In major companies, one out of every four expense dollars is spent on information technology. As IT becomes more important to business, it has to be run as a business--be market competitive, be market ready, offer the customers options, manage itself with a strong fiscal accountability, treat the money it's responsible for as an investment. The notion of running IT as a business really means making IT competitive through the regular market pressures of the business that houses it, and more and more companies are understanding this.
TEXT TRANSCRIPT: 18 January 2001
Copyright 2001 Quality Plus Technologies and Carol Dekkers. All rights reserved.
Announcer: Welcome to Quality Plus E-Talk with Carol Dekkers, brought to you by StickyMinds.com, the online resource for building better software. This program will focus on the latest in the field of technology. All comments, views and opinions are those of the host, guests, and callers. Now let's join your host, Carol Dekkers.
Carol Dekkers: Hello, welcome to Quality Plus E-Talk with Carol Dekkers. The theme of this thirteen weeks is "Building Better Software," looking at the tools, the techniques, the testing requirements, cost estimating, together with our sponsor StickyMinds.com, who I'd like to thank for sponsoring this show. This week it's my pleasure to introduce you to Dr. Howard Rubin, who was actually my first guest back on September 13 when we started this series of Quality Plus E-Talk. So before I introduce Dr. Howard Rubin, I'd like to tell you a little bit about me and my company. We help companies to build better software through measurement, and one of the things I'd like to offer our listeners this week is one of the techniques we use to introduce measurement into a company, if it makes sense, is something called Function Point Analysis. And what we have done is we have put together a calendar which allows you to see how Function Point Analysis fits into the Software Engineering Institute's Capability Maturity Model. If anyone would like a copy of this free calendar, please send me an e-mail at Dekkers@qualityplustech.com, and if you didn't catch that I'll give it to you at the end of the show, and you can also link through StickyMinds.com. So I'd like to welcome all of our listeners from all over the world, all over the country, and I'd like to introduce you to one of my very good friends, Dr. Howard Rubin. He's a META Group research fellow, the chair of the computer science department at Hunter College, he's CEO of Rubin Systems Incorporated, he's in charge of IT performance engineering and measurement strategies...many of you may know him, he's a leading authority on IT measurement, he's the author of the absolutely world-heralded Worldwide Benchmark Report. He's a researcher, speaker, consultant in software economics, Year 2000, software engineering process dynamics...I could probably spend the entire hour describing Howard, but that wouldn't be fair because then we'd never even get to talk to him. So, without further ado, I'd like to welcome Howard to the show and say I'm very pleased to have you back.
Rubin: Thank you, Carol, I'm pleased to be here. It seems like a fast thirteen weeks since the last time I was on.
Dekkers: Well, and time seems to go faster and faster. Every time there's a new technology introduced, I feel like my week gets shorter and shorter.
Rubin: And actually, I think, the thing we know from our worldwide trend tracking that it's almost like dog years and people years, but it looks like every year right now is the technology change rate...actually, if you go back to 1990, every two years of the 1990s you experience the entire technology change rate of the previous decade, '80 to '89 and right now, one year right now in terms of technology change is virtually worth the entire change rate of the 1990s all over again.
Dekkers: It's amazing.
Rubin: It's fairly amazing--it's a real fast forward change.
Dekkers: Now, we had titled this show "The New Business of IT, Running IT Like a Business" and I'd like to give our callers the toll-free line if they'd like to join in, pass a comment on to Howard, and that is area code 866-...it's toll free, 866-277-5369. If you'd like to call in and pose a question or if you've got some comments you'd like to add as we're going through the show. So, what is this Howard, the new business of IT, running IT like a business?
Rubin: Actually, the amazing thing, I mean if any of your listeners...just step back for a moment, in terms of IT, where IT was going, back in time it was a back office. The world has changed now, and IT is sort of totally fused with the business activities right now, and you look at the major banks and companies, and not forgetting about the dotcoms even for a moment, about major companies, one out of every four expense dollars is being spent on information technology whether it's in the IT budget or not, so in fact as IT becomes obviously more strategic, more important to the business, it becomes an increasingly large part of the cost structure of the business. IT can't be run as, I hate to use the word loosely, but IT has to be run as a business, that means IT has to be market competitive, it has to be market ready, it has to be offering the customers options, it has to be managing self with a strong fiscal accountability, it has to be treating the monies that it's responsible for as an investment and on and on, so the notion of running IT as a business now, really a business within a business or a business as part of the business, really means taking IT and making IT competitive through the regular market pressures of the business that houses it, and you feel like you're seeing this all over the place as more and more companies are understanding this.
