Your Industry Doesn’t Matter. You Have to be Great at Software.
Software is eating the world
Marc Andreessen — Co-Founder, Netscape
If you’ve spent most of your career in the tech world like I have, the quote above seems almost quaint. Coming from a paragon of Web 1.0 like Andreessen way back in 2011 when Amazon Web Services was merely a billion dollar a year business, the central importance of software to every business seems like one of the least controversial statements you could make.
Imagine my surprise to learn that, for the vast majority of non tech-centric companies, software is actually more of a burden than a competitive differentiator. In the bubble of Silicon Valley and start-ups, software developers are the rock stars. But in the enterprise world, the developers are the ones with crappy cubicles with no view, sometimes they are even given pink slips and their jobs are outsourced.
Enterprises, especially publicly traded ones, are under immense pressure to deliver results quarter over quarter. More and more often they hand off the hard work of software development to low cost operations offshore, in places like India and Eastern Europe — places with low labor costs and high education standards.
The combined forces of short term financial results coupled with the low esteem in which most software development organizations are held has helped create an atmosphere in which actual innovation is incredibly difficult.
Case Study — Taxis vs Uber
If you have any doubt that, regardless of industry, you are really in the software business, think about taxi companies. In New York City, a Taxi medallion, that is a franchise granted by the city to operate one of the iconic yellow cabs rose to as much as $1,000,000 by 2013. While driving a cab is hard work, having the medallion in motion was like having a license to print money, and there was very little innovation going into the market. Hailing a taxi in 2010 was not much different than hailing one in 1950.
In the few short years since then, taxi companies in New York saw the value of their medallions drop by more than 80%. What was at the root of this dramatic decline? A little piece of software that would let users hail a ride and drivers find fares using their cell phones and personal vehicles. Ride-sharing services had figured out that you could eliminate most of the friction of the taxi experience — that is, finding and hailing an available car and driver, explaining your destination, and then paying at the end of the trip — with some clever software.
What kept the taxi companies from innovating like this? The answer is simply that they didn’t think of themselves as software companies that happened to supply cars and drivers, but instead as a company that supplied cars and drivers who used software only grudgingly.
How much of an impact did Uber, Lyft, and other ride hailing apps have to the Taxi business in New York? In 2016 alone the estimate is more than 100 million rides valued at $1.8B. If NYC medallion owners had a crystal ball 5 years ago, would they have invested $10M or even $100M in building an app to hail and pay for taxis? I’m sure they would have, but viewing software as a necessary evil rather than a business differentiator made seeing that future all but impossible.
Software has been disrupting traditional industries for decades now. Craigslist helped kill the newspaper industry, because classified ads accounted for more than $30 billion in revenue for the US daily papers and Craig Newmark’s free online version made them nearly worthless. File sharing and streaming helped killed the music industry, and Blockbuster will be remembered forever as the company that passed on buying Netflix for a pittance in 2000, only to be driven out of business by them a decade later. At the time, the $50M asking price accounted for about 3 days worth of Blockbuster’s revenue.
Vicious Cycles / Virtuous Cycles
Great software comes from two forces coming together in harmony: A business that sees the value in software and is willing to invest the time and money needed, and an engineering team that has the ability to deliver that value.
This may seem simple, but in reality it’s extremely difficult for the enterprise to achieve. The more common pattern is that technology staff and budgets are among the first to get cut whenever revenue is not growing at plan, because short term financial results drive behavior. Then, the reduced technical staff struggle to use their reduced budget to simply keep the lights on, much less innovate. Very quickly, the business begins to see the technology team as a burden rather than a benefit and the stakeholders from the business will disengage.
This vicious cycle repeats itself quarter after quarter and year after year until the cost of innovation is so high that companies look to acquisition and strategic investment, rather than inside, for innovation. Often times the companies simultaneously offshore/outsource more and more of their IT as a magic bullet to reduce cost.
What kind of engineering staff sticks around at a company that under-invests and demonstrates a lack of appreciation for technology? Certainly not those motivated to learn the latest technologies; instead you get the loyal soldier: The one committed to his comrades but not to the cause. Or, worse, you get people simply marking time, drawing a paycheck, and hoping not to get noticed when the next round of layoffs happen.
