Investile Dysfunction

IT Research Firms Get the Smackdown from the Wall Street Journal

Today, Lee Gomes' Portal column in the Wall Street Journal today entitled, "Vendors Still Paying For IT Research That Flatters Them" (subscription required) delivered a serious bodyblow to technology consulting and research outfit, The Aberdeen Group.  Gomes' essential point was that companies like Aberdeen (and I'd say all other big IT and Finance research firms) are far from unbiased and actually quite conflicted in the work they do. 

Let's first understand Gomes' arguments.  He writes about the old Aberdeen "which was for the most part a "pay-for-praise" operation.  If you saw an Aberdeen report saying that Acme MicroMacro sold world-class solutions, you could be sure that Acme had written Aberdeen a world-class check."

He then goes on to discuss how Aberdeen has repositioned itself by ending this practice and now doing "sponsored research."  He writes, "The new Aberdeen is better than the old one.  How much better, though, is the question, because the new reports also seem conspicuously flattering."

Basically, sponsored research lets firms pay ~$30,000 to Aberdeen who then conduct surveys with tech users.  The sponsors Gomes talked to said they like to sponsor a report because it provides a "chance to rise above the noise of the marketplace by being associated with something customers consider "research"."  Even sponsors know the research is of dubious value, but it gives them an air of credibility.

He goes onto describe the conflicts which are clear.  Aberdeen did 212 reports last year with 4-5 sponsors each.  He writes, "But if much of your top line is dependent on getting tech companies to sponsor your research reports, you've got quite an incentive to design questionnaires that will yield the kind of reports tech vendors will want to sponsor." 

"In that regard," Gomes writes, "Aberdeen delivers.  The reports seem to invariably discover that "best in class" companies use, or are thinking about using, or somehow embody, whatever technology the report happens to be discussing."

I hope more people will take heed of what Gomes is writing.  I've written about it before in my blog as there are too many inherent conflicts that such organizations have and so their advice is far from fair and balanced.  But when someone brings it up in the Wall Street Journal, it will get attention which it deserves.  I'm sure the PR machines of the big research firms are going into overdrive to demonstrate how unbiased they are, but there is no way to get around these massive conflicts.  Beyond research sponsorship, other conflicts include:

• Conferences are hosted with technology vendors sponsoring booths, dinners, etc.  In many instances, it is these vendors who speak at these conferences.  Why pay to goto a conference to hear a salesguy drone on when you could call him and he'll come to you? 
• There are entire magazines which claim to provide objective advice and "best practices" to readers but whose article authors are consultants and vendors pushing concepts that they "happen" to have expertise in.

As I have argued previously in my blog, (see one posting) you have to remain skeptical because objective research on the myriad self-anointed "best practices" is often not objective and the practices they're advocating are often far from best.  So before you use a report to help make the case to buy a piece of software or undertake an initiative to mirror some "best practice" within your organization, be mindful of the source.

Philip Morris pushes what looks to be one of the worst innovations of all time - The Heatbar

Today's Wall Street Journal talked about the upcoming spinoff from Altria of Philip Morris International (PMI).  The thesis in a nutshell for this spinoff is that by making PMI a separate company, they won't be subject to the regulation, litigation and PR nightmares they face in the USA.  What this probably means for lots of lucky 12 and 13 year olds in the developing world is that they're going to get an opportunity to suck on some highly addictive, unfiltered, tar and nicotine juiced cigarettes. 

This is undoubtedly a smart move by Altria.  PMI's business model is pretty ridiculously good.  Addiction pays!  I know the Corporate Social Responsibility folks will decry these moves, but from a shareholder perspective, it seems to be pretty darn smart move.

What was most notable about some of their international moves were there "product development" innovations which included a shorter, faster burning, more intense cigarette as well as sweet-smelling cigarettes.  These make sense as you try to get more folks onto the cigarette bandwagon.

But then there was the perplexing innovation that PMI is calling the Heatbar which is pictured below.

The Heatbar is described as follows by the Wall Street Journal.

"The Heatbar has a different objective: preparing for the onslaught of smoking bans in some mature markets...Heatbar smokers insert specially designed cigarettes into the device, a plastic holder resembling an electric toothbrush.  They place their lips on the cigarette, but when they inhale, the device heats up the cigarette, delivering a flavored aerosol, without causing any tobacco to burn.  PMI says Heatbar releases 90% less smoke into the atmosphere than a traditional cigarette.  Smokers can either rent or buy the device, which is powered by a rechargeable battery."

