I wrote a blog posting over at the Collaboration and Content Strategies blog that answered the Global Watchtower’s pronouncement of “companies claiming that ‘it just isn’t worth it’ to have websites in other languages.” My response is that I suspect this is due to tighter economic conditions that require harder business cases coming up against web localization efforts that have easily quantified costs but benefits that are difficult to measure.
If you want more detail, you can read that blog post here. What I want to do here is provide this Wordle chart of my report “ECM for Translation and Localization: Raising IT’s Globalization Fluency“. This report is only available to clients, but I can boil down all 45 pages of it into one handy chart on “content globalization”. It’s like getting your knowledge in capsule form! Click for a larger view.
I’m putting the final touches on a research document called “Thriving with Slashed Budgets: A Framework for Saving Costs While Meeting Needs” and my thoughts have turned to hemlines. Yes, there is a connection. Have you ever seen the 1960’s sci-fi classic “The Time Machine”, based on the book by H.G. Wells? There’s a famous bit of special effects where the time traveler watches the hemlines of models in a store window rise and fall as time speeds by. It’s an anachronism to a certain extent since this 1800’s person is noticing something that wasn’t brought to the public consciousness until 1926 when economist George Taylor published his “hemline index” theory, which showed a correlation between the state of the economy and women’s hemlines.
The connection here is that the hemline index is a good analogy for how fads in loose spending give way to fiscal conservatism in an endless boom-and-bust cycle. Perhaps a telling measure today is the acceptable location on a cost justification continuum that measures the “hardness” of the justification (see below). In good economic times, projects requiring cost justification get by with lower levels of “hard” proof of their value. However, in tight economic conditions CFOs demand more cost justification and push the degree of hardness further to the right. Those projects that breezed through reviews in better times with soft justification are running into a difficult challenge now that budgets are tighter. Being asked to retroactively prove the value of a system with large sunk costs is a difficult position to be in.
Note: It seems I also referred to “The Time Machine” in a recent blog posting. I described an underclass of workers that toils in oppressive conditions to enable a seemingly perfect technology future for the beautiful people as “information morlocks”. To clarify, time machines are not part of my coverage area and I don’t expect to be writing more about “The Time Machine” anytime soon.
The economic downturn is forcing IT organizations to cut funding to many projects. When these cuts impact communication, collaboration, and content technology IT shops need to put policies and monitoring in place to make sure that users do not make unauthorized use of consumer technology to do an end run around those constrained IT departments. Why not? Because this could happen:
This is a webcast from a very large, publicly traded software vendor and is their official slide deck on a new product. I’ve obscured the actual slide with the purple text since embarrassing the software vendor wasn’t my intention here. Instead of using any of a number of hosted webcasting platforms, they decided to use a free (but ad-driven) consumer one. The result is a serious presentation about their product with the corporate logo prominently displayed next to come-ons for “Bridget’s sexiest beaches” and “Christian mom makes $5k/M”. If that’s not enough you’ll love the ads that keep popping up at the bottom every few minutes blocking the last few lines of text (like the one here for movie tickets).
Communication, collaboration, and content technologies are especially vulnerable to this problem since they represent many under-implemented or hot technologies that were not funded before the recession hit. These same technologies often have free, consumer counterparts available on the web. So when a central IT organization turns away users who want technology that is unfunded or too bleeding edge, they need to think about where those users are likely to go for help next? Maybe to Bridget’s sexy beach?
Don’t Touch My Wallet: Convincing Management that Smart Companies in Recessions Increase Spending on [IT, training, advertising, etc.]February 26, 2009 at 4:26 pm | Posted in business case, collaboration, communication, Content Management, Recession | Leave a comment
The recession has proven to be a boon to writers of articles and blog postings you can email to your executives about how whatever domain they are experts in (like customer relations folks or training people) is critical to avoid cutting and maybe even increase spending on it like other smart companies do.
In researching how the recession is impacting my domain (information technology, and communication, collaboration, and content technology in particular) I was pleased to find articles saying that should really get more budget in tight times. Wonderful!
