Instead we compare only locally, we compare cities, counties and hamlets that lie next to each other. Geographically local. Why? Because they are most likely culturally similar, they have similar history, similar people, similar politicians and most importantly - similar needs and hence requirements.

We do public comparison of offers from vendors who delivered first batch of systems, we introduce new requirements that were gathered for all systems and include those as well. We choose one vendor and after a year or two, depending on system complexity we have unified system in five to ten neighbouring organisations. Of course, it is not easy task to implement and year may sound a little bit too short to do that - but remember that everyone is working within the same framework, so systems are technically similar - and this newly chosen vendor - second level vendor - must be given very deep and good access to inner workings of all first level systems. And of course - documentation is part of the framework.

After second level is done, wait for a year or two and repeat. Around six to ten years have passed, and we have one good working system for every single local government in a country. And yes, it is time for a first picture of this blag. With colours.

And if you think ten years is a long time, remember that big top down projects can easily take just as long - but in this case, all those years everyone has had a usable, constantly improving system.
And yes, framework should not change more often than couple of times during those ten years. And if it is not too prescriptive, those changes can be avoided. Just threat it as a law - those do not changed too often. (At least, those that forbid something, those tend to hang around for eternity, but that will be theme of next post)

So that was first draft of an idea - next I thought about how to apply that to something less politicly awkward than local governments. And more interested in saving money and raising productivity.

So, what kind of corporation would be in any way similar to local government? It should have lot of branches that are a bit different, yet similar, more than nil of independence and bunch of IT systems. Well, everyone has at least one or two IT systems. So what would this branchful corporation be? Bank? No - there is as little independence as overlords can achieve. Manufacturing? Nope - not that many branches, and not that local.

There might be more, but currently I am thinking about retail chains that are built on franchise basis. Or any chains that are built based on franchise. Retailers would have only 3-5 systems per store, depending on what they are selling, while other franchises might have more.
Hotels come to mind - lot of stuff happens in hotels, reservations, many workers, big inventory, add on functions - restaurants, conference centres. And all that quite similar between partners, yet often with enough local differences. Different countries, different financial, labor laws. Yet similar idea.

Of course, when you build corporation and franchise from scratch - when you actually build those hotels from ground up, then all the systems can be adapted, can be unified from the start. But what when you buy? Merge? Divest? Leave other and join your franchise?

Even better if framework standards would be then set with some sort of industry associations - something that businesses have sat up themselves, and that can decide of such whole sector improving standards. While keeping an eye of all anti-cartel laws, of course.

Whole world is trying to merge, cut costs, improve - and doing it with local evolutionary principles might be a good idea.

p.s. any interesting examples of industries this idea could apply to?

Time limited virtual shares

Pros and cons of profit-sharing

I, like many more people before myself, have often pondered about benefits of profit-sharing schemes within corporation. In theory various option packages could give some more incentive, but given the fact that I work in old and large company, not some startup, there would be limited possibility of those options growing into something huge. And of course, as company has very large amount of employees - my share would be exceptionally small.

Also, as I am just one of thousands of people working for the company, and I am not in very high up position, my influence to general profits and therefore share value, would be very very small. So, I would not feel much correlation between my work and extra benefit of being a shareholder.

If there would be any other profit-sharing scheme, then result would be similar - person working in supporting, IT, Network or Accounting department, would be too detached from actual business decisions to feel that his work is directly influencing the company profit in any meaningful way.

Also, sometimes my feelings as an employee, could completely contradict those that shareholder would feel. For example - if large corporation would decide to cut the workforce of marketing department by half, thus making extra savings and keeping company leaner - then shareholder might get happier and stock value could increase by couple of percent points. On the other hand, for employee of marketing department, it would seem that he has to do extra work (if he is not fired), and as he owns so little amount shares, then any increase in their value would be barely noticeable - thus forcing that person to fight against the change.

Or, for example, if company would decide to move some of its operations overseas, employees would not like it, even if companies profit (including their profit sharing part) would rise. There would be no productivity gain by having profit sharing agreement in those scenarios. In fact, option packages for employees might even become problem in a longer term - as that would mean that people working longer in the company would have more stock than new hires, even if their contribution to bottom line is far lower. That would reward loyalty over merit, and while it could be beneficial for particular employee, for company as a whole it would surely be bad.

