Decades of Disconnect

The disciplines of executive
management and information management have taken totally different evolutionary paths. Is
it surprising, therefore, that the practitioners of each discipline have evolved unique
cultures, values and vocabularies even as they have attempted to coexist? The disconnect
is based on the perpetuation and even glorification of these differences.

That the disconnect has been
allowed-sometimes encouraged-to persist defies reason. Until recently, some organizations
had actually encouraged the creation and maintenance of a separate IT subculture immune
from the normal rules that govern the rest of the enterprise. These companies have
developed unique policies, career ladders and compensation plans for their computer
workers. It is as if an organization had a completely different set of standards and
expectations for the people in IT than for people in, say, Human Resources or Accounts
Payable. By applying a set of career paths and incentives unique to IT, organizations
isolated the IT function, ostensibly so it could perform its mysterious tasks better. Most
of these misguided efforts grew out of general technophobia and mistrust of computers.

In retrospect, it’s not difficult to
see why the IT culture was so feared. Over the last three decades, computing and
communications technologies have become increasingly critical components to business
success. The community of technical professionals needed to support these information
technologies grew out of a population that had their own set of values, assumptions and
jargon-all of which were quite unfamiliar to those from finance or marketing-driven
corporate management. Because of these differences, IT and executive objectives have
gradually diverged and the gap between them has grown.

The isolation of information
technologists is the unintended consequence of the evolution of the data center in
traditional organizations. In the 1950s, when mainframe computers were first commercially
introduced, organizations were appropriately concerned about the physical environment of
these machines. Mainframes were large, expensive-they were among the largest capital
expenses in their corporate owners’ histories-and mysterious. Companies were proud of
their latest acquisitions and, like the art collector displaying rare, jeweled Faberge
eggs, were quick to build glass display cases where these machines could be periodically
exhibited and then, for the remaining 364 days of the year, vaulted for safety.

Organizations erected these ‘glass
houses’-so called because glass walls preserved the air-conditioned climate the sensitive
machines required-to physically protect the data processing machines from threats
environmental and human. But gradually the glass house and the values that developed
within its hermetically sealed walls diverged from the culture of the organization whose
mission it ostensibly supported. In some cases, the isolation of the data center was so
complete that the prosperity of the organization was totally unlinked from the fortunes of
IT. In the most extreme cases, an attitude developed that I can only describe as
parasitic. In these extreme cases, the legitimate relationship between the data center and
the organization was entirely reversed. The perception inside the glass house was that the
organization existed to ensure the data center’s continued survival.

It is no coincidence that the
disconnect flowered at the same time one hardware vendor, IBM, overwhelmed the IT market.
Customers had few alternatives in the early days of proprietary mainframes. A dominant IBM
helped maintain the disconnect because it benefited the vendor to keep both CEOs and
technical managers passive and in the dark when it came to making IT decisions. The
proprietary account control system made customers so dependent on the primary hardware
vendor that for all intents and purposes they forfeited meaningful choice. In more than a
few data centers, incredibly, the hardware sales representative substantially determined
the organization’s IT destiny. I remember visiting data centers where the IBM sales rep
even had his own office.

My intent is not to imply that IBM
was alone in this practice. Every hardware vendor-Burroughs, Honeywell, Univac (now
Unisys), NCR (acquired and subsequently divested by AT&T), IBM, Control Data-used its
proprietary lock-in to keep its customers dependent. These vendors kept a wedge between
executive and technical management precisely to maintain the vendors’ interests. This was
known as ‘account control’. It was perceived to be in the vendors’ interests and the
vendors, quite reasonably, perpetuated it! Don’t fault any of the vendors for this
practice. Had I been the CEO of any of those companies, I probably would have done the
same thing.

The overpowering influence of the
hardware vendors contributed to the disconnect in a number of ways. Most of all, it helped
keep people stupid. The most benign interpretation of account control is that to the
extent IBM played a reasonable enabling role, it relieved many executives and IT managers
of their responsibilities to be informed. It also, not coincidentally, robbed them of the
opportunity to work together for the unalloyed good of the organization. A less charitable
view is that account control was a massive conspiracy against computer users, a case that
the Antitrust Division of the Justice Department labored mightily to make.

Account control was a symptom of the
disconnect. Over the years, account control added hundreds of billions of dollars of
unnecessary expense to America’s organizations. These funds could have been put to work
developing new products, introducing innovative services and building stockholder value
for a large number of organizations instead of enriching a small number of hardware
vendors.