Dekkers: And you said a bit of a challenge when you take...I know some of the CIOs have come up through the ranks of technology and so they're very technical savvy, but how can they fit into the business if you've got a lot of technical people managing technical people and now the new paradigm of "let's run it like a business..."
Rubin: They really have to enter what I would say is a whole new mind set, and this is not an easy transformation and not all are going to make it. In some companies, I mean, look at the range of things. IT in most companies is managed as a cost center, sometimes there's a cost center, where things have been charged back sometimes or not, sometimes the IT dollars look like funny money, sometimes IT dollars are just set by some corporate dictum that says "we will spend no more then 3% on technology and that's that," and that's one of the heritages, managing it to some budget cap and treating it as an expense. When I said the mind set has to be changed to make the transformation, in fact the CEO of a company in conjunction with the CIO now really has to think of them as an investment fund manager, and that investment fund is the investment in the company's technology assets whether these are the people, the processes, or the applications themselves. And you know if you become an investment manager or fund manager...a little later I'll talk about the notion of portfolio management...I mean that's what this transformation is about. You're going to have to look at the managing, this is a business, is saying, you know, "what am I being asked to do, what value am I delivering, what's the cost, what's the yield in managing toward that return..." So, in one sense historically the technology was used as a cost, in some companies it was used as a bottomless pit, and in some cases it was viewed as a pit that was not quite bottomless as capped, and we're talking about the changeover now as to IT investment management and using general strong business principles, and actually the principles I really espouse are the ones of portfolio management, where you understand your IT investments are splattered across investments of various levels of risk, some things are venture, some things are solid, the dimensions of those investments which have to again go for the application to the technologies infrastructure to the people or so on. When you're putting money into any of these things, you've got to do it with an expected yield and your business is managing to the yield but also understanding that, that money is not limitless, but what are the right investments to fund and what are the proper hurdle rates. So this is really, you said someone coming from the ranks who are worried about programming and product leaders...project leadership and maybe moved up to an IT director standpoint and their, their basic operating was managing to a budget, right now the change is running this thing like a business, figuring out really what that budget should be and seeing that the business is getting the true yield. So it's a big change but starting to see this everywhere.
Dekkers: And I think it's been a slow change in coming. Slowly the CIOs have been invited to the management table. It used to be that CIOs were under a vice-president or under a chief of finance or something like that, but it seems like they're now emerging to be almost a part of a big eight, sitting at a management table where they're expected to be running things like business and in some cases I think the rest of the business has to start looking at IT as being an integrated part rather then just that other department.
Rubin: Well, yeah, as I said there are a couple of reasons they're sitting at the table, if one out of four of your expense dollars is going through IT you want the guy who's managing that one of four expense dollars to be visible, so you can shoot at him whenever you want, so you want him at the table, not buried somewhere. I mean the money isn't in a lot of places, but number two, the important thing to understand is that running IT as a business just doesn't mean the CIO at the table, because what we know from our worldwide benchmark activities that for every dollar that companies are spending, that's under the central IT budget, whatever that really might be, there's probably one dollar in technology spending that's outside of it. So a company that might be saying they're spending, whether it's 50 million or 100 million or a billion dollars or two billion on technology, that they know about through the CIO's area, that's probably an equal amount outside of that, so running IT as a business has two levels of meaning. One level of meaning is that in fact the IT resources that are under IT control are managed as a business but I also want to make a point with number two, is that there is probably no part of a business that doesn't have some technology content where the business manager is not making technology investments themselves, and they have to understand how to manage the IT in their business as a business. So this is a real bigger, bigger picture, and the other thing if you start looking at what's going on continually in the world of business, in the '80s and '90s, the '90s in general, we saw lots of industry consolidation and good stuff like that going on, mergers and acquisitions are, the pace is still there, we still hear this in the news, we're watching this year AOL/Time-Warner, and VIACOM/CBS and Chase and JP Morgan, all these things going on. You can't merge without having the right investments in IT either, so it's a really wild picture and just to sort of summarize this statement, we've gone through a history of sort of what I call IT being managed as a fission reaction, where people put money in as a cost got critical mass and now we're going to a world of running IT as a business within the business, in all aspects of the business, and this has to be a cold fusion reaction, no heat generated, seamless, and generating massive leverage from the business down to the lower infrastructure.
