Corporate Digital Health Index: Checking up Information Systems

Any Corporate, regardless of the business and the size, has the same mission to satisfy expectations of stakeholders, which are not limited to those who own it.

Each Corporate does it in individual way, depending on capabilities, and by adjusting strategy and set-up to the ever-changing boundary conditions (which are set forth by the markets) within own window of opportunity [1].

It is undisputable that Information Systems play a role of increasing relevance, the more economy evolves towards digitalization, which means industry going through Industry 2.0, 3.0, 4.0, etc. in relation to the degree of maturity and acceleration of the different business segments.

Unfortunately, often, it is not fully evident the appropriate focus on this subject in the agenda of many CEOs.

Basics of Digital Transformation and Information Systems were reviewed in other articles [2][3][4][5], while in this reading the attempt will be on providing a framework for analyzing if – for a certain Corporate – Information Systems are working as it is proper and needed.

The starting point for any examination should always be to determine in which value category Information Systems under scrutiny fall.

Indeed, despite too general assumptions, in our view, there are not so many categories for classifying Information Systems for the scope of this paper. In fact, there are two major classes that will be shortly outlined in the following paragraph.

Digital Tax or Digital Asset

Information Systems are pervasively enabling - in daily practice - any Corporate activity, so they cannot simply be turned down – or “adjusted” - on the spot, without careful evaluation, precisely because of their pervasiveness and ramified penetrations, often far beyond the visible horizon of each Corporate’s function and business [6].

Management expectation is that their role in Corporate processes is contributing to value creation but, unfortunately, there might be frequently circumstances in which Information Systems are involved just because of questionable legacy practices, which were never reviewed since, or even before, the inception of their use.

Indeed, periodical reviews should be precisely meant to enable decision on two possible choices on Information Systems: 1) Improve & Maintain; 2) Disengage & Replace. So, missing these checkpoints is very dangerous.

All in all, if participations of Information Systems were measured in economic terms (e.g. ROI), as it should be done, it would be possible that the result of this examination is positive, i.e. they are hence qualified as Digital Assets which produce value, or the outcome is negative and, in this case, it would be appropriate to call them a Digital Tax, as defined in below attached picture:

For conciseness, in the following, it will be assumed that software includes licenses, patches, fix and development, while platforms include infrastructures, build, maintenance and operational costs.

Both clusters of components contain an important quota of human resources, which are engaged specifically in the different earlier outlined items and are charged (not always in transparent fashion) to make IT operations going.

For the good health of each Corporate, it is obviously crucial to avoid the case of Digital Tax, or just to limit it to temporarily unavoidable circumstances, by applying – the sooner the better - appropriate recovery countermeasures aimed to heal the situation or – at least - to reduce a lasting negative impact.

To make this objective more probable, and for increasing chances of Corporate success by means of correct use of Information Systems, when budget is asked for them, no organization should waive the basic rule which is recalled below by Masaaski Imai:

In fact, Information Systems should be never exempted by this practice, but it requires management capable and willing to raise right questions, being able to understand the answers and being bold and prepared to take consequent decisions.

In short, going to Industry 4.0 and higher, takes Management 4.0 and higher too [3].

To facilitate this exercise, in the following paragraphs, an innovative concept will be offered, and a brief review of its possible use described.

Corporate Digital Health Index

Information Systems, like any other organ of the Corporate body, must respect the fundamental rule of being fit to purpose and sustainable. Only adequate combinations of both qualities may give economic sense and purpose to IS structures and organizations, whose complexity may reach otherwise intolerable levels of complexity, opacity and costs.

Adequateness means that also Information Systems (which are made of people, processes and platforms) must grant necessary cost-effective performances [7], which enable accomplishment of Corporate strategy in the always changing scenario of the “liquid world” [8].

Of course, if the Corporate strategy underestimates the criticality of Information Systems and does not equip with right technology, people and organization [9], this will work in favor of enlarging those gray zones which may turn – not only Information Systems – from assets into liabilities.

In absence of helpful concepts from the public literature (at the best of author’s knowledge, and readers are welcome to provide their input), it is offered the CDH Index, which is hereby defined:

This definition suggests setting up a simple bi-dimensional matrix, where each variable can be valued as Low, Moderate, and Full. This article will not explore detail of what is – in general – measurable, or not measurable, in the real Corporate, as this is very specific of each organization and it makes no sense to try establishing here a general set of benchmarks.