I myself have been in the middle of these kinds of organizations, the ones caught in the vicious cycle. With concerted effort and some amount of time, sometimes these organizations are able to break the cycle and achieve lasting, real , transformation. Organizations that do break the vicious cycle typically share three common traits.
Trait 1: Long term focus
Steward for the long term. It’s not always easy, but you do it.
Ginni Rometty — CEO, IBM
Organizations that are able to effect this transformations first come to understand and explicitly that from the highest levels — including the CEO and the board of directors — that technology is not simply a cost, but rather is integral to the success of the company. Sometimes, these executives come to the realization on their own; more often I have seen that the cycle actually begins a few levels down with technology leaders: the directors, managers, and vice presidents who are close enough to the front lines to influence the engineers, but high enough up to provide the strategic direction and guidance required.
This focus on the long term is what turns IT from a cost to an investment. When exercised properly and responsibly, financial investments take time to mature, but when they do, they provide a return on the initial investment. IT is no different. Adopting new technologies like the cloud and new ways of working such as agile do not return overnight results; they take time to begin to provide value. In fact, it’s very often the case that in the short term they increase the costs of IT due to the cost of change within the organization.
The benefit of a lower cost trajectory from these investments can be seen below. These two companies will spend the exact same amount on IT over 3 years, but one will invest for the long term and the other will simply keep investing like they do today.
Successfully transitioning to a long-term view of IT requires that IT leaders begin to think about, characterize, and discuss their work in terms of what business value it adds. If you’re an IT leader and you can’t articulate what business value you bring, then you might want to consider a career change.
Trait 2 : Trust the team to get the job done
When individual members of the team are highly disciplined, they can be trusted and, therefore, allowed to operate with very little oversight.
Jocko Willink — Former US Navy SEAL
The next common trait found in companies who break the vicious cycle is one where employees and managers at all levels are given the trust and autonomy to accomplish their goals. When IT organizations focus on centralization, standardization and ever more rigid processes, they stifle innovation and drive away their most capable engineers and managers. Google has done extensive research on the central importance of trust in creating high performing teams, and popular business books abound on the subject.
Trust is a simple concept, but may be the hardest management technique to put into practice. Simply stated, most organizations can’t or won’t hire for trust; instead they focus on technical skills and knowledge, the amount of relevant experience, and perhaps educational background.
For most mid-level and senior managers schooled in traditional management techniques, giving trust feels more like giving up control… And it is. This inability of leadership to relinquish control is why many agile implementations and projects fail but it is absolutely critical when tackling the rising complexity of enterprise IT. A critical part of breaking the cycle is to focus on hiring smart people, empowering them to do their jobs, and stepping back, trusting them to do so.
Trait 3: Embrace Complexity
Stop trying to change reality by attempting to eliminate complexity.
David Whyte — Poet
The final common trait among organizations that break the vicious cycle is that their leaders embrace complexity. All too often, leaders are obsessed with “simplifying” their technology in the vain hope that through simplification, they will magically make things less costly and easier for them (the executives) to understand. In reality, software in particular and IT in general are becoming more complex (and more complicated, but that is the subject of a future article), and the pace at which complexity compounds is increasing. The most forward thinking companies embrace this and adapt their processes to with rising complexity rather than hold it at bay.
As discussed earlier, leaders who build teams founded on trust and give their teams the autonomy to tackle problems with a minimal amount of command and control are ideally positioned to effectively manage complexity because the manager is no longer a decision bottleneck. Teams can collaborate directly rather than trangulating through higher levels of the organization.
Embracing complexity in practice means automating out human interaction whenever possible. Whether in testing software or deploying infrastructure or responding to system outages. By removing humans from the drudgery of doing these tasks by hand, you can free them to do more valuable work.
Conclusion
Becoming a company that’s great at software — regardless of industry — is critical, but for most companies it’s quite difficult. For many it might even seem impossible. By being willing to transform, how IT is funded, how the managers and staff are empowered, and how rising complexity is managed some companies have made this transition. In a future post, I will share my own experiences helping a company to break the vicious cycle.
Jason Talley is the co-founder and Managing Partner of Plum Creek Technology, a consulting firm specializing in Enterprise IT transformation.
Taxi photo by John Cobb on Unsplash
Office photo by Giu Vicente on Unsplash
Newspaper photo by G. Crescoli on Unsplash
Interview photo by Tim Gouw on Unsplash