Dekkers: Right, and that's a very interesting way of putting it, from heat fission into cold fusion, that's going to come to bear I think with a lot of people that are listening and a lot of people that maybe have science backgrounds. This is an interesting way of looking at it. Jill Scott of Florida sent us in a question that I'd like to pose to you, and I'll pose her question in a little bit different way. She asked..."On the StickyMinds radio show page, it mentions briefings you provided to the Clinton Administration. What information were they looking for, what was their interest in software metrics and economics" and I'll just add to that and say this portfolio management, running IT like a business, is that something that you provided as well to the Clinton Administration?
Rubin: The Clinton Administration, the briefings and information that I was providing to both the President and Vice-president and actually the e-commerce working group committee that I was part of, focused on really three levels of things. It started in 1995, when through the worldwide benchmark activities, we were looking at the world IT labor, labor markets, and in fact when I first met the President in '95 my comment to him is that...he is a big student of history and understands, I guess the cliché of how history repeats itself...and I said "Look what's going on in the software world, not to say this is good or bad, but the piecework is going offshore like the textile industries and SAP, and the large premium packages were coming in from offshore, and the US didn't have a good understanding of the global software and technology economics, number one, and number two, they didn't understand their labor competitiveness and a lot of information on that, and that sort of spawned a good part of the IT labor convocation stuff that was run by the ITAA. The next thing beyond that in terms of technology and technology competitiveness has come in, things I've been doing on the...my new global new economy index, if anyone is interested in this, you go out to www.metricnet.com. That's where all our data is housed and the global new economy index concept was that fundamentally the economists, department of commerce, department of labor looked at things from the view of a GDP, GNP, and consumer price index. Those didn't fairly represent the technology content of what's going on in the world, nor would reflect the future competitiveness of nations, so we developed another index and that information was disseminated around and actually used widely by the public sector e-commerce committee group. And there's a whole bunch of stuff in between. If you think of a time period of his administration, where Year 2000 stuff was going on, so a lot of this stuff is targeted around the issue of the Year 2000, so fundamentally the data supplied to the White House focused on the global competitiveness of the US, sort of the trickle-up effect of software productivity in performance and where that hits the government itself and really what it does for our nation's competitiveness and actually the details of what we've done were much more actively used, interestingly enough, by the government of Canada and the Philippines and the government of India.
Dekkers: Interesting, and we will be back to talk more about "Portfolio Management: Running IT Like A Business" with Dr. Howard Rubin after these short messages.
Announcer: Quality Plus E-Talk is back. Now here's Carol Dekkers.
Dekkers: And welcome back. We've been talking to Dr. Howard Rubin about running IT like a business, the new business of IT, and before we went into the break Howard was telling us about how he was advising the Clinton Administration, and we were talking about Portfolio Management and I guess one of my questions for you Howard is, if we move towards this Portfolio Management, into running and managing IT as an integrated part of the business, will this improve the US competitiveness overall in the world, will that bring up our competitiveness in terms of your worldwide benchmark studies?
Rubin: Yeah, actually, what actually happens, when you start managing things as a portfolio, that fundamentally means that anyone who is responsible for any aspect of IT, whether it means the operations or applications development, whatever part of it, managing like a portfolio as portfolio means you're always managing this investment and you're always watching your cost structure. In fact, what that means is IT then moves to a market ready posture, that anyone who's playing the role of the portfolio manager knows what their cost structure is, has to understand through benchmarking the cost structure of their competitors, has to understand what the open market pricing is by integrators or outsourcing providers and also has to understand what the offshore prices are and what the opportunities are elsewhere. So in fact, when you go to portfolio management you're turning yourself into a market ready organization which means you have to both serve your company in the right way and whole enterprise, in fact, is understanding your cost and performance structure against competitive national and global market, so fundamentally that will force people in an IT organization to truly look at the economics of what they're doing and I wouldn't call it best price shopping, it's best performance shopping, but in fact have a much more competitive view of their IT services they provide, which will leverage their services and products within the company they're part of and will help make, you know, companies in any nation that's doing this more competitive because it's basically making IT work as if it's a free market economy. We already know from our work that companies in Europe...if you take two companies, a company in US and a company in Europe, and you look at the cost structure of IT in Europe, for example, Germany is much more expensive in labor but for the same revenue base in the US versus Europe, European companies are on the average ten to thirty percent more efficient in applying their IT resources to the business.