On the other hand, we think that sufficiently precise is better than precise, if the latter can be achieved only by applying and effort in breach of cost-effective criteria. Naturally, in this CDH Index Matrix, the variables will be Fit and Sustainability.

Reality teaches that interesting surprises may emerge when the attempt to measure costs and performances is carried out, especially for Information Systems, where the actual degree of transparency, or opacity, might surprise the less experienced readers.

In fact, one thing is to sum up the bottom-line figures of a stake of invoices, another completely different task is to determine precisely what is paid and why, and how costs are distributed. The maze of cost centers may be almost inextricable and the maze itself is an alive creature within the overall complexity and dynamics of the Corporate ecosystem. This is especially true when costs are generated by different entities in the transnational organization, which are ascribed to different lines of management with different agendas and – occasionally – misaligned strategies.

On top of objective difficulties related to the variety and complexity of the matter, whose largely intangible nature does not help, it must be taken into account that Corporates are alive organisms, which are subject to merges and acquisitions, as well as to spin-offs and carve-outs, with all the implications of re-arranging and re-aligning different accounting processes and systems.

Hence, the comment just written moves to each Corporate the responsibility to create the conditions for measuring (better also for monetizing) Fit and Sustainability. For the sake of mapping these fundamental scenarios, without intention of quantitative analysis, CDH Index Matrix is presented in the following simple scheme:

Daniele Rizzo ? 2020

As it is above highlighted, there are nine quadrants, which are segmented in four key types of categories, which are indicated in different colors.

These categories will be analyzed in coming paragraphs, starting from the most critical.

Red Quadrant: When both Fit and Sustainability are low

When in this quadrant, the Corporate has urgently to move out as soon as possible away to a better quadrant. In fact, low fit means that Information Systems just do not do what is needed to support business and function operations.

The list of possible examples is extremely long, and any reader can – unfortunately – recall from own personal experience.

Low fit may mean that Corporate processes are not executed in available platforms and applications, because these are obsolete or – not that rare – were designed considering unrealistic assumptions and insufficient knowledge of what the Corporate really does for a living [10].

Low fit may suggest that Information Systems did not have the necessary flexibility, scalability, governance and leadership to adjust in real time to new boundary conditions set forth by markets or by modified needs, or expectations, of stakeholders.

Low fit – or high fit – recalls what Lev Nikolayevich Tolstoy wrote about families and happiness:

In fact, high-fit Information Systems seem to be all alike, while low-fit Information Systems are never alike because they result from the history of own Corporates and, as for the families, there are never really comparable histories to the extent of cumulated errors and inadequate practices.

In addition of having low-fit Information Systems, Corporates in this R-LFLS Quadrant have also low-sustainability, which also signifies that financial impact of such Information Systems is not acceptable and destabilizes the balance sheet of their Companies.

Our comment on financial aspects here is not limited to measurable costs of Information Systems [10], which can be a minor fraction of all liabilities and damages caused to business operations.

Our aim is to call for attention also on hidden, or unaccounted costs, like the flaws caused to business processes, the time spent by users to manage their incidents related to faulty platforms, etc. [11].

In this low-fit scenario, how big is the multiplier (greater than one) that must be applied on costs measured in the balance sheets, to have the real cost of running Information Systems at expense, not in favor, of business?

This is the key measure of what undermines Corporate operations, demoralizes its workforce and, ultimately, impacts also Corporate’s customers experience.

Exemplary cases of “sinking costs” are occasionally reported in the news, about poor launched Information Technologies initiatives, which have left a deep dent on reputation of involved parties, and serious financial damages for the major regional and global Corporates, which have experienced them [12][13][14][15][16][17].

Unfortunately, what goes known is - in our view - just the tip of a huge iceberg, which nobody wants in full emergence for obvious reasons.

Dark Quadrants: When Fit and Sustainability are no better than moderate

These three dark quadrants are not good.

Of course, D-quadrants are not as bad as R-LFLS, but if you are there, you still have one foot in the grave, because both Fit and Sustainability may easily slip into low range. In fact, it depends very much on how you got there.

If you are moving out of R-LFLS and dark quadrants are only a transit to better places, then you are doing fine, but it can be the other way around, and in this case, you better watch out.

For instance, you can imagine a bad business year which forces tough cuts of investments and expenditures, so that IT budget becomes all at once no longer affordable.

This will make a shift for CDH Index to left and, so, if you are on D-LFMS, then you find in R-LFLS.

It is not Information System’s fault, but money is tight, and this is the way it is.