… But then I decided to check and see what other domains were saying about recessionary spending. After trolling dozens of sites on other domains like customer relationship management, training, marketing I noticed a familiar pattern – they all say they are smart places to spend too. Needless to say I did not find any articles from domain experts saying “In a recession, our department’s budget should be cut” or “Companies that come out of a recession stronger are those that cut spending in our department”. Instead every department has become the business equivalent of Garrison Keillor’s Lake Wobegon. At Wobegon Corporation every department provides greater than average returns on investments in recessionary times. Everyone can’t be right, so who is right that spending in their domain should increase during recessions (please let it be portals!) ?
The “Don’t Touch My Wallet” (DTMW) script
There are arguments and articles that rise above the fray – I’ll get to them at the end. But the bulk of them fall into a script I’ll call the “Don’t Touch My Wallet” (DTMW) script. There are a standard set of key elements you’ll find in a DTMW article.
The “Don’t touch my wallet” (DTMW) statement
- “Now is not the time to slash advertising budgets.“, “This is not the time to cut advertising”
- “Maintain marketing spending”
- “Now is the perfect time to increase your innovation efforts”
- “In a downturn it can actually make more sense to spend more money on training, not less”
- “Customer relationship management (CRM) technology is one of those critical areas that companies need to continue continually embrace, especially during tough economic times”
- “ Of course, now is the time to be frugal, but be frugal in areas that don’t touch the customer.” (this last one, from a CRM firm, is my favorite because it not only makes the “don’t touch my wallet” statement, but grants permission for the cost cutters to raid someone else’s!)
- “ Shoot the moon”
- “If the distance runner is really strong, when the runner hits a hill, the runner is gonna speed up”
- And the winner, for mixing metaphors about belts, frogs, and catapults in the same paragraph: “While others are tightening their belts, truly successful companies use the recession as a chance to leapfrog their competition. My favorite company … increases their investments during difficult times. They know that if they focus on innovation while others are cutting costs, they will quickly catapult past everyone else. “
The motivational pablum
- “ The first competitors to take action will be the ones who reap the greatest rewards.”
- “Have you ever noticed that many of the big winners in business were willing to make bets that ran counter to the prevailing wisdom of the time? There are countless success stories of leaders who ‘zigged’ when everyone else ‘zagged.'”
- “Smart companies know you can’t save your way out of a recession. “
The articles often quote a survey that shows organizations who spent more on their domain in a recession did better than their peers. They generally don’t reveal enough about their methodology to truly evaluate their findings, but these surveys feel fixed for 3 reasons:
- They are almost exclusively sponsored by organizations with a vested interest in the domain and would be unlikely to publish the results if they showed cutting costs to be a more effective strategy.
- The mere fact the surveyed organizations were in a position to increase spending in a recession indicates companies with comparatively better financials (compared to their peer group). Of course companies that go into a recession financially stronger are more likely to come out of it stronger.
- Just surveying those companies that increased spending in one domain is a self-selecting sample. Companies that increased spending on a particular domain already determined it is important for their type of business. For example, companies that doubled advertising expenditures in a recession are probably those that know they are in industries where advertising gets high leverage (like image-related consumer goods), while those in unimpressionable markets (like mining) would probably not bother to increase the minimal ad spending they have. So blanket statements that say “companies that increase ad spending in recessions do better” are not as universally applicable as they imply.
A good study should be sponsored by an institution that doesn’t have a stake in the results and examines both sides of the coin: winners and losers, companies who started in good or bad financial condition, companies that increased or decreased spending in the domain.
Principles about spending in a recession
Reading all these DTMW articles did help me uncover some underlying principles about spending in a recession. These are scary times. I don’t begrudge anyone trying to make the case for their domain (and, by proxy, their job). Quite the contrary, it’s everyone’s responsibility in tough times to think about the value their role brings. Where small investments can provide leverage in these conditions, you should make the case for them, throwing them into the marketplace of ideas with the understanding that everyone else is doing the same. With every experts in every domain publishing a DTMW script, running to your executive with a request for more money attached to an article backing up increased spending is likely to be laughed at when every department is making the same argument.