Dekkers: And that's...tell me more about that...what do you mean by more efficient in employing their IT resources?
Rubin: Well, the top line measures if you look at IT's spending for revenue, which is not the ultimate measure, but if you take a look at how much revenue they're supporting per IT dollar, European companies for the same size revenue are able to be more efficient at IT resources as measured from the economics and supporting revenue and income and the change in those through the resources. US companies are less efficient in sort of their frontiers in general. We're finding US companies are higher innovation, and the higher innovation is good in some ways, but it also drives down their productivity because their people are always absolutely on the learning curve. A lot of European companies play fast follower, which means they're not dabbling as much on the fringe and they're able to turn much more of their investment into revenue support and profitability. So per IT dollar, a European company and a company in the US that's spending four percent of revenue to support the business in IT, the equivalent company in Europe is probably around 3.2%.
Dekkers: Oh wow, that's a pretty major difference.
Rubin: Yeah, IT dollars become more and more part of the expense base of a company. Most companies don't understand their IT cost of goods, but when their IT cost of goods, whether that goods is intellectual product, whether that good is a manufactured product, it's blowing their cost structure away and knocking at our global competitiveness.
Dekkers: Right, now as a listener, we've got a listening audience that has QA managers, test managers, middle management mostly, and as their organizations start kind of turning this huge mothership I guess you could call it, as we're turning this slowly in the direction of starting to do more portfolio management, what can these QA managers, the test managers, what can they do in their jobs to start preparing for this?
Rubin: Actually, they're right in the middle of it. Just go back to the portfolio management metaphor and forget about IT for a moment, and anyone who's listening to this just think about their own portfolio investments, whether it's in their retirement funds, or 401(k)s, whatever their personal investments are. When you look at the investments you have, clearly you look at the amount invested in different kinds of instruments and commodities, but what differentiates those instruments is, when do you get a return from how far in the future, what's the level of risk, and what are the quality of those investments? So if you just pull that back into IT, that pivotal role of people, whether that quality manager or the process of program managers around software process improvement, fundamentally they are the gatekeepers and managers of a lot having to do with being able to calibrate and monitor the quality of investments. And even when you look at the CMM, the software process stuff, look at the historical charts going back to '87, they talk about the change in productivity and quality in management of risk, so the interesting thing, the context of process management and quality management, quality assurance are all mechanisms that focus on a typical portfolio of activities, the management of risk, the improvement of quality of investments and the management of the yield. So I would say anyone in this field should just really start to think, and maybe the reason that quality people aren't in the pivotal place they really should be, and deserve to be, in many organizations, has been they really haven't cast their positioning in these terms. And so I think this really helps portfolio managers redefine the role of a lot of this stuff.
Dekkers: And I think that's difficult sometimes when you've, when you take a paradigm shift, when you see how you should be thinking in the future, and the way that the future is going, how do you get there from here, I think is one of the challenges when you're in a staff position, you're in the middle of the large group of professionals, how can YOU start making a change towards that direction. I think that's a challenge.
Rubin: A lot of the change has to do with communication and I think, in the work that I do, everything from CEO's to in the trenches level troops building systems and looking at this worldwide, the issue really becomes communication and the terminology and the context people are setting for their own work.
Dekkers: I'd like to hear more about that when we return from these short messages.
Announcer: Quality Plus E-Talk is back. Now here's Carol Dekkers.
