"How should we make decisions while under duress, and what are the metrics that matter?"

Opening Statement

The current economic downturn has cut a deep gash in the economies of virtually every country and industry, affecting the lives of perhaps every living person in ways not seen in more than 50 years. In an appearance on CNBC, billionaire Warren Buffett said unemployment will likely climb higher and that the economy has basically "fallen off a cliff." Moreover, in a global recession, fear goes global. It's not limited to just Americans and US companies. Economies around the world are more interdependent today than ever before. In work and in private life, no one seems immune from having to make tough decisions in the months ahead.

How do people make wise decisions in the face of such unrest? If cutting costs is mandatory in our companies, should we simply make across-the-board cuts with a hatchet, or can we take a more surgical approach? Or is this a time to make strategic decisions to invest and thereby outrecover the competition when the recession ends? What information, what metrics, should we rely on to decide?

We are now firmly on the scarcity side of the abundance/scarcity continuum. For many, cost cutting is the order of the day. If you're a bank or an auto company, it could be a question of survival. Meanwhile, others may find opportunity. For example, discount auto insurers are finding their market share increasing as households look for less expensive choices. Companies that cater to the lower end of the market might make a case for investment as their competitors shrink. In fact, during the last economic downturn, companies such as Intel and IBM famously invested in R&D as their competitors slashed investments. Once the economy recovered, they dominated in such technologies as Wi-Fi and generated record profits. While this downturn is certainly more severe than the last, the opportunities for those who capitalize may perhaps be even greater.

But let's get back to the title of this issue, which alludes to metrics in turbulent times. Metrics, put simply, are a synonym for information. While the nature of information is something we address in this issue, we also question how people's minds use or don't use information during times of turbulence and fear. Joseph LeDoux, a professor of neuroscience at New York University and author of The Emotional Brain,¹ explains that the amygdala, an almond-sized clump of tissue above the brainstem, triggers fight-or-flight responses in the brain that actually inhibit the logical use of information by the cerebral cortex. We may be facing a layoff, an overdue mortgage, or our kid's college tuition payment, but our primitive brain reacts as though there's a saber-toothed tiger about to eat us. The stress hormones tell us not to think -- just run for our lives. And in his book Blink,² author Malcolm Gladwell argues that great decision makers aren't those who process the most information or deliberate the longest, but those who filter factors that matter from an overwhelming number of variables. Sometimes this happens in the blink of an eye. How should we make decisions while under duress, and what are the metrics that matter? In this issue of Cutter IT Journal, our authors offer a variety of perspectives to help you address these challenges.

We begin with an article by Cutter Senior Consultant Vince Kellen, who says these times demand wisdom, and that navigating this crisis requires us to appreciate human psychology and the limits of our ability to foresee the future. With regard to metrics, he questions whether IT provided the transparency that could have prevented collapse in the financial sector, but observes that even if it had, the human race's competitive nature -- the part that fosters greed and blindness -- prevents people from acting outside their biases and shortsightedness. Kellen notes that "while crowds may possess wisdom, they also exhibit madness," and goes on to say that "IT spreads the madness faster, better, cheaper." I can't help but connect these assertions to LeDoux's and Gladwell's ideas linking neuroscience and psychology to decision making.

What's interesting from a metrics perspective is Kellen's call for measurement frameworks that give voice to dissenting and diverse viewpoints. (As someone trained in dispute resolution and mediation, with a long career in IT measurement, I appreciated Kellen's perspective.) He argues that a failure to foster this cognitive diversity results in "Enronitis," which is defined as "opaque self-dealing by a few insiders and a lack of transparency." He advocates short-feedback loops (so organizations can sense risks early) and metrics that give weight to short-term and long-term gain. Kellen closes with a call to action, exhorting the reader to have strategic agility, but also to recognize the need for moral agility -- the ability to correct wrongful actions sooner rather than later. He says that ethics, metrics, and agility are integrated, and emphasizes human contact, active discourse, fast iterations, and human correction to prevent a herd mentality and groupthink.

I really enjoyed how Kellen's article sets the stage from a top-down perspective, and our next piece on metrics and IT architecture, by Cutter Enterprise Architecture Practice Director Michael Rosen, is a perfect followup. Rosen begins by noting that today's economic climate has caused most companies to shift to a singular focus: surviving the current downturn. That means reducing spending. He also observes that the current crisis coincides with the 150th anniversary of the publication of Darwin's The Origin of Species. Rosen argues that our response to the downturn must be more than a simple gut reaction; companies that are the smartest about this will come out stronger and more competitive. Survival of the fittest means survival of the smartest.