If you have money to spend in a recession that your competitors don’t, you’ll get more leverage anywhere you spend it wisely: IT, training, customer service, etc. Industries have different leverage points (elasticity) where a dollar of recession spending added or removed has a multiplicative effect on profitability. Don’t accept blanket statements across all industries about where that elasticity exists (e.g., “All companies should increase sales travel rather than cutting it when times get tough”). The key is to understand the dynamics of your industry and firm and select the correct points of leverage.
Recessions can shake organizations up for the better – they force organizations to cut waste, improve efficiency, be more aware of what they are doing and why. That last point (what you’re doing and why) brings me to portfolio management. In a recession, as at all times, portfolio management theory applies. This theory says organizations should allocate spending to categories – usually these three: running, growing, and transforming the business. Then all initiatives should be categorized accordingly and evaluated against each other.
So first, keep the lights on. Assuming you have some money left after that, understand there is a portfolio of incremental improvement projects and transformational projects that should be evaluated as a whole. The DTMW articles make the mistake of bypassing reasonable portfolio management discipline to make the argument that one should just jump to spending more on their pet domain without analyzing its relation to other projects in the portfolio. Spending more on domain A may indeed have a high return. But if spending on domains B, C, and D have an even higher return, spending on A wouldn’t be a wise move without money to cover all four domains.
So how do you do this right? After hours of reading DTMW articles, it was a joy to finally find one that stated the case for its domain (web design) properly, succinctly, and with a professional level of humility. This may not grab the attention of the CFO, but it will withstand reasonable scrutiny once investigated further:
So my conclusion is that, despite what DTMW articles say, smart companies are not the ones that blindly increase spending in one domain just because other companies do (it’s a self-selecting sample) or because a logical argument can be made for the importance of spending in that domain (all domains have differing elasticity based on industry and individual factors). Recessions give smart companies an opportunity to gain an edge by selectively outspending their competition in key domains. They select the domains by digging harder into the data and applying portfolio management discipline.
Back to my domain of IT, I posted previously about a Diamond Management and Technology Consultants study. While it is from a company with a stake in IT spending, I like the fact that they looked at companies that underperformed as well as outperformed. And their high-level advice fits the “be selective” mantra:
The central lesson of our research is that at the very time when a leader is tempted to shorten his or her time horizon and make simple across-the-board cuts, superior performers dig into the data and act more intelligently than the competition.
We are currently doing research into how IT organizations are approaching communication, collaboration, and content management needs in a recessionary environment. Since many of the technologies in this area don’t seem to be needed to keep the lights on or invoice customers, they have the potential to bear the brunt of the axe when cost cutting occurs.
To start my research I wanted to find out what the forecasts were for IT spending this year. Burton Group doesn’t do forecasting, so I used a survey of surveys approach to come to an unscientific consensus of spending (over- and under-weighting forecasts based on my read of their methodology and applicability to our target of large enterprises). The results are shown below.
I think it’s fair to say there is a slight increase in IT spending expected for large enterprises, but this will be much lower than in previous years (perhaps lower than any year since the IT revolution). It’s also fair to say that the increase will mostly be in developing economies, while the G7 is close to flat.
Some important comments are worth noting:
1. In some cases the difference in the forecasts is simply a difference in the underlying assumptions about the economy. For example, Forrester said: “‘Our forecast for 2009 rests on the assumptions that the economic recession in the US and other major economies will start to end in the second half of 2009,’ explained Andrew Bartels, a vice president and the principal analyst at Forrester.”
2. Analysts and CIOs may not be thinking of the same definition of “IT spending”. To analysts, IT spending generally equals “sales”. For example, Goldman Sachs equates spending to hardware+software+services+networking. But to CIOs, they think in terms of IT budgets which include spending on internal employees, not just sales. Most of these estimates are for spending “on” IT, not “by” IT, since they are targeted at IT vendors and service providers. Some include consumer spending (The Economist and, from what I could discern of the wording, IDC). Estimates may include telecom and networking. The few estimates I could find that specified “budgets” (including internal employees) instead of “spending” forecasted flat (Computer Economics) or practically flat (+0.16% from Gartner) change over 2008.
3. Your results may differ. There are strong differences by geography (emerging markets are predicted to do better than the U.S. and developed economies), locale (Michigan vs. total U.S. spending, Spain vs. Europe), and industry (government and healthcare are expected to lead the spending pack).