It is always risky to predict the success of an "innovation", but not being one to shy away from bold and potentially wrong proclamations, I'm going to go out on a limb and say that the Heatbar will eventually become a huge and I'm talking gigantic failure.  I actually can't think of a worse innovation in the recent past to be quite honest.  This is simply one of the worst ideas I have seen in a long time for a variety of reasons. 

1. The thought of a flavored aerosol being delivered into my mouth is about as appealing as carrying around a bulky device which resembles an electric toothbrush.
2. Nothing says "I'm addicted" more clearly and looks cooler than having a remote control coming out of your mouth. 

I'm sure there is some small segment of the highly addicted who might value this, but otherwise, I wonder how PMI's management group thought this would be a good use of investment dollars.  I hear version 2.0 of the device will be more appealing.  It will come with an embedded MP3 player so you can run and smoke at the same time (in an effort to "breakeven" for your lungs).  It will also be sold along with a ski mask so you can hide your face while you use this truly ridiculously looking device. 

Munchable Ice Provides a Hot Lesson on Innovation

An article entitled "Chew This Over: Munchable Ice Sells Like Hot Cakes" in today's Wall Street Journal, discussed a super-micro-community (my term) of people who like to chew ice.  Not flavored ice.  But just plain old ice.  Yeah - who'd have thought?  But in any case, there is a group out there that is hot for ice.  They even have their own website, www.icechewing.com, which is a forum for ice chewing aficionados and has over 1000 posts on it. 

And places like fast food joint Sonic actually offer ice nuggets or other forms of chewable ice to their customers.  It's not a big money maker.  Even a big-time ice chewer like TZ Riggins has what he calls a "$5-a-week habit".  So ice munching ain't adding to Sonic's bottom line directly.  Despite the lack of cold hard cash, the ice-munching product offered at Sonic and some other restaurants is a good example of an innovation which wouldn't normally get adopted when you use traditional innovation frameworks. 

Typically, innovation gurus will point to market opportunity as being a big driver of the innovations you should pursue.  And this is smart.  Innovations are often risky so you want to make sure the upside is commensurate with the risk.  But sometimes, an incremental innovation like ice nuggets which are not that risky also don't offer significant upside in of themselves but still maybe worth doing.  In the case of Sonic, they've probably created loyalty amongst a very passionate group who come in and buy ice and probably also buy other Sonic staples.  And now they got a lot of free publicity through an article in the Wall Street Journal.

But this strategy is contrary to the belief in most large companies who would kill an idea saying it doesn't "move the needle" and hence should be avoided.  But the fact is that many of today's small innovations may provide a capability, bring in a new customer or enhance the brand and these are things that can be expanded upon or enhanced in the future. 

A video containing all you ever wanted to know about ice-chewing is below. 

Warning: Ice chewing per the American Dental Association can damage your teeth.  Just in case you want to try ice-chewing, I wanted to ensure you knew.

If Patriots win, the stock market will fall - Fun statistics that should not be taken too seriously

So around this time every year, CNBC and the Wall Street Journal and other serious business outlets like to lighten the mood and talk about how each team will have different implications for the stock market.  The 'conventional wisdom' says that whenever an "original" NFL team wins the Bowl, the market rises.  In this case, that would mean the Giants.  When a team like the Patriots, which joined the NFL through the merger with the American Football League, wins, the market will fall.

Amazingly, the Super Bowl Predictor has been right on the direction of the DOW 33 of 41 bowls per the WSJ which is a fairly remarkable 81% success rate.  Given the Patriots are likely to win, and given the recession fears currently screwing with the market, the Predictor if things go as expected will lengthen its successful prediction streak this year as well.

But these are fun, innocuous facts, right?  Not according to Robert Stovall of Wood Asset Management who has long tracked the indicator.  He tells the WSJ that he thinks the Predictor is 'actually influencing the market "in reverse" right now with traders pushing down stocks since they - and Vegas oddsmakers - figure the undefeated Patriots will win.'

While I admire Mr Stovall's conviction in the Predictor, I do worry that he maybe serious in his view that the market's direction is actually being impacted by something as random/trivial/silly as the Super Bowl Predictor.  Then again, maybe he is right?  And maybe it's not the subprime mess, consumer spending decreasing, etc which is impacting the economy.  Maybe it really just is Tom Brady and the Damn Patriots!

Digression...

This has nothing to do with my blog but while on the topic of the Super Bowl, I really really really hope the Patriots lose.  I am a Miami Dolphins fan (it is brutal) and since we have what seems like little chance of winning a Super Bowl in this millenium, I would like to hold on to the one thing that gives me some bragging rights as a Dolphins Fan - the undefeated '72 season.  I never thought I'd say this, but Go Giants!

