Don Bloom's Web Log

The Force of Technology in Business – The Dark Side

2007-07-17T17:11:00Z

At least part of running a business requires attention to detail. Thankfully we live in a world where there’s no shortage of technological tools available to keep track of everything. With the right set of computers, networks and related tools, including portable computing and communications gadgets, we can keep our business – and our life – under control. But wait!! If you think everything is under control … Well, as the old saw goes, "… you’ve probably overlooked something!"

There are some issues to consider before you can even hope to claim a measure of control over the technology in your business (let alone your life!) It’s not just getting everything to work and play well together. One important consideration is the dependency relationship you develop with each of the tools you use and how you would function if one or more of them failed in some way. The risk of having a single failure is compounded when you consider that it’s not just you that develops the dependency. The very act of getting things to work together to enhance productivity creates a chain of dependencies within the collection of tools you use. That doesn’t even account for all of the people that depend on you and your tools and the people you depend on!

As an example, if you’ve ever suffered a loss of data because of a computer failure, you have good sense of where I’m going with this. Was all the lost data also stored on a backup? Even if it was, how long did it take to recover the failed computer? … and what did it cost? The most common answers I hear are "No," "a lot longer than I expected" and "way too much!" But everybody gripes about their computers. Let’s try another example.

Consider your cell phone and what would happen if suddenly it was unavailable to you. What’s the risk of that you ask? As it turns out, it’s quite likely – in the form of a dead battery among numerous other possibilities. But because this is a common and relatively easy to predict event, we all have solutions and practices to mitigate the risk of suffering any real harm. We consider ahead of time what we’ll do if our cell phone is unavailable. We might carefully check the power level every morning; we probably make sure we have our car charger or an extra battery; we’ve learned to make use of voice mail so we can use another phone, just in case …. If we have a plan for coping and managing the risks, we can get along fine without a cell phone for a while. If we haven’t planned, things might get a little more hectic, but we’ll probably do alright since this is after all, a comparatively simple problem.

So let’s complicate things, shall we? What if the lost tool is your Palm Pilot or other handheld computing device, aka PDA or "personal digital assistant"? What if it isn’t just a dead battery? What if it gets lost or even damaged beyond repair? Now, imagine you’re returning from a successful marketing trip or conference; where you’d entered dozens of new contacts to update your computer-based sales management system; and you had some great ideas that you jotted down in your PDA.

How much potential value did you actually create that’s now gone? How much business could you have gotten from those new contacts? Which of your ideas could have led to great products or services for customers, clients or prospects? We’re not talking about getting rid of technology tools! After all, you can just as easily lose a paper notepad. The right question should be, "What would it cost to put a backup and recovery strategy in place? When your productivity and your business is dependent on the tools you use, you need to invest enough in them to limit the risk of failure or at the very least reduce the potential business impact of a failure.

Software Updates and the Small Business

2006-10-23T19:18:00Z

To minimize the risk of software updates, larger companies actually set up test environments to apply them and review the impact on daily operations. The smaller the business, the less practical this approach is since it requires significant expenditure for IT and Human resources. So how can a small company reduce the risk of applying the software patch that comes with its own problems, making things worse, rather than better?

I don’t know of any software company – Microsoft and McAfee included – that has worked out a fool-proof mechanism for determining beforehand every side-effect a specific update could have on any given computer.

Their problem leaves the typical small business and their computer users without a solution for dealing with difficulties encountered because of updates that are supposed to make the software they sold you better in some way – more capable, more efficient, faster or safer. If you're someone who has suffered through difficulties caused by just such an incident, it doesn’t help you to know that they’re not that common. It just seems like they are because you don’t hear about the millions of successful updates, only the hundreds (OK, sometimes more like thousands) that don’t work!

Working with small companies, I’m inclined to recommend and implement procedures where updates for all software are only downloaded, but not installed. On a regular schedule, sometimes as often as weekly, someone either sends in the list of pending updates and they’re checked against known problems, or a technician actually applies the appropriate updates. This is typically done along with other regularly scheduled maintenance like system performance tuning (e.g. disk space management) and security reviews (e.g. virus and spyware checking.) The cost for that regular maintenance keeps things running smoothly and is viewed more or less like vehicle maintenance – think “100 hours of computer usage or 30 days, whichever comes first.”