Dekkers: And if you're just joining us at the bottom of the hour, I'd like to welcome you to Quality Plus E-Talk with Carol Dekkers. I'm president of Quality Plus Technologies which helps companies to build better software using measurement. And our guest this week is Dr. Howard Rubin, who is a META Group research fellow, actually the vice-president of META Group, he's the chair of the computer science department at Hunter College, the CEO of Rubin Systems and a cast of other great, great things about him. We've been talking about running IT like a business, the new business of IT, and before we went into break we were talking a little bit about communication, and on that line I'd like to give out the toll-free number one more time. If anyone wants to communicate with us, it's 866-277-5369. And we're back Howard, did you want to finish off what you were talking about the communication, how communication is kind of the essence?
Rubin: Yeah, and actually for years people have always talked about communication. When I just brought this up it was in the context of sort of the revitalized new role of, in QA and process, and I think that quality assurance areas of IT organizations and the people involved in process improvement, the CMM type stuff, they have to start thinking about the true value they contribute to the enterprise and be able to communicate in that way, and the true value they can contribute has to do with part of the stewardship of the IT investment, and the communication should start to be along the lines of the business impact of what they do in terms that would be useful and familiar to the business, so talking about things in terms of defect rates and all this other stuff is very nice and in certain societies manufacturing companies and things like cost of quality is very nicely understood, but in about the twenty-five or twenty-six other sectors we track, in fact the communications should start to migrate and change along the lines of managing risk and the quality of the technology investments that the company is making and that's the role they are playing, so I'm talking about a shift in terminology that'll help these concepts get sort of institutionalized or socialized, and start getting consistent with the way that businesses need to have their IT resources managed as a business.
Dekkers: Right, and I think that will help people, that the shift in terminology, people are always looking for, "What can I do in my job to make things happen?" I had pulled out an Information Week, September 18, 2000, article and it's called…and it seemed to tie in when you were talking about how history kind of repeats itself…Leon Cappleman wrote a article called "Almost Everything Old is New" and his tag line is, "What keeps CIOs up at night these days?" A lot of the same things that have always given them insomnia. He says CIO insomnia…he ran a series of focus groups…was connected to things such as expanding roles of CIO and IT management, resource constraints and times of increasing IT budgets, rising user expectations, and the increased priority of IT in the enterprise. He mentioned a couple of other things like privacy, credibility, accountability, staff retention, which are fairly typical, but what do you think is keeping CIOs up at night?
Rubin: Well it's a little different then Leon's list, although there's lots of similarities. I think everything old is new again is probably, I don't know, we can probably turn this around eight different ways, but just think about the IT intensity of business right now, so one of the things, in the past, go back fifteen/twenty years, what would anyone get woken up at night about, well, if something went wrong in a main frame batch environment, things went down, a window was missed, and some reports were there, someone would be called at night with a beeper, or whatever it is, to some operational problem. Well, right now I mean, I have companies that say they're 24/7, you know around the world I have other companies that say they're more intense, they're 8/36, they feel like they're working 36 hours a day eight days a week, so they're totally nuts, and what's this is about is that the network is in front of everything that's going on in the world of eBusiness. So what does keep the CIO up at night? Well, it's the reliability of their networks right now, and the fact that stuff is right in front of the business. what keeps them up at night is the financial engineering of their IT services into the business. What keeps them up at night is the cost pressures and the pressures to perform. It's not like the IT performance is three levels down in the data center right now, the IT performance is visible to the customer every moment of the say 24 hours a day, 365 days a year and some companies every time zone, so just think of the pressure of always being virtually on stage, and in fact if you take a look at the intensity of IT in a business, if Schwab goes out for an hour, if Schwab or E-trade goes out for ten minutes, I mean what happens to that, they start losing customers, the information goes out, their stock price goes down, and the person that gets called is not the guy in the back office on the network, he's not first to be called all the time, the person that's up in front of this is the CIO. So what keeps the CIO up is in their revised role of technology in the business, the price they pay, because they're on center stage all the time.
Dekkers: Now how does this fit into them emerging kind of as a portfolio manager, and what are the core competencies that they need to start developing and fitting into kind of what is really a very hectic role right now?