The good new is that account control
is dead. The competitive world of commodity computing killed it. In the open systems
world, customers can exercise much wider freedom of choice in their hardware and software
vendors. This freedom of choice, customers found, represents opportunities for significant
savings. Hardware and software vendors must now find other ways of winning customer
loyalty.

Ironically, as the disconnect eases
in this particular area and freedom of choice replaces account control, hardware and
software suppliers are transforming the vendor-customer relationship into a strategic
partner relationship. Customers recognize the value of freedom of choice and will exercise
it if a partner screws up, but most customers prefer dealing with a small number of loyal
strategic partners. Stable relationships are in everyone’s interests. The difference is
that the open market optimally aligns the interests of the strategic partners and doesn’t
favor one over the other.

Many CEOs believed they were being
respectful of IT when they agreed to a different set of standards for IT, threw
accountability out of the window and threw up their hands at a situation perceived to be
unmanageable. They could not have been more short-sighted. Among all others, this attitude
of detachment most accounts for the deplorable situation that developed. The attitude,
unfortunately, is not completely unknown even today.

CEOs actually joked about how
unmanageable the situation was. Referred to as software nerds, computer jockeys or bit
heads, IT workers were perceived to be essentially out of control. Businesspeople
snickered at programmers with their white socks and shirt pocket protectors filled with
colored pencils. Underneath this teasing was a conviction, often grounded in some reality,
that executives didn’t have the first clue about what kind of management programmers and
other technical professionals needed. Ultimately, this attitude equaled nothing less than
giving up.

The truth was that many executives
felt uncomfortable with their IT people because the executives were uncomfortable with
technology itself. After struggling to make sense of the situation, many CEOs quickly grew
frustrated and literally left the computer people to their own devices or, in
exasperation, assigned management of IT to the CFO, hoping that he or she could at least
kept the costs down. Predictably, the easiest thing for corporate executives to do was to
avoid the people in IT. To justify this practice, they rationalized that IT (pick one)
worked better without management, didn’t need management or was impossible to manage.

Isolating IT and regarding it with a
mix of fear and mystery was supposed to be evidence of the supreme importance in which IT
was regarded, but in truth it had the opposite effect. By isolating information systems
from the fabric of the business, IT became marginalized and the objectives of the
technologists diverged even more from the objectives of the business leaders. By the
mid-1960s, the disconnect was in full bloom.
If the disconnect formed so early, why is it only now that we are feeling the pain? The
disconnect has always taken a toll on the health and wealth of organizations, but only
recently has the damage been obvious. Still, American business has lived with the
disconnect for three decades. What has transpired to turn a simmering evolutionary
accident into a threat that, unless corrected, will boil American business alive?
Two major forces explain why the disconnect is suddenly so inescapable. First, IT has only
recently emerged as an enabler than can single-handedly determine a company’s competitive
edge. Thus the stakes have increased, as have the costs of failure. Second, global
competition has unleveled the playing field. If every player in the game is hobbled by a
similar disability, it’s easy to overlook the common handicap. But the recent emergence of
global competitors that by and large have avoided the disconnect makes the handicap
impossible to ignore. Let’s look at each of these forces in a little more detail.
Information technology as an enabler of strategic applications
In the dawn of the information technology era, the divergence of business needs and IT
resources was obscured by the limited role computers played and the general prosperity of
business in the 1950s and 1960s. Organizations had only one computer and its functions
were limited to back-office functions such as accounting and payroll. It was literally out
of sight, out of mind.
When computing was limited to the back office, it was easy for executives to ignore
computer problems. For many years, data centers served as black boxes into which a
corporate department such as the warehouse or Accounts Payable would file a request for a
computer application and later, sometimes years later, the black box would open and
deliver itself of a system that responded in some measure to a request made by a
department. With a little luck, the system would be reminiscent of the application the
department originally requested. More likely, it would be some anonymous system analyst’s
approximation of what the department wanted. Argument was futile because there was no
appeal to the data center’s conviction that it knew what users wanted better than the
users themselves. In any case, the point was often moot, because the passage of time had
so altered the requesting group’s requirements that, in the most perfect event, the
department could immediately and precisely address the specific challenges that were so
critical 18 months back, but were now quite irrelevant to the business.