Smaller organizations or individuals who don’t feel they have the funds to keep up with a maintenance program, need a different approach, one that within the industry is quaintly referred to as “break – fix” work. Essentially, you wait for something to break then spend money to fix it. This is not per se a bad approach. It’s just a trade-off of the risks associated with possibly spending too much on regular monthly maintenance to prevent some problems, versus spending very little or nothing on maintenance and suddenly having a serious problem with attendant high cost to fix. But, as is often said, “That’s a management decision!”

Maybe I should also say explicitly that it is not a technical decision. There are certainly technical risks, but like all business risk, management has to make the decision as to which course of action to follow. Bad things can happen. Computer hardware will fail. Computer software will fail. No simple answer can suffice to tell a business owner which risk is worth taking and which should be avoided. Given all the facts about a business, it’s not difficult to come up with reasonable estimates of the potential cost trade-offs among statistically probable computer failures: the costs of waiting for a failure and then fixing it; the costs of a regular maintenance program; and the costs of fixing the problems that will occur anyway given the level of maintenance you’ve decided on, including “none.”

There may not be a way of preventing all of the potential problems, but there are certainly ways of planning for them, managing your response to them and recovering from them without your business being disrupted any more than absolutely necessary. (… and without spending so much to do it that your business is disrupted … more than necessary!)

Evaluating Risk: Lottery Tickets and Business Decisions

2006-09-21T17:29:00Z

What is it about “risk” that makes it so hard for people to evaluate?

I've thought about this for a long time, but it came to head recently while listening to a conversation about, of all things, lottery tickets. Here's the simple scenario – People pay for a lottery ticket in the hopes of winning prizes, even though the probability of winning is extremely low.

Let's deal with this question by introducing a concept many people may not be familiar with - "Expected Value." If something costs a dollar, a rational consumer should expect at least a dollar of value from it. Often, the object purchased is one where the rational consumer applies some personal judgment in establishing the value. For example, one person might feel that a dollar for a small chocolate bar at the local quick-mart is too costly and refrain from purchasing it; whereas, another person might be in the throes of an irresistible urge for a chocolate fix and happily pays the price. The same thing applies to just about any purchase of this kind, from a loaf of bread to an SUV. (This is not an appropriate time to discuss the difference between a necessity and a luxury. In principal, this applies to anyone with any money to spend, even if deciding between food and prescription drugs.)

Sometimes though, the value may be intrinsic, that is integral to the object such as a readily exchangeable commodity like gold or silver (though that would usually cost more than a dollar.) Another type of purchase that may be considered to have an intrinsic value is the “significant” business purchase or investment, where various aspects of the purchase and use of the object can be analyzed and quantified, then presented in a way that helps the rational consumer (business owner, in this case) make a decision about the purchase.

… which brings us back to the lottery ticket.

Lotteries usually have clearly stated conditions and procedures that make the probabilities of winning equally clear. As an example, the multi-state Mega-Millions game in the United States offers a grand prize with the odds of winning fixed at about 175 million to one. By way of contrast, given that on average 1,000 people in the United States are struck by lighting each year, then the odds of an individual getting hit by lightning on a given day is approximately 109 million to one. So, on the day they do the lottery drawing, you’re more likely to get hit by lightning than to win the grand prize.

The neat thing about the lottery though is the fact that you can actually work out the actual – or I should say the “expected” value of a one dollar selection of numbers (with of course some margin for error.) Let’s keep it simple for the moment and think about flipping a coin, where the odds are two to one for either heads or tails. Without going into all the theory behind it, if you were to make bets of one dollar on each flip, you would want to be paid two dollars for every win so that over time you’d at least come out even. You get paid two dollars, but there are two possible outcomes or odds of two to one. Divide the prize ($2) by the odds (the 2 outcomes) and you get one dollar – the “expected value” of any given flip of the coin.