4. This year, forecasts must be fresh. Usually the analysts publish estimates around September and that’s it for the year. But this year, like lemmings, all the forecasts followed each other off the cliff sometime around September as they revised their estimates downward. For example, Gartner revised downward from 5.8% to 2.3% and Forrester revised from +6.1% to -3%. In general, the consensus forecasts pre-Sept ’08 were about +3% compared to those starting with the October revisions.
For public-facing virtual worlds (mostly social and gaming worlds), Virtual Worlds News identified $594 million in investments from media companies and venture capital firms in 2008. That’s down from $1.4 billion in 2007. Although, as the article points out, venture capital spending is down 30% in general.
Here is the outlook for the Enterprise segment of virtual worlds, according to the Virtual Worlds Management Industry Forecast for 2009:
Many vendors promoting enterprise-targeted virtual worlds view the economic slowdown as a double-edged sword. Discretionary and experimental budgets are being slashed to cut costs, but travel dollars seem to be running out just as quickly.
“This is a perfect opportunity for our industry. Enterprise virtual worlds have clear business advantages in this economic downturn and the industry has to convey these advantages just as aggressively as the social software/web 2.0 market did in the last 3 years,” wrote Rivers Run Red CEO Justin Bovington.
Others, many outside of the direct enterprise space, are more skeptical, seeing the economic climate pop the enterprise bubble for good. Others, like The Electric Sheep Company CEO Sibley Verbeck, see the enterprise market in state of stagnation so that the end of 2009 will look much the same as the beginning.
There are many ways enterprise virtual worlds can save costs, including reducing travel (mentioned above), reducing the need for high-end conferencing (telepresence) systems, and substituting virtual rehearsal and training for expensive real-life equivalents. But in this climate it will be difficult to keep projects that mention “virtual worlds” on the “approved” list as budgets are getting slashed.
The Role of Communication, Collaboration, and Content Technology Investments during Tight Economic Conditions (part 3)January 22, 2009 at 3:13 pm | Posted in collaboration, communication, Content Management, Economics, portals, Recession | Leave a comment
This is the third in a series on how organizations can frame and deal with the issue of constrained budgets due to the recession at the same time users are demanding productivity-enhancing technology for communication, collaboration, and content.
In part 1 I set up the idea that companies that do best coming out of a recession are those that invest prudently while they are in one. In part 2 I mentioned three approaches for meeting user needs with no ability to increase budgets: cost savings, cost avoidance, and “free” stuff.
In this part I will discuss the fourth approach which I’ll call “leveraging existing investments” or “doing more with what you have”. I’ve given this approach an entry of its own because I think it’s the most useful – but overlooked – of the four approaches.
Doing More With What You Have
Communication, collaboration, and content management technologies have been around a long time – long enough for large organizations to have accumulated quite a portfolio of them. Many are going unused or underutilized. An initial attempt at rolling them out may have been ill-planned, badly timed, or poorly messaged. Or the champions or experts on that technology may have left the group, leaving no one to push them forward. Now is the time to dust off these valuable assets and take a fresh look at how they could meet current user needs.
Not all existing assets can be scaled up without incurring substantial expense. If new versions haven’t been licensed, playing catchup to get current may be expensive. In other cases the product cost is mostly based on per-seat licensing, in which case scaling up the existing investment may still be cost prohibitive since costs will rise in near-linear fashion with users. This applies to some high-end document management and web content management systems for example. But other products, such as portals, are licensed on a per-CPU or per-server basis, which can allow for some economies of scale when upsizing the usage. Portals are a good example since initial purchase and setup was often funded during better economic times but they may be underutilized today. This is a good time to do a portal refresh and beef up parts that are working, fix or ditch parts that aren’t, find out information sources that aren’t on the portal but should be, and re-launch a freshened portal.
The best opportunity for leveraging existing investments is to utilize communication, collaboration, and content technology built into superplatforms that hasn’t been used. SAP shops have access to a full suite of portal, content management, and collaboration technology in NetWeaver. IBM Lotus Notes shops may be focusing on email and ignoring its collaborative capabilities. Organizations with Windows Server have access to Windows SharePoint Services (the no cost part of the SharePoint portfolio). Oracle’s application server still includes Oracle Portal. Microsoft OCS 2007 includes instant messaging built in. There are many examples where useful technology has been bundled in with something the enterprise is already using.