Seagate CEO, Bill Watkins, straight-talking wisdom on innovation, change management and investment selection

I'm way behind on my blog as some may have noticed from my lack of activity as of late.  But in an effort to catch up, I'll begin with some articles I recently read which I thought were interesting.

The first one is from the January 4th Wall Street Journal which contained an interview with Seagate's CEO, Bill Watkins, which talked about their move into consumer products.  Watkins, for those who've read/heard of him before, is a refreshingly straight-talking CEO.  You may remember he caused a bit of a stir last year when he talked about Seagate's products as basically helping people surf porn. 

This more recent interview had no references to adult entertainment but Watkins still raised some good points and continued to talk candidly.  Many of his comments are quite instructive to those undertaking a corporate or IT portfolio management effort.

In talking about the company's push into consumer products, Watkins commented that engineers run the company but that Seagate needs to be more market-facing.  He also talks about the hard part of making this happen which is "recognizing that people that are really good doing the job they have may not be the best person to do these new jobs."  This is especially true when it comes to innovation.  It is the concept I've heard talked about by Harvard Professor, Michael Tushman, of organizational ambidexterity.  In essence, the guy who is great at hitting his numbers every quarter may not be the right guy to trailblaze and launch a new innovative effort.  When it comes to innovation at large organizations, many times this is not realized.  But growing an existing business, e.g. exploiting existing assets is very different than the entrepreneurship required to grow a new business, e.g., exploring a new innovation in product, service, etc.

Watkins also goes onto talk about is making change happen in large, complex organizations.  He states, "You've got to be persistent.  Organizaton will fight organization changes up and down.  You need to realize, it's not a six-month dea, it's not a one year deal, it's a three year endeavor.  It's minimum three years.  And be braced for that, and realize you keep constantly going back and kind of tweaking it."

Again, this is a very prescient and astute comment by Watkins.  Whether it is a portfolio management or innovation or reengineering effort, these things are major organizational changes and require time.  This doesn't mean there won't be interim victories but to see the full benefits, it will take some time.  Doing things in this thoughtful way with sufficient time ensures you are building a capability within the organization vs a flavor of the moment strategy.  This approach means taking steps to change culture, processes and systems.  What this doesn't mean is installing a scorecard or software to manage the portfolio or innovation effort and assuming your work is done.

Lastly, Watkins talked about the need to raise awareness amongst consumers for harddrives.  He recognizes that this is a costly proposition but is thinking of it in the right context.  He states, "You take someone like Apple.  They could spend $150 million to $200 million on a marketing campaign and not blink an eye.  I sat there and watched someone propose a $20 million marketing campaign.  And we just vomited all over him.  Two days later, my CFO and I approved a $950 million research and development budgets in about 15 minutes, but to spend $20 million on marketing.  We just don't know how to do that.  It just drives us nuts.  But we're going to have to get over it."

Watkins has hit upon another very common behavior within organizations.  They tend to do what they know.  If they consider them a marketing driven organization, they'll scrutinize IT or R&D investments more than a marketing investment.  If a technically driven organization like Seagate, they do what Watkins describes.  This underscores the need to take a portfolio view when looking at investments as it enables a consistency of evaluation and approach when looking at discretionary projects.  This helps people throughout the organization feel like every dollar of investment is on a level playing field and being evaluated for its merits instead of being assessed and funded based on long-held organizational beliefs and the influence of certain groups, individuals, etc

Bernanke? Paulson? Which guy are you?

On CNBC this morning, various politicos from the house budget committee were questioning Federal Reserve Chairman Ben Bernanke about the economy, the subprime mess, monetary policy, etc.  I'm not sure why I was watching this, but I found myself strangely interested in it.

What is most interesting, if anything, about the proceedings are not Bernanke's answers (although the market did think so given its huge drop) but the lawmakers' questions.  Most of their questions are preceded by a few minutes of talk where presumably they're trying to sound smart about economics, business, and other esoteric financial market nuances.  Some of them make sense although you do wish they'd just get to the question and not try to act smart.  For some, it is obvious that a college intern on their staff probably came up with the question as the congressperson hadn't the faintest clue what to say.   

And then there was Marcy Kaptur, an Ohio Congresswoman, who was either drunk at the proceedings or is just completely clueless or some healthy combination of the both.  She came to the hearing prepared to ask U.S. Treasury Secretary Henry Paulson tough questions about his involvement in the subprime mortgage crisis and despite seeing Mr. Bernanke in front of her had no clue that she wasn't questioning the treasury secretary.  The exchange roughly went down like this as excerpted by Reuters. 

