Businesses today spent roughly 5% of their gross revenue on IT and end up with very little to show for it. A couple of very bright guys over at the Harvard Business School (David Upton and Bradley Staats) have come up with a new approach to Enterprise IT Projects. They started their research from Eric Raymond‘s (programmer / open source champion) point-of-view: most IT projects are built using the Cathedral Approach:
- they cost a lot,
- they take a really long time to create,
- and they only start to deliver any value after they are all done.
The Harvard guys believe that they have come up with a different approach that slashes costs while at the same time boosting the existing business and even making it easier to launch new ones. Sound interesting? Read on!
The new IT strategy is called the “path” approach. It assumes that there is no way that you can define all of a system’s specifications at the start of a project and so instead you just focus on laying out a path for the system to be further developed over time.
As a proof that this approach works, they studied the Shinsei Bank which is a a Japanese bank. In 1998 Shinsei was in a bad spot: it had had gone bust and (due to bad loans — sound familiar?) sold to the U.S. private equity firm Ripplewood Holdings. The very smart guys at Ripplewood got Masamoto Yashiro (former chairman of Citigroup Japan) to be the CEO of this struggling bank. Yashiro decided that Sinsei needed to compete based on a strong IT department. Here’s how they used a path-based approach to do it:
- Instead of implementing a new “big bang” set of business software, they took a different approach. They build a modular infrastructure that would allow them to put pieces in as needed.
- They build new systems that mimicked the old existing systems that the bank was already using. This allowed them to switch folks over to the new system and then make gradual improvements without requiring extensive retraining.
- They helped to ensure that the IT department was integrated with Sinsei’s business strategy by having the CIO report directly to the CEO. Note that this is different from many U.S. firms where the CIO reports to the CFO and is effectively “hidden” from the CEO.
- The Sinsei business unit heads spend a lot of time learning to “talk IT”. This helps to break down internal communication barriers.
- Sinsei IT application development projects start by focusing on the foreseeable business objectives — not the existing business environment. In other words, they think about how they want things to work, not about how they can automate how things currently work. The IT strategy is then built to meet this forecasted future.
- This is key: the Sinsei business folks tell IT what they need. IT creates prototypes and has the business side use them. This causes feedback and new possible solutions are identified.
Finally, the Harvard boys identified three characteristics of a path based IT solution that will allow it to succeed:
- Use a minimal set of standards: pick a few and stay with them. This will reduce costs and simplify the entire project.
- Create Simple Reusable Solutions: This can be as simple as taking each IT problem, breaking it down as far as it can possibly go, and then implementing solutions to those individual problems. When the low-level problems are connected together you’ll have a flexible solution that can be easily adjusted if any component changes.
- Create Solutions With Modularity, Not Just Modules: Getting back to the original definition of modules, this simply means that you can tinker inside of one module without impacting any of the other modules that make up a complete solution. A good example of this is to create a solution that can be rolled out in phases. This limits your risk, allows users to get used to the new business software, and allows time for changes to be made.
The Harvard boys conclude their study with one final note of caution: if you want to build on what you’ve accomplished with an IT project, then you need to ensure that you have the committed involvement of your end-users. Otherwise you can expect to fail. In the end, the Shinsei bank is doing quite well due in part to its strong IT department. The realization that most large IT projects end up failing due to internal resistance instead of any technology issues, the path based approach to IT projects has allowed Shinsei to completely re-invent itself.