It applies what Oliver Wendell Holmes Jr. said:

The only quadrant out of the dark set of three, where a Corporate may have a little pause of reflection, is D-MFMS.

If the Corporate does not have a clear strategy for improvement of processes and Information Systems, this quadrant may be the one not on the threshold of collapse, where management can pause and try to figure out the way of building right processes, platforms, taking into account the real people in the organization and possible upgrades to be applied also on human resources.

A shift of CHD Index, from this quadrant, unless it is the case of a dramatic slippage of both Fit and Sustainability, should still see the Corporate’s Information Systems with margins of maneuvering.

However, a possible example of unexpected severe challenge can be if a carve-out happens.

In this case, Information Systems, which were designed on the assumptions of a given economy of scale and for certain processes, may be all at once become over-engineered for the size of what remains (low sustainability), and redundant as well for many of their left processes (which are no longer needed and that carved-out portion does not want to take over for whatever reason, e.g. because this carved-out portion is too small to continue carrying them on, or just because the acquiring party has own way of doing certain activities in receiving Information Systems platforms).

Probably, projected in military context, a quadrant like D-MFMS was probably what Erwin Rommel had in mind when he pronounced this quote:

In fact, moderate fit and moderate sustainability means that Information Systems are performing in acceptable way, with a reasonable cost-benefit profile.

The other two dark quadrants – D-MFLS and D-LFMS – are for different reasons exposing the Corporate to close risk of operational downgrade. D-MFLS for financial implications, which hit the Corporate bottom-line, while D-LFMS for operational damages, which impact employee’s morale and performances.

Yellow Quadrants: Instability in disguise

These quadrants may be - in a way - even more dangerous than dark quadrants.

Y-FFLS may lead incautious management to think that, yes, the cost of running IS operations is too high, but business performances are also so high that in time the financial results will improve and will off-set present excess of IS expenditures.

This promising scenario may materialize, but it is better to have a way out in case it does not work because the fact is that – to put it shortly - this Corporate cannot just afford the running budget for Information Systems.

Y-LFFS may lead overoptimistic management to think that, yes, current performances and processes do not support employees as they would expect, but they are not expensive at all and, in time, the business processes will run smoothly and Information Systems will get along well with users community.

In this case too, scenario may become true, but it is better to evaluate it carefully and take the risk only if management is adequately aware of the feeling and the conditions of employees in the present time.

In fact, low fit implies generally that business may search own way of managing operations by developing platforms outside the radar of IS.

Alternatively, if pushed too hard to adopt unfit processes and platforms, users’ community may react by losing motivation and loyalty, ultimately driving the Corporate to move to dark and red quadrants because of progressive escalation of accounted and hidden costs [19].

Green Boxes: Doing well, but do not sit on laurels

Even in the case of green quadrants, there is also a latent challenge that must be not underestimated. Her name is “changeability”.

While all G-quadrants have at least one variable at full scale, as it was said earlier it is crucial to see where Corporate’s vector speed of change is heading and at which pace.

Both Fit and Sustainability refer to present time, but what happens if there is a sudden disruption in the boundary conditions?

If, once again, a major carve-out (or merge) happens, will the Corporate be capable of withstanding the shock wave and make a turn-around which will be sufficiently fast, affordable and adequate to the new circumstances?

The larger and complex is the Corporate the less is possible to predict the outcome, but certain precautions can be taken.

For instance, driving an industrial conglomerate toward monolithic IT integration of all functions and systems may sound as a good idea (on the assumptions of scale economy and harmonized activities) but, in case of carve-out, it will prove to be smart only if interfaces between different processes, platforms and infrastructures were clearly set, guarded and managed.

Otherwise, if their contours are blurred and ownership unassigned, detaching portions of the organization may result in a chaos whose financial and operational impact will be hard to anticipate.

A Corporate may jump all sudden from G-FFFS to R-LFLS because in the hey-days nobody cared to ensure proper governance of Information Systems and supported processes.

Like in the story of the centipede and the frog, the centipede (Corporate) may paralyze because the frog (Auditor) is just asking “how do you ensure that your legs do not stumble one on the other” (i.e. “please explain and document how do you execute – and through which platform - a given process”).

Conclusions

The name of the game is managing transformation, which is called in these days “digital transformation”, just because, in our view, it is an easy way for too many managers (and general public) to create an artificial distance between them (i.e. their comfort zones) and what – sometimes - they do not want to even try to understand (and prefer to leave to “specialists” and “consultants”).