People were in less of a hurry,
competition was less intense, and since the organization had no clue as to how much IT was
actually costing, it was logical to deal with issues that were easier to measure. Why
sweat it when everyone was prospering? American business flourished in the 1960s. There
was enough to go around without justifying every little expenditure. Besides, every
corporation had more or less the same problem, so everyone was penalized more or less
evenly.

At the same time, senior executives
became more isolated from the operational details of their companies. Corporations
cultivated large bureaucracies of middle managers. Top executives began using middle
managers as cops, protecting them from IT and other unruly issues of the corporation.
Middle managers learned that power stemmed from hording information, not sharing it. They
became gatekeepers of information between senior executives and IT, filtering directives
on the way down and analyzing information on the way up. These filters perpetuated the
disconnect by obscuring from senior management just how much of a rat’s nest the IT
situation resembled.

A number of overlapping economic
developments in the business world conspired to raise the level of frustration to the
breaking point. These themes-describing the shift of the developed world from an
industrial economy based on mass production to a knowledge and service-based economy
enabled by IT-are familiar to many readers. The role that these forces played in exposing
the liabilities of the disconnect are less well understood. These developments raised the
stakes to an alarming level, making the costs of the disconnect impossible to ignore.

DEVELOPMENT 1. KNOWLEDGE OR LEVERAGED INTELLECT: The
disconnect is incompatible with knowledge economies. In an economy based on brain rather
than brawn, we pay homage to the ‘information economy’ as if it operated without the need
for human beings. The truth is that knowledge is created by human beings and consumed by
human beings. Computers can manipulate vast amounts of data and can often reveal patterns
that human analysts miss, but anything worth knowing is the product of human intelligence.
What we are really talking about is supporting knowledge workers networked to create
products and services for knowledge consumers.

As companies shift toward knowledge
work, the key assets of the new economy become intellectual capital focused on the
knowledge worker. Knowledge workers already outnumber industrial workers by more than
three to one. Knowledge is not simply another resource along with traditional factors of
production such as labor, capital and land; it is the only meaningful resource today. When
knowledge workers are an organization’s greatest single asset, any hint of the disconnect
rapidly becomes debilitating because it short-circuits the exchange of information and
befuddles the decision-making process. In brief, the disconnect alienates knowledge
workers from their own power.

DEVELOPMENT 2. INTERNETWORKING: The
networked economy is short-circuited by the disconnect. Never have organizations been
poised to create as much wealth as that made possible by the networked economy. A shift in
the style of networking-from the centralized mainframe computer of the past to the widely
distributed networks of users based on the internet computing model-makes possible new
institutional structures that offer profound opportunities for profit.

The disconnect is at odds with the
attributes of networking. While the network is open, the disconnect is closed. While the
former relaxes or eliminates boundaries, the disconnect applies more mortar to rigid
structures. While networking encourages democratic and fluid relationships, the disconnect
favors hierarchical barriers and inflexibility. The networked enterprise, like the
internet itself, offers a domain in which everyone can participate and the total effect is
greater than the sum of its parts. In such as environment, the disconnect doesn’t stand a
chance.

DEVELOPMENT 3. COMPETITION FOR
KNOWLEDGE: Squeezing out the inefficiencies of the disconnect. As demand for computer
applications increased, competition for finite IT resources became first intense, then
ridiculous. Application backlogs-the waiting time users had to endure before their
applications were even considered-often exceeded two years. User departments, fighting for
attention and priority, became curious about the management practices within IT.
Complaints were so loud and relentless that senior management had no choice but to peel
off the covers and take a look. Rarely was it a pretty sight. Prince Otto von Bismarck
once warned that one should always decline invitations to observe firsthand the
construction of sausages and laws; he could have added to that list the development of
information systems.

The disconnect played a crucial role
in making the process of developing and deploying new information systems so
time-consuming. By putting obstacles in the way of true teamwork and peer-to-peer
cooperation, it added years and millions of dollars to otherwise manageable projects.
Worst of all, it squandered opportunities whose benefits would have been incalculable.

DEVELOPMENT 4. TIME COMPRESSION:
Dismantling the disconnect to ‘compete in time’. Business conditions became so volatile
that waiting two years or more for an application was a luxury users could no longer
afford. Having automated all their back-office operations, companies began to computerize
the strategic applications that leveraged emerging business opportunities. These systems
could not wait. Forget next year, users needed their systems next week. The windows of
opportunity was too narrow to allow business as usual in the data center. The disconnect
added time to every process it touched and in that way become untenable.