Rubin: Yeah, and hectic's a great word, Carol, because going back to the portfolio management metaphor, I mean think about the financial advisors that you and your listeners have given personal responsibilities for their investments. These people are online all the time watching the behavior of the investments, making trades, and dealing with very fluid and very competitive markets as funds flow in and out of things, and the world of portfolio management and the CIO…what are the competencies your need? Well, you need the competency of being a portfolio manager number one, what does a portfolio manager do? A portfolio manager is used to managing the cost side and the benefit side and the yield side, the quality side, pieces like that, to make all that work, though, what does the CIO have to do, one other core competency in this thing is the overall portfolio management is also the product management and the process management. There's also the resource allocation management, so in terms of the core competencies in this new age, along with this notion of portfolio management which deal with, as I said, the pieces that you need to focus on from the different sides of the issue, is the ability to look at products, the ability to look at the resources, the ability to deal with the allocation, and the ability to deal with all this in real time while doing continuous benchmarking against competitors, continuous benchmarking against cross industry sources and continuous benchmarking against the external providers of other options that the customers have so there are a whole bunch of pieces of this everywhere, as I said the portfolio manager, which has subdisciplines of financial management and yield management and risk management and quality management out to the operational stuff with regard to everything from process management and then into the tactical aspects of who do you deploy to do what, which is the resource management...
Dekkers: Now do you think that the Capability Maturity Model that the Software Engineering Institute introduced will help, and has started to help in the process management area?
Rubin: Yeah, well clearly, I mean, one of the aspects of things that keep a CIO up at night has to do with the ability, you know, to fund what needs to be done. Businesses are pumping money into technology, but IT has to pump money into improving the whole structure of the cost of goods in their own processes, but actually we've learned from the CMM is companies that have made the important investments in improving their processes are doing a lot to manage risk and improve quality and this gets to the heart of the portfolio management, so without a focus on continuous process improvement and process benchmarking and increasing quality of investments and lowering the risk, you're nowhere in this game, and that's again going back to my earlier statement why QA and CMM like activities, process improvement become pivotal activities. There's another piece of it by the way, because when we talk about portfolio management we're talking about, you know, what is a portfolio, well the portfolio is the collection of IT assets, and the IT...what are the asset base of an IT department have to do with their application in business systems, have to do with their infrastructure, has to do with the physical plans, has to do with the people and the intellectual capital and the processes and all the things…those are the IT assets and that's your asset base, and really what changes the asset base, well the portfolio you're managing is the collection of existing assets and this thing called the project portfolio, and the project portfolio is what changes the asset base, whether it's upgrading equipment or introducing a new business system or enhancements to an application. A project is anything that changes the asset base. So to change the asset base you need a process to do that, and that's where the notion of process maturity comes in, so you can't even manage the asset base effectively unless you have continually improving process management. The process management is really what controls your changing the investment itself or even the mix of investments, so in fact things like the CMM or anything that gives you a structure for assessing process improvement, allowing you to financially engineer what level of process you need to meet your goal so you don't need to over engineer things, it becomes absolutely business critical.
Dekkers: And that's very interesting. The CMM, the product management, it sounds like we have so much to do and so little time and what types of things should we be measuring in this new portfolio management type of model?
Rubin: Yeah, actually the portfolio management model, I guess in some sense…the basics of what you need to measure are critical, some of the best in class companies we look at, what are they measuring around, their chosen thematic measures, of what it is, I mean there's one theme of running IT like a business, what do you measure around that theme, you measure around your efficiency, your effectiveness, your level of customer satisfaction, and your risk in quality management. Those are some basic themes about what it means to run IT like a business, but clearly along with that, what else you need to deliver, what you need to measure, is to measure along your commitments beyond the subjective aspect of customer satisfaction you need to be measuring on your ability to deliver the existing technology promises you've made. And there are a few other pieces. I think we'll get into them in the next segment.
Dekkers: We sure will. And we'll be back shortly with more of Quality Plus E-Talk with Carol Dekkers.
Announcer: Quality Plus E-Talk is back. Now here's Carol Dekkers.
Dekkers: Welcome back. We've been talking to Dr. Howard Rubin about running IT like a business, and just before we went into our last break, he had started to talk about metrics and what we should be measuring and I'd like you to finish that off please Howard.