Unfortunately, the toll for this ignorance is measured in several % point of global gross economy throughput. In fact, the cost of poor quality of IT is measured in several trillions USD [13].

While irrelevant to the practical extent of the damage which is done, it would be interesting to understand how many of the decision makers are aware and conscientiously chose to ignore the implications of not grasping the IT bull by its horns.

The real challenge, in our view, is that unfortunately most decision makers simply do not realize the size of the threat and are honestly convinced that they are doing the right thing for the Corporates they pretend to serve.

Gilbert Keith Chesterton put it clearly in this following quote:

If adjusted to own specific Corporate, proposed CDH Index may help to establish where a given organization situates, and this is the crucial point of origin for enabling strategies and decisions about where to move.

As it was stated at the beginning of this reading and described in other articles [20][21], this exercise is as necessary and urgent as difficult.

Just few years ago, this would not have been so vital for the Corporates, but we are clearly on a steep slope where change accelerates, and the more the exercise of Corporate governance recalls that of a cowboy riding on a wild horse in a rodeo.

To engage consultants for help on methodology is fine, but it is risky to lean too much on them as they are not your loyal employees and they do not have the complete inside-view which is fundamental for a turn-around which should minimize the necessity for disruption and painful decisions [22].

For above reasons, the first and foremost initiative - that a wise CEO with a long-term commitment should do - would be to establish his/her office with future-proof staff, able to clearly explain the status of Information Technology in the various Divisions and Corporate functions, in terms of set-up, costs and implications.

It is relatively easy to test the proficiency of these people because the words of wisdom of Albert Einstein give a precise and easy criterium to measure it:

References

[1] “Strategic inflection point: Concept and examples”, Andy S. Grove, Academy of Management, Annual Meeting, San Diego CA (USA), August 9th, 1998;

[2] “IT-engineered Corporates: How to implement with grace digital transformation”, Daniele Rizzo, LinkedIn, May 3rd, 2019;

[3] “Corporate transformation: Why adequate leadership is not an option”, Daniele Rizzo, LinkedIn, June 7th, 2019;

[4] “Innovation and risk: How to categorize Corporate IT initiatives”, Daniele Rizzo, LinkedIn, August 30th, 2019;

[5] “Corporate IT programs: Four cardinal landing scenarios”, Daniele Rizzo, LinkedIn, August 20th, 2019;

[6] “Why decommissioning IS legacy platforms in corporate environments is generally slow and hard”, Daniele Rizzo, LinkedIn, October 3rd, 2017;

[7] “Basic scenarios about cost-effectiveness and Corporate IT programs”, Daniele Rizzo, LinkedIn, November 3rd, 2019;

[8] “Liquid Modernity”, Zygmunt Bauman, Polity Press, 2000;

[9] Corporate business processes and IT platforms: Why a shift of paradigms to go for Industry 4.0, Daniele Rizzo, September 12th, 2019;

[10] “Five key reasons why Corporate Information Technologies programs may fail”, Daniele Rizzo, LinkedIn, February 27th, 2019;

[12] “What is the cost of Information Technology done right?”, Roman Stanek, Forbes Technology Council, November 11th, 2017;

[13] “The cost of poor-quality software in the US: A 2018 Report”, Herb Krasner, CISQ, September 26th, 2018;

[14] “Lidl cancels SAP introduction having sunk €500 million into it”, 13.08.18, Consultancy.uk, August 13th, 2018;

[15] “Lidl software disaster another example of Germany’s digital failure”, Florian Kolf, Christian Kerkmann, Handelsblatt, July 30th, 2018;

[16] “The $900 billion reason GE, Ford and P&G failed at digital transformation”, Keith Kitani, CNBC Evolve, October 30th, 2019;

[17] “Wipro responds to National Grid's SAP implementation billion dollar lawsuit”, John Belden, Upper Edge, June 5th, 2019;

[18] “Lessons from Revlon’s SAP Implementation Disaster”, Blake Morgan, Forbes, October 30th, 2019;

[19] “Change management: Key dimensions to consider for implementing a sensible base strategy”, Daniele Rizzo, LinkedIn, May 21st, 2019;

[20] “Corporate transformation: Story of one elephant and eight blind monks”, Daniele Rizzo, LinkedIn, March 26th, 2019;

[21] “What VUCA really means to you”, Nathan Bennett & G. James Lemoine, Harvard Business Review, January-February 2014:

[22] “Three dark facts that your IT consultant would never disclose”, Daniele Rizzo, LinkedIn, July 10th, 2015.