In a digital economy, immediacy
becomes a key driver and variable in business success. In the 1950s, technological
developments such as xerography or instant photography ensured a revenue stream for
decades. At the same time, designing an automobile took a decade from conception to
production. In order to succeed today, enterprises must operate in accelerated time
frames, continuously and immediately adjusting to changing business conditions through
information immediacy. Now it takes Chrysler two years, not ten, to design a car, although
even that is too long by a year. A significant percentage of my company’s revenues comes
from products that didn’t even exist three years ago.

DEVELOPMENT 5. DISAGGREGATION:
Leveling the playing filed. Disaggregation redefines the principal economic unit of the
economy. In the industrial economy, that unit was the corporation. Today, that basic unit
is giving way to disaggregated organizations and economic structures, in which many people
in many physical locations can be connected into collections that look like the
enterprises we have now. Distributed networks such as the internet make it possible to
divide functions that were formerly under one organization or physical roof into a cluster
of related activities carried out by different actors.

This process collapses the economies
of scale necessary to sustain large, monolithic companies. In the Age of the Internet, the
rules of economies of scale are stood on their head: products are made continuously better
yet cheaper. By virtue of the network that makes such a miracle possible, the
disaggregated enterprise is based on the individual knowledge worker who often functions
as a business unit of one. Motivated, self-learning, entrepreneurial workers, empowered by
and collaborating through new tools, apply their knowledge and creativity to add value.
The very structure of the organization accommodates these workers by providing
opportunities for dynamic, short-term relationships. Barriers of place and time are
eliminated. Interactions take place coast-to-coast as easily as they do
cubicle-to-cubicle. We don’t have to meet in the same building anymore; nor do we have to
convene synchronously in time. Most of all, a modular world means we don’t have to
assemble for the long haul, such as 10 or 20 or 30 years.

DEVELOPMENT 6. DISINTERMEDIATION:
Eliminating intermediary functions between producers and consumers. Watch out travel
agents, wholesalers, real estate agents, automobile salespeople and information brokers of
all stripes. Anyone standing between producers and consumers needs to move up the food
chain or risk being disintermediated. Anyone who occupies the space between a customer and
an information appliance that can fully meet a customer’s requirements will eventually be
out of a job.

In The Road Ahead, Bill Gates
discusses the role of the internet in ‘friction-free capitalism’, a fast-moving, networked
business model. Disintermediation-the systematic elimination of informational middle
functions-is a key component of frictionless capitalism. Intermediaries don’t make a
product or service themselves; they simply distribute it or connect the buyer with the
seller. They profit from information inefficiency; the less sellers know about buyers and
vice versa, the more value intermediaries can offer. The go-betweens whose job it was to
collect, summarize and interpret information are in jeopardy because the internet’s world
wide web is becoming a perfect vehicle for direct electronic commerce between buyers and
sellers.

It’s not a new process. Tens of
thousands of telephone operators were disintermediated when the public switching network
allowed consumers to dial their own phone numbers. More recently, bank ATM machines make
it possible for customers to take on the work-getting cash, checking balances, shifting
funds from one account to another-formerly handled by bank tellers. Automation such as the
public switching telephone system and computers eliminated tens of thousands of
intermediaries. But no force in history has changed the relationship between producers and
consumers as much as the internet. This is because unskilled clerical people are not the
only ones at risk.

Professional workers formerly
insulated from the march of automation are no longer secure. For example, the clothing
manufacturer Levi Strauss now has a process to take precise computer measurements of a
customer. Using the internet, retailers transmit that information directly to the factory
where automated systems manufacture a custom-designed pair of jeans for a perfect fit.
Federal Express delivers the jeans to the customer the next day. What’s missing here? The
skilled tailor is no longer in the picture. Also disintermediated is an entire value chain
of store buyers, inventory workers, stock clerks and other functions because the
customer’s needs can be fed directly to the production workers who can meet that need
without intervention by intermediaries.