Rubin: Yeah, it's just to quickly recap, some of the most successful measurement work I've seen now around running IT like a business has been very thematic, and by thematic means the measures are organized around things you need to show and I said the basic things, to back up, is a whole category of sort of running IT like a business, which means you need measures that focus on your cost efficiency which means you need to have metrics which deal with business entities to IT entity ratios, keep business indicators connected to IT and key IT unit costs. You need to understand your cost effectiveness measures, you need to have measures around risk and systems quality, pieces like that, but in addition you need...and customer satisfaction of course...but in addition you need to have measures that show you're delivering on your existing technology promises, your existing automation, so there'd be a class of measures which had to do with your operational systems performance, those are no surprises, but you also need to have measures on your promises to deliver new systems in technology, and that has to do with the progress measures on your projects and processing. Historically, people have always measured stuff as being on time and on cost, that's…we're beyond that now, people have to be focusing on time on cost and on scope and on value, business case is a part of measuring of those promises, and then in addition clearly, with the rate of technology change, another area that companies need to measure to manage IT as a business really focuses on their modernization rates, is one way, what rate are they refreshing equipment and investing at, their infrastructure and applications versus their competitors and there's another category around human resources, so one example of structures to measure to run something as a business means you're going to look at your cost efficiency, your cost effectiveness, your customer satisfaction, risk and quality of your investments, you're going to look at your ability to deliver the existing systems and automations, support the businesses asked for, you're going to look at your delivery of the things you're currently producing, your new automation or new technology, you're going to have to look at your level of investment and modernizing infrastructuring, and you have to look at your people, so this is a bit beyond your balance scorecard, but within all this there's the notion of measuring things about your continuous process improvement, and I've already mentioned quality, so the scope of metrics I see as being thematic, organizations need to challenge themselves to say what are they trying to accomplish, what does it mean to run IT like a business in their context and drive the measures for business communication from that and take a look at their IT organization as a collection of portfolios, whether there's a portfolio of operational systems and a data center or a network to portfolios of systems that support lines of business, and say what are the right measures for each of those things and have a complete composite system. Again, one way of looking at this, if you look at your CIO/CFO or executive level, is the fund manager--that IT fund manager manages a collection of portfolios, each portfolio needs to have a portfolio manager, and each of those portfolio managers needs to measure things along the lines of their individual portfolio.
Dekkers: And that seems to tie everything together. You're talking about integration with IT in the business, bring everything together and make it an integral part of the overall business and treating IT as an investment rather than expense.
Rubin: That's correct, and actually the more advanced measurement work we're doing now is that we never have measures that don't have connection to the business, so our measurement model usually has some business entity measure to some IT measures as a ratio. Then the IT ratio has dropdowns through the IT processes, so businesses can start to understand…I'm going to use a little term loosely…their IT cost of goods doesn't have to be physical goods, it could be investment instruments and intellectual property, it could be cost or transaction, but they need to understand how IT fits into that, it needs to understand the value, aside of that the value measurement to that in that we call that value buckets and that trickles down into all the measures of the individual portfolios, so you can start to understand what business performance looks like, you can understand technology performance, you can understand the linkages and how things connect.
Dekkers: And this is a long-term type thing. This isn't something that people are going to accomplish in a month or two months or three months. This is something that's going to take them awhile.
Rubin: Well, the companies that we've been particularly working intensely, companies can't afford to wait to do this too long. This is almost like IT angioplasty, I mean you sort of got to get on the table and do stuff and to be able to do it rapidly. What we've found now in terms of doing this stuff with large companies, Verizon or AIG or others that have aggressively decided they need to move into models like this, typically it takes about a month or so, a shakeout period to understand what are the right lines and themes to measure, about another month to build a prototype and another month to just populate things with data. Now most companies don't have data and they sort of go through data maturity stages, and measurement maturity stages have to do with not having any data at all to having data and then saying it's wrong and not trusting it, to building up trust with the information to eventually managing with the information, so we usually find that it takes three months to do the schematic package and scorecard design and it takes another three months to do initial population with some real data and start moving over the hurdles of shooting at the data to data trust and it takes about two other operational cycles 'til the stuff can get institutionalized. So you can be up and running on the stuff in three months so you can start using it within a year.
Dekkers: Interesting, and that's good news. It's not going to take people nine, ten, twelve months to design a program or design something...for anyone that's listening...
Rubin: You spend more than a quarter designing a program. Look, the management flux is so high in this industry that there's no attention span for things that last more than a quarter, so you've got to move fast, build from a kernel and stick to the themes. Don't focus on the measures, focus on the themes of what this business, about how it distinguishes itself, and how you're going to show what you're up to.