It is still important to do due diligence in order to avoid winding up with a lot of technologies that were just installed because they were already paid for, but aren’t right for the organization. But if the option is to wait until the recession is over to get painfully needed communication, collaboration, or content technology, leveraging existing investments should get some very close scrutiny.
The Role of Communication, Collaboration, and Content Technology Investments during Tight Economic Conditions (part 2)January 15, 2009 at 4:03 pm | Posted in business case, collaboration, communication, Content Management, Recession | 13 Comments
The continuing slump in the world economy is doing little to dampen information worker’s enthusiasm for new and improved communication, collaboration, and content (3C) systems. I wrote in part 1 about how organizations that invest during economic downturns generally do better than their peers when the downturn is over. These investments may involve actual capital expenditures or may just be investments in time and resources.
I’d like to provide some ideas on how organizations can respond to communication, collaboration, and content trends when IT budgets are constrained. I will address three distinct approaches in this posting and one more in part 3 (I’ll probably post that next week).
As I wrote in my document “Building a Business Case for Collaboration Initiatives“:
Costs and benefits can be thought of as being “soft” or “hard” by using a hardness measure like the 1-to-10 scale used in the Mohs scale of mineral hardness. Provable, measurable impact on a company’s profit through increase of revenue or decrease of expenses, accurately attributable to a direct cause, is similar in hardness to a diamond (i.e., it scores a 10)—and it is equally rare and valuable. On the other hand, “it will save every salesperson five minutes per day” is like talc (i.e., it scores a 1)—it’s simple, easy, and soft.
There are some instance-specific examples of hard benefits from 3C, but the generalized enterprise cases haven’t changed much over the years:
- Reduction of printing and distribution expense through web-based delivery
- Reduction in travel costs due to better use of 3C technology (especially web conferencing, but also collaborative workspaces and soon enterprise virtual worlds)
- Reduction in software expenses by consolidating 3C infrastructure
- Reduction in facilities expense by closing offices or floors and substituting hotelling or telecommuting
- Reduction in software expense through competitive SaaS alternatives, such as for e-mail (this is perhaps the only new item on this list)
Cost avoidance can be described as spending a little now to save a lot later. The idea is that a change in the environment is occurring that means the status quo will no longer work in the future. The proof is usually a “hockey stick” argument – a chart that shows a slow increase of something (like number of websites) up until recently and then a sudden upturn expected to get worse in the future if money isn’t spent now to get it under control.
Standardizing on intranet or portal infrastructure is a common example of a cost avoidance argument where money is spent to day to prevent future chaos that will cost more to fix.
Given the tight economy, you can expect the payback period executives are willing to consider has shrunk significantly. After all, if management thinks the recession will last 1-3 years and the payback period for your proposal is 5 years, why not postpone the investment until the recession is over? Assume that the avoided costs have to greatly exceed the investment within 12-24 months to be considered.
There is a slew of open source software for communication, collaboration, and content, especially in the hot areas of wikis, blogs, and content management. Larry Cannell did a detailed examination of the options in Open Source Communication, Collaboration, and Content Management: Cutting-Edge Innovation, Low-Cost Imitation, or Both? He pointed out, however, that free software doesn’t mean there are no responsibilities since “these are still licensed products with terms that require compliance.” And implementation and support may require external costs.
Open source 3C products we tend to hear a lot about include: Drupal, Media Wiki, TWiki, Alfresco, Apache Roller, Zimbra, and Liferay (to name just a few).
That’s it for part 2. I plan to post part 3 next week.