DEVELOPMENT 7. DECENTRALIZATION:
Letting end users and those closest to the action take control. By the late 1980s,
centralization as an organizing structure was no longer in favor. Decentralization, the
seventh force putting pressure on the data center, encouraged customer server-oriented
companies to move resources closer to the customers being served. Although they resisted
mightily, data processing departments were not spared. Like the fabled Biblical walls of
Jericho, the glass walls came tumbling down in response to the raised voices of millions
of frustrated users. Though centralized facilities continued to grow, many new computer
resources were redeployed in factories, warehouses, departments and workgroups spread
throughout the organization. The disconnect that had for so long been quarantined by
centralization was suddenly exposed for everyone to see.

It was during this time that people
became aware of the lean-and-mean decentralized organizations that achieved excellence
through alignment of their business objectives and decentralized, highly responsive
information- processing units. These groups raised the standards for delivering products
and services. They were less hierarchical and therefore quicker; they were flattened and
demassified and therefore cheaper; and they were empowered to customize products and
services and therefore they won the hearts of customers. These decentralized
organizations, most recently known as virtual organizations, raised the bar for their
competitors. Good enough became not nearly good enough anymore.

DEVELOPMENT 8. DOWNSIZING:
Streamlining processes for customer focus. The hierarchical structures that organizations
evolved in the 1950s, like the disconnect itself, can no longer be sustained. A number of
forces, including global competition and automation, have made downsizing inevitable.
Every day, it seems, headlines are filled with news about companies eliminating positions.
That this downsizing is healthy on a macroeconomic level does not lessen the considerable
pain and disruption it causes in the lives of individuals. But downsizing focuses much
needed attention on how people and processes add value to the enterprise. Downsizing
encourages organizations to think about meeting customer needs through small work groups.
And it compels organizations to ensure that IT is aligned with the goals of these work
groups.

DEVELOPMENT 9. GLOBALIZATION:
Leveling the playing field through global competition. Competition is going beyond the old
boundaries. With the emphasis on expansion of free trade zones, the systematic elimination
of trade barriers, the portability of knowledge workers and the availability of cheap
information networks, a new form of competition is spreading across global markets. This
competition brings new threats as well as opportunities. Upstart entrepreneurs can
seriously disrupt established markets and set new standards. United States automakers such
as Ford and General Motors are just now recovering from the loss of market share inflicted
by Honda, Nissan and other Japanese offerings.

IT both enables, and is enabled by,
globalization. Computer networks enable smaller firms to collaborate in achieving parity
with larger, established firms. Remote distributed software development is enabled by the
availability of networks. The resulting software can then be distributed on the same
networks. Networks let companies provide 24-hour service, as customer requests are
transferred from one time zone to another.
Did no one see the danger?

The disconnect was predicted over
the years by a number of forward-looking people. Ever since the beginning of the
Information Age, there have been isolated voices begrudging IT’s insatiable appetite for
resources. These individuals correctly anticipated a runaway expense against the bottom
line, but they were hobbled from demonstrating their case to senior managers because they
lacked the tools and methods to measure exactly how much IT was actually costing. Not
surprisingly, IT had failed to build auditing tools to monitor their activities in terms
that corporate executives could understand. Since there was no way to measure the impact
of the demands IT imposed on the corporation’s resources, managers predictably attended to
matters that could be more precisely calibrated.

By the late 1960s, auditing firms
for the Fortune 500, such as Arthur Young and Ernst & Whinney (now Ernst & Young),
began to insist that the data processing function be made more accountable and auditable.
These firms, recognizing the unprecedented role of IT in the corporation, raised
persistent questions about the integrity, security and auditability of the corporate data
maintained by the IT resource. These questions-often posed to boards of directors-for the
first time initiated some high level inquiries.

During the same period, the attitude
that ‘bigger is better’ came under close scrutiny. This cultural change challenged the
concept of large, consolidated data centers that required centralized data processing
functions for their management. Forward-thinking corporate managers began to be troubled
by these isolated departments dominated by people with unimpeachable technical skills but
frequently limited management experience and occasionally massive indifference to overall
corporate strategies and objectives. By the late 1970s, some of these data centers were
perceived to be barriers to the departments they were supposed to serve.

When the glass houses were augmented
by decentralized computing, the disconnect went away, right? Wrong. While American
businesses moved resources around and certainly improved deficiency and accountability,
they failed to address the root causes of the disconnect: IT artifacts were physically
manipulated in a choreography of decentralization, but the root causes of the disconnect
were not challenged.

Excerpted from Techno Vision II
By Charles Wang
Published by McGraw-Hill
Courtesy: Computer Associates

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