First, she said she wanted to know what Wall Street firms were responsible for the securitization of subprime mortgages.

She then asked: "Seeing as how you were the former CEO of Goldman Sachs ..." But the only person testifying at the hearing interrupted.

"No, no, no, you're confusing me with the Treasury Secretary," said Federal Reserve Chairman Ben Bernanke.

"I've got the wrong firm? Paulson, Oh, OK. Where were you sir?" Kaptur said.

Bernanke noted that he was head of the Princeton University economics department.

"Oh, Princeton, oh, all right, sorry. I got you confused with the other one ... I'm glad you clarified that for the record," she said.

Unfortunately, she was questioning the chairman of the Federal Reserve.

How frightening is this??  Somebody in the US Congress doesn't know who the US Treasury Secretary and the Chairman of the Federal Reserve are.  I wouldn't expect the layperson know this, but c'mon now...

What's scarier is that Marcy Kaptur is not the only idiot talking on issues they really have no understanding of.  The public sector as I've argued before is very susceptible to decibel-driven dialogue and decisions.  It is too often the world of the soundbite and so appearing to have the facts in making a decision or positing a viewpoint is often more important than having the facts.  This ultimately leads to suboptimal decisions which manifest themselves in poor decisions mainly around governmental resource allocation.  For examples of this poor resource allocation, take a look at the Citizens Against Government Waste website.

But what about changing these resource allocation decision-making methods in a way that is healthier and that would result in better decisions?  I've spoken to folks in the Department of Defenese and Department of Homeland Security who've indicated that they're interested in a discipline like corporate portfolio management which may offer this balance.  They all point to, however, the challenges in doing this in the public sector versus the private where the metrics for success, e.g., profit, revenue, etc are easier to capture.  This is a complicating factor but doesn't mean that public sector portfolio management cannot be done.  Ultimately, initiatives undertaken by public entities may have financial benefits (tax revenue perhaps) and/or will have strategic or risk mitigating benefits.  It is important to inventory these benefits against the costs of these initiatives and compare them against one another to arrive at decisions which balance priorities, time horizons, etc.  I am not saying it is easy, but it will improve decision making and offer a more data-driven and credible way to support decisions instead of reliance on the oratory skills and insights or lack thereof of folks like Ms Kaptur.

Fortunately, public sector portfolio management is not an abstract dream.  As I discuss in my book, The State of Oregon's Department of Health Services has begun enabling this.  Perhaps the most progressive practice I've seen in the public sector is the Criminal Justice System (CJS) of the United Kingdom.  I had the fortune of recently being put in touch with Stephen Jenner, Director in the CJS, who has made impressive strides in bringing portfolio management to his organization.  He is now turning his eyes towards bringing portfolio management to a larger portion of the government.  Stephen's work and guide to portfolio management is available on the CPMA's Member Portal, and it is a valuable resource for anyone undertaking portfolio management - public and private sector. 

I hope other progressive individuals in the public sector like Steve may emerge and continue to push on portfolio management.  While decibels will always be part of the decision-making process in any organization (public or private), there is the promise of balancing it with the rigor data provides through the application of portfolio management. 

For Ms Kaptur, I wanted to close with some help.  The pic to the left is Henry Paulson and to the right is Ben Bernanke.  Please study these before your next house budget committee meeting. 

2008 Resolutions for IT Portfolio Management & Project Portfolio Management vendors & consultants

So it is now almost mid-January, and I thought it would be a good time to discuss the resolutions that I hope IT and project portfolio management vendors will adopt in 2008.  Below are my Bix 6 resolutions that these vendors should adopt. 