Dekkers: And those are great words. We'll be back to sum up shortly with Howard Rubin.
Announcer: Quality Plus E-Talk is back. Now here's Carol Dekkers.
Dekkers: And we're back to sum up with Dr. Howard Rubin, who we've been talking to about portfolio management and running IT like a business. And for any of you that are listening that are thinking, you know, gee, gosh, I wish that my manager could hear this, I wish that I could give this to my CIO, you're in luck because StickyMinds.com is going to be transposing all of our tapes into downloadable files that you'll be able to take from the archives and download them. We're also transcribing them into paper copies so you can actually download a paper copy and take that and have your management and your IT CIOs listen to this exact show because Dr. Howard Rubin has some very interesting and insightful things that really matter to your business. So I'd like to thank you Howard for being a guest on the show. It's always a pleasure to have you as my guest.
Rubin: Thank you very much. I really enjoyed this.
Dekkers: And I'd like to introduce who we're having on next week's show. We've got Johanna Rothman, who is a senior consultant. She runs her own company and she's going to be talking about Test Management 101. I'll just give you a little bit of an introduction, she's a frequent speaker and author on managing high technology project development, she's written articles for Software Development Journal, I Triple E Software, Cross Talk, StickyMinds.com, she's the founder and principal of Rothman Consulting and a member of the clinical faculty of the Gordon Institute at Tufts University. So Johanna will give us a lot of insight on testing at the right time, doing the right products, recruiting and maintaining the best people, and really doing a good job of Test Management 101. So she's our guest next week. We've got other people lined up in our thirteen-week series. Tom DeMarco will be here, Kent Beck, Ward Cunningham, we've got a lot of surprises in store for you, so I hope you join us at Quality Plus E-Talk every Thursday from noon to one eastern time, ten to eleven mountain standard time, and Howard, it's been an absolute pleasure. I'd like to give you the opportunity to give out your Web site one more time and to give kind of words of wisdom for our listening audience.
Rubin: Okay, I guess the first thing in terms of the Web site, if you'd like to see any of the worldwide research we've been doing, it's at www.metricnet.com. It's an interesting site. You'll see what we call the world's first data economy, so you'll be able to get data off the site and be able to make data deposits to even get more data, so that's a world unto itself. But in terms of the context of the show today, I guess the only main words of wisdom that I have is that we are really…I've seen a clear turning point in IT, that IT and business are fused together in ways they haven't been before, that the technology now is actually getting in front of the business and fused with the business for delivery mechanisms, and that in fact what this has done is blown away all the old ideas that we've had about IT budgeting and processes and so on. And in fact for companies to be successful now as IT is a larger content of everybody's business and is business critical in ways that no one had even envisioned, that in fact IT has to be managed as an active investment, and by that I mean the IT opportunities your companies have are coming at them just a quickly as world markets and financial markets. We truly have a global software economy, a global technology economy, to be cost competitive right now companies have to be able to literally give their internal company customers a real market ready posture. That means they have to be able to take a look at what opportunities present technology presents to them, what's the cost structure that's right for the business, financial engineer solutions, and tap into the global labor and technology opportunity market, and the way that we see this being done is literally right now, is to change mindset of IT to an investment, shift IT from a cost center to a value center, adopt a portfolio management stance, and what we see at the highest levels of the major mergers and new business structures that are taking shape, the AOL/Time-Warner, even the Chase/JP Morgan, Glaxo-Wellcome, is that IT now has to restructure itself as the central part of the business. We start to see that IT organizations need to focus on the real business measures, the mean time to merge, the mean time to acquire. It's your challenge to build a new IT mothership.
Dekkers: And this is exciting, because everything you've said is positive for IT. There's been no pessimism and I think that's very exciting. I'd like to thank Howard Rubin and I'd like to thank our listening audience, everyone who's out there. I hope you'll join us next week. If you'd like free articles, any information, or send me email, you can go on our Web site which is www.qualityplustech.com and you can get free articles, you can send us email and find out more about what Quality Plus does. Until next week I'd like to say have a wonderful week, a wonderful quality week, and we'll talk to you next week for Test Management 101 with Johanna Rothman. Over and out, this is Carol Dekkers with Quality Plus E-Talk. Thank you for listening.
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