So what is smart? From Rosen's viewpoint, it's simple: giving thought and priority to IT architecture. Projects with an architecture strategy cost less, are completed faster, have higher quality, and exhibit better flexibility and integration within the enterprise. Architecture pays for itself many times over. If you skip architecture and jump right into development, it simply costs you more. Shortcuts on initial projects can multiply time and costs on subsequent projects, creating a domino effect. So why would anyone do that? Why shoot oneself in the proverbial foot? It's because most companies have not successfully measured the cost of IT and the value of architecture. Rosen's article explains how you can correct this, especially from a TCO standpoint. While he articulates how you can measure the benefits of architecture, he also describes how to directly measure the cost of not doing architecture, giving specific examples of what your measures should include.

Now that you've considered including an architecture strategy in your IT projects, you'll need to decide where and how to conduct them. Should you simply offshore the development to a lower-cost provider in, say, India? Or should you keep the work inhouse -- closer to home and to your marketplace -- and go agile? In our next article, Evan Campbell talks about how not to cut costs during a downturn while unequivocally saying, "Go agile." Campbell is a storyteller in the best way, speaking from the trenches as a former CTO and product development manager at several companies, and now as VP of professional services at Rally Software. One thing I found exciting about his article is that it completely lacks the fear-driven, reactionary stance so common in companies during times of economic distress. Campbell is firmly pro-agile and anti-offshoring. While he's experienced successful offshoring initiatives, he claims he's learned the hard way that it's more expensive than most people think and primarily applicable to noncore projects that aren't tied to market share.

Campbell claims that implementing agile development is a strategic response to the economic downturn that delivers higher value, faster, and at lower cost, with proven ROI, compared to traditional waterfall projects or offshore initiatives. Indeed, it's hard to argue with the metrics. In a recent study of more than 30 projects from 10 different companies implementing agile methods, Cutter and QSM Associates found best-in-class levels of performance where companies accelerated time to market by as much as 50% (some lowered their costs by more than US $1 million per project), with half the bugs compared to waterfall counterparts. Campbell further emphasizes that agile projects -- since they focus on early delivery of releasable code sooner and with higher frequency -- accelerate ROI compared to waterfall or offshore projects that wait to deliver value at the very end of the build phase.

That said, there are times when you need offshore resources right now, and you may find a good fit with an offshore partner who brings skilled resources to the table that aren't readily available closer to home. If that's your situation, you will need to negotiate terms with a reliable provider and establish key performance indicator (KPI) metrics in an outsourcing contract. In our next article, Cutter Senior Consultant Sara Cullen takes on the difficult subject of designing contractual agreements from a business perspective, which undoubtedly will have a heavy financial emphasis in a recessionary period. She illustrates different ways of measuring financial results, suggests how frequently these metrics should be calculated, provides examples of formulas for calculating them, and specifies the source(s) of the data that you'll need. Although it will be tempting in this climate to push for the cheapest possible price, Cullen warns that incentivizing cost cutting may have unintended consequences, as in the case of a supplier that met cost targets at the expense of other metrics. You just might get what you ask for, so to protect yourself, you'll want to follow Cullen's sage advice when establishing KPI metrics in your outsourcing contracts.

Last, you'll need to consider how to verify whether targets meet precedent or some independent standard for fairness. To this end, Cullen addresses the issues of benchmarking, the use and availability of comparative data, and whether you'll need to hire an independent consultant or perform this analysis on your own. There are advantages and disadvantages to each approach, so you'll have to think about what's best for your organization's negotiation and governance strategy.

Our last article comes from Bill Walton, who tackles the subject of quantifying business value. This is a refreshing antidote to the recessionary posture of simply cutting costs. Walton suggests that you partition your projects into those that Run, Grow, and Transform the business. Why? To best support "the ongoing allocation and reallocation of IT resources with the goal of optimizing the value delivered to the business." Many authors in IT address the subject of value, but often it's difficult to identify a meaningful framework that captures its dimensions. I like Walton's suggestions for value metrics; they remind me of the useful criteria captured by the acronym IRACIS, which stands for:

• Increase Revenue. How will this functionality drive sales or shorten time-to-market?

• Avoid Costs. How will this application eliminate wasteful spending?

• Improve Service. How will this improve our relationships with our client base?
  
  

During a downturn, it's common for IT to suffer from Rodney Dangerfield Syndrome -- not getting any respect. Walton's article offers a mechanism IT managers can use to advocate for the valuable work that IT professionals do every day, often unsung and frequently unappreciated. It's about creating higher returns to the business by making sure that the right projects get done and that they receive the resources they need in order to be successful.

We hope that this excellent collection of articles will help you safely navigate these times of economic turbulence and uncertainty. It's our privilege to share them with you. Spend wisely.

ENDNOTES

¹ LeDoux, Joseph. The Emotional Brain. Simon & Schuster, 1996.

² Gladwell, Malcom. Blink. Little, Brown, 2005.

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