1. Stop saying things like "Manage your corporate portfolio like a portfolio of stocks" - This oversimplified comment is dangerous in addition to being meaningless.  Dangerous because the corporate portfolio is made up of investments aka projects whose valuation, risk-reward profile, diversification benefits and other characteristics are much less known.  While stocks and mutual funds have a great deal of historical data, 'corporate projects' don't have this.  That said, even with the data that exists for stocks and funds, personal portfolios are still prone to mismanagement.  Heck, even 50% of the people/firms we consider smart money aka mutual fund managers underperform the market.  Managing like a portfolio of stocks might not be such a simple idea.
2. Stop hawking software that doesn't force data integrity on investment projections - I have yet to see an IT or project portfolio management tool which uses driver-based models to develop the cost-benefit analyses which should underly an investment.  Instead of having some amount of consistency and rigor by which ROI, profit, revenue, NPV, etc are derived, the tools generally let you hardcode these fields.  What good is trying to optimize on a portfolio when someone can enter an ROI of 1000%.  There has to be some consistency in how the data is created to enable comparison across investments, business units, etc and truly balance the portfolio.
3. Actually, let me expand on #2 - stop hawking software altogether - The entire IT and project portfolio management space has become synonymous with "solutions", but having built a portfolio management discipline at a massive organization, I know as a practitioner that the tool is actually quite irrelevant.  We did it with simple excel and a SQL dbase for several years and over 5000 investments.  Instead, these vendors should tell their clients that IT and proejct portfolio management have more to do with (1) a process to value investments (applying modern portfolio theory and its valuation techniques to a corporate setting) along with (2) efforts to change the culture and behavior so that people will provide resources to the best ideas.  At some point, a software might be useful, but until the process and culture/behavior are where they need to be, the software is a nice way to make software companies wealthy.
4. Stop oversimplifying portfolio optimization - How many times have I heard a consultant or vendor say, "Our PPM (or IT Portfolio Management) framework, software, etc lets you identify, select and focus on those investments with the best ROI."  The portfolio cannot be optimized on one dimension and ROI, while useful, fails to consider strategic, risk, cash flow timing, innovation, and other important investment parameters.  Portfolio optimization is a bit like enlightenment.  You can aspire to achieve it, but you actually can never optimize a portfolio.  Advocating that it can be done on the basis of a single metric is dream-weaving at its best.
5. Refrain from sending out jargon-laden press releases which say absolutely nothing - We're glad to know that you have an on-demand, best-in-class solution that enables transparency, agility, compatibility, portability and that it has endless possibilities, abilities and capabilities, but do you really think anyone is buying this cr^p?  Sure you've been recognized by some random IT research organization, but how about actually saying something in your press release that demonstrates some understanding of IT or project portfolio management? 
6. Don't make up idiotic titles for people in your organization like "Portfolio Management Evangelist" - Given the recent trend in many large organizations to appoint meaningless Chief (anything) Officers, I see why consulting/software companies do this.  It sounds a lot better to be an evangelist than a boring old product manager or something more conventional and perhaps even descriptive of your role, but please stop calling folks evangelists.  Perhaps it is just because I think of Jim and Tammy-Faye Baker or Jerry Falwell when I hear the term evangelist, but conferring such lofty titles on folks to give them some illusion of expertise is not really advisable.  It becomes obvious they're not experts quite quickly. 

Bank of America earnings will be down due to the high cost of hand soap, crackers and flavored teas

When the going gets tough, it is always amusing to see how large organizations take impulsive inane steps aimed to cut pretty immaterial costs.  And it often seems the accountants lead these efforts as some cold, hard math in the form of a model probably drove the decision with little to no thought about the impacts (PR, employee morale, etc).  Let's add Bank of America to the list as they recently re-engineered the following big-ticket items as reported in the NY Post.  The Post writes: 

Bank of America chief Ken Lewis may have taken home $28 million, but he's still slashing wasteful perks such as free soup and crackers for employees.

The nation's second-largest bank posted grim notices yesterday around its offices here and elsewhere that it no longer can afford giving employees any freebies.  The notice listed goodies it will eliminate at its employee kitchenettes: soup, crackers, flavored teas, sugar-free hot chocolate and hand soap.

The bank presumably will keep hand soap in bathrooms. City laws require it, but not necessarily at snack counter sinks.

Since there are no food or beverages to handle anymore at the kitchenettes, there's no need for soap to wash hands - a found bonus for bean counters."We'll continue to have plenty of soap in '08," a bank spokesman said dryly.

Instead of not making bad loans or innovating with new products or re-engineering real costs, it is unfortunate companies do ridiculous things which serve to only upset employees, garner bad press and ultimately do nothing for the top or bottom line.  Perhaps enabling a process and discipline by which they can consistently make better decisions (portfolio management, anyone?) would be a better investment than forcing employees not to wash their hands.

CPMA member portal goes live

The Corporate Portfolio Management Association's member portal (still in beta) is now publicly available.  Most of the content is available only to practitioner members of the CPMA.  But as some of you had inquired with me about this, I wanted to post the info here on my blog.

The member portal is available here.  (http://www.corporateportfoliomanagement.net)

Happy New Year!  Looking forward to a great '08, and I look forward to your continued ideas, comments, etc