Outsourcing as an answer

On the other end of the scale for the company is outsourcing the whole sectors of its work to side companies, while keeping only profit generating departments in-house. In such scenario, profit-sharing schemes might work, as only those people who directly impact the income, would be affected, while all supporting functions are outsourced under contracts with strict SLAs.

Problem with this way of doing business, is that in a longer term, all knowledge of supporting functions stays outside the company, processes are harder to change and multiple vendors become harder and harder to control and there is a premium to be paid for vendor profit margin as well. And of course, people employed by vendor do not feel any connection to client-company profit at all, so all productivity boosting is solely in the hands of vendor management.

Those are two extremes of strategies company could have, with most companies being somewhere in the middle. But 'in the middle' only regarding amount of profit-sharing and outsourcing used, not in the sense of ideas they have employed.

So, how could we put those to extremes together to create some median version to gain productivity and stay competitive; and have all that both short and long term?

Idea

My answer is something you could call "time limited sub-shareholding". Lets take IT department of an medium sized company - it has around 80 people, it has a budget, it has a plan for changes for a year ahead, it has a top manager.

Lets take this department and turn it into virtual company with virtual shares. And virtual profit. All while keeping every single employee/asset/contract as a part of original corporation.

I bet, that many people (Myself included) have often thought about some improvements that could be done to their daily work tasks, environment, assets, software, etc; but could not be bothered, as that would hardly give themselves some direct benefit - more often than not, it would temporarily bring more hassle and more work, to result in long term benefits for the company. Long term benefits for an employee are usually lot less predictable and are along the lines 'will see when we decide yearly salary increase' or 'will take that into account when handing out quarterly bonus'. And often even less.

So, lets take planned yearly budget and give every dollar that is saved directly to employees themselves, at the end of the year. Make figures public and predictable. And keep your promises.

Lets give our example IT department 80 employees, average salary with taxes €70'000, yearly office costs €128'000, software license costs €1'500'000 per year, various vendor support costs  €800'000 per year, amortization and depreciation for hardware and other equipment - €500'000.
It is very simple approximation of our theoretical costs  - but keep in mind, that every organisation does such a budgeting for departments anyway. And hopefully the fore casted budget breaks even.

With this budget of around 7,2 million, it becomes interesting to see what happens if we could cut lets say 20% off of it, each employee could cash in almost €18'000, which is a lot of money for an person who earns €70'000 a year. For a company of course there will be no difference - it will still have to pay 7,2M.

Lets dig in deeper on how to make this work. Obviously if this virtual company with savings shared between employees would last only for one year, then it would be hard to ensure that long term goals are achieved as well. Employees could just decide to do something stupid for a short term gain, without any thought of long term health of say IT system. Other problem would be that changes in staffing would be problematic, if everyone is a stakeholder. Also, new investments for longer term plans would not work well, if not especially catered for.

Answer to first issue would be extension of benefit gained. For example, if, in above example, we see that everyone who has helped to cut 20% of expenses will get 18'000 after year has ended  - we could easily extend this benefit for sub-sequential years as well. If benefits stay as-is and no problems arise because of cuts. Lets say, that people would continue to receive monetary bonus every year for five years, each year twice as small as the year when costs were saved. First year, 18'000 second year 9'000, third year 4,500, fourth year 2250, fifth year 1125, sixth year 562. Good incentive to keep medium term planning good. And if costs start to go up again, benefits are stopped.
Company would start gaining from second year, but it would still be better than no productivity gains at all.

Nice touch would be, that virtual company would exist only in some years, not all the time. So, we have it for one year - everyone involved makes boosts the productivity as much as possible, gets the bonus and start waiting for sub-sequential bonuses. At the same time, virtual company is dissolved, and it becomes department again. Top management then can state, that if department has survived this experiment in a good shape, and for next two years everything works very good, they will repeat the virtualisation. That will give incentive for people who participated in the first round, and also for people who have joined company afterwards and thus do not have previous incentives to look forward to. Of course, planning needs to be clever - so people do not start amassing unnecessary things in their budgets, so they would have something to cut, afterwards.

So, please comment the idea, if you find it interesting. Also, comment if you have constructive criticism.
Btw, if this idea has been described somewhere else already, it would be interesting to read that.