The same logic holds for the lottery. If the odds of winning the Mega-Millions grand prize are 175 million to one, you would want the grand prize to be at least 175 million dollars! (Beyond this simple analysis, it gets really complicated. For example, would you want to add in the “expected values” of all the other smaller prizes? Or, what if you decided to consider that as the prize gets larger more people will play? How many people have to play before the probability of more than one person choosing the winning numbers becomes significant and you would have to share the prize?)

The Issue of Rational Decision Making

If it’s only rational to buy a lottery ticket if the expected value equals or exceeds the cost, why is it that people buy lottery tickets when prizes are much too small to justify on an expected value basis? More to the point of this discussion: Why wouldn’t a business owner make all purchase decisions based on an “expected value” approach? One reason, which probably applies more to a lottery ticket than a business decision is the emotional component of the decision. Dreams of becoming an overnight multi-millionaire can have a way of affecting your decision making process. Alternatively, it’s probably more likely that the cost of the investment has an impact on the decision. At a dollar a chance, the bargain seems so cheap compared to the possible payoff (not the expected value!) that people will play the game.

A parallel business decision might be the relatively minimal costs of say, office supplies. Getting involved in every decision to buy a box of paper at the best price would cost more than the possible savings. The decision process allows for some leeway in minimizing every cost because of the possibility you’d incur additional unexpected costs somewhere else in the business, like the loss of productive time of highly paid resources (supervisors, managers, the owner, …)

Then the questions become: How do you balance the need to make important decisions vs. the unknown costs of getting too deeply involved in every decision? The answer lies in the science/art of Risk Management, another subject I've thought about for a long time, though that will have to wait for another entry at another time.

A note about measuring IT investment performance

2006-07-10T19:55:00Z

(Originally entered 5/25/2006)
I don't think very many business owners would disagree that when you hire an employee you expect them to do or produce something of value. In effect, as a business owner you are investing in the new employee and want a return on your investment. You evaluate employees on a regular basis and so are in fact evaluating the return on your investment.

But most businesses do NOT think that way when they buy technology assets - computers, networking and communications equipment, telephones, software, etc. The asset is purchased, and typically written off, if not on the books then at least in the minds of owners and management. Very rarely is a formal review made of the return on the investment of technology assets! Worse, since it is essentially people, the aforementioned employees, that use the computers and other technology, their evaluation has buried within it an implicit evaluation of the technology - the tools that the employee is using to do the job you hired them to do.

Consider the following scenarios and ask yourself if any of them might be occurring in your organization.

The employee is performing well and the technology is performing well. You rate the employee highly and give them a raise, possibly promote them ... performance has been improved even from what it would have been ... Promotion may lead to a position where the employee will no longer have access to the technology tools they were using. Should some of the money used to give the employee a raise be used to improve the technology or extend its use to more employees?
The employee is performing well, but the technology is a problem. The result could be:
1. The employee's performance still looks good to you and you rate them highly, not knowing that they could be doing a better job if not for the computer or communication problems.
2. The employee's performance doesn't look so good. Worse, they're probably getting frustrated by the technology or other problems. You have a good employee, but you don't know it ... and you may not care when they decide to leave your company.
The employee is only average and the technology is great. You give the employee a high rating and give them a big raise, not knowing that you should have taken some of those investment dollars (the raise!) and put it into more technology to help more employees.
The employee is just average and the technology causes problems, too. Things are probably a mess and you may fire the employee. You go through an expensive hiring process and end up with at best a good employee that gets frustrated with the bad technology ... and then leaves. (See #2a)

The only solution is doing an evaluation of the technology directly. Obvious, but not so easy!

Amazing Communications

2006-07-10T19:48:00Z

(Originally entered 5/25/2006)
A few of months ago was the 130th anniversary of Alexander Graham Bell's first successful experiment with the telephone. On that fateful day in 1876 Bell spoke into the mouthpiece of his as yet unproven invention and called to his assistant, Thomas A. Watson using the now famous words, "Mr. Watson. Come here. I want to see you." Watson heard and understood him. Though subsequent experiments weren't as clearly understood, that was the beginning of an incredible change in the way we communicate. But now, instead of over a metal wire strung from one room to another, our wires circle the globe. The "wires" much of our communication now travels through are in fact strands of glass thinner than a human hair. And a lot of our telephone conversations now take place traveling through no wires at all!