The Role of Communication, Collaboration, and Content Technology Investments during Tight Economic ConditionsDecember 12, 2008 at 8:58 am | Posted in business case, collaboration, communication, Content Management, Information Work, Recession | 1 Comment
Readers of this blog know that the Collaboration and Content Strategies service I am service director for researches, publishes analysis, and advises clients about communication, collaboration, and content (3C)technologies and the processes around them. Unfortunately, many of the technologies we cover are relegated to the “nice to have” category by some executives, such as collaborative workspaces, social networking, portals, and taxonomy tools. As service director for this group I speak with owners of 3C technologies at a diverse set of organizations through client and sales interactions and one refrain I hear across all these groups is the difficulty of justifying investments in “new fangled” technologies in such difficult economic conditions. News of layoffs is becoming commonplace, bonuses are being cut back, lines of credit are becoming expensive or scarce, and uncertainty is reducing the scope of future purchasing plans. Understandably, many organizations feel compelled to stall improvements to 3C processes that, while perennially inefficient, have worked fine so far. What is the role of new 3C technologies when IT budgets are under unprecedented attack?
In light of this question, I read with interest a study recently published by Diamond Management and Technology Consultants that compared the performance of 400 organizations before, during, and after the previous recession (1998-2004) to see which approaches resulted in the best long-term growth prospects. The study, “Don’t Waste a Crisis: Emerge a Winner by Applying Lessons from the Last Recession,” categorized firms according to whether their performance improved, decreased, or stayed the same coming out of the last recession.
The study found that:
“Only the top two quartiles (Stalwarts and Opportunists) increased gross margins during the recession year, and by the end of the recession had improved margins by 20%. In other words, they were smart about their cuts and successfully improved the design of their business (i.e., the configuration of people, assets, capital, and information to generate value for customers) to create operating leverage that eluded others. The central lesson of our research is that at the very time when a leader is tempted to shorten his or her time horizon and make simple across-the-board cuts, superior performers dig into the data and act more intelligently than the competition.”
So how should investments be allocated during tight times and do new 3C technologies have any place in such an investment portfolio? Standard portfolio management theory, at least as I’ve always described it, talks about dividing investments into those aimed at running, growing, and transforming the business. A high level rational analysis of this type shows the fallacy of retreating to a 100% allocation of investments into “keeping the lights on” (as “run the business” is commonly referred to). The Diamond analysis looked at investments and, while omitting the “run the business” category (I’m sure it was in there!), adds another category crucial for tight times: “cut costs” (more an initiative than an investment).
I found it encouraging to note that it wasn’t just companies facing market competition, such as a consumer products company, that found opportunities to pull ahead during times when others are retrecnhing. Diamond notes that Southern Company, a utility company in Atlanta, invested in automated meter-reading in 2008 which will yield long term efficiency benefits and enable dynamic pricing in the future. Even an insurance company, an industry that is among the hardest hit by the current economic crisis, was able to:
“… identify areas to expand the use of technology to change the nature of relationships with agents and customers. Even in the face of a challenging insurance environment, this innovative insurer is reinventing how agents interact with their customers in a digital world, and investing at a time when its competition is retrenching.”
These findings provide some explanatory power to the way I describe the approach smart companies are taking towards 3C technologies that may seem unneeded when budgets are being slashed. While they can be deployed to improve vertical business processes (such as order-to-cash or communicating design specifications updates to partners), they are also used to bolster horizontal business processes. These horizontal business processes are some of the most common and fundamental to businesses, such as collaboration, expertise location, notification, searching, and documentation. These horizontal processes do not have ROI of their own, but rather act as multipliers when they are applied to initiatives to improve specific instances of business processes. I believe that investments in these technologies during tight budget cycles can not only help organizations maintain or improve current rates of efficiency as more output is demanded from each employee, but these investments put the organization in a better position to race ahead of expectations and competition once the recession is over.
The Diamond study confirms this when describing the principles they derived from their research. I believe one in particular supports examination of investment in 3C technologies: “Automate, Automate, Automate”:
“Given the continued, rapid decrease in the cost of information technology, it is essential during a recession to search for new places to automate.”
In summary, I realize this posting has been a bit longer than an elevator speech you might need when you get only a minute to describe to an executive why that new blog, collaborative workspace, or portal is needed. So here’s the short version: Companies that come out of recessions in a stronger position than they went in are those that judiciously invest in technology and related processes that let more work get done with less resources as well as reducing costly delays and red herrings when making decisions. And when the market downturn ends – and it will – opportunistic organizations will be in a better position to succeed than those that had hunkered down during the recession.
Note: This is a cross-posting from the Collaboration and Content Strategies blog