I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

Sunday, March 21, 2010

Supplying IT Mercenaries

Last month we took a look at the different types of staffing in IT, using Machievelli’s book The Prince as a guide.

Buyers of forces, be they military or IT, have long been advised against employing mercenaries. Strangely enough, nobody has paid this counsel much mind. The buy side still buys mercenaries, more than ever. Just have a look at your own sales lead list. Lots of demand for short-term specialists.

So what’s an IT supplier to do?

Let’s look at this from the perspective of a “supplier of forces” that wishes to be sustainable business, one that aspires to do business for many years. In the parlance of Machiavelli, we want to look at this from the perspective of a firm that wishes to be an independent “state.”

Supplying Mercenary Forces

For IT firms, there are always mercenary opportunities, because there are always buyers looking to fill highly specialized roles for some period of time: an Oracle financials expert, an iPhone app developer, an interim project manager, a Sharepoint specialist.

To the supplier of forces, a mercenary opportunity might look attractive because it appears to offer short-term placement, outsized income, and few strings attached. This is almost always illusory. In fact, mercenary work can cause more harm to the supplier than it’s worth.

Mercenary work is income, not wealth.

When a supplier firm is in need of income, mercenary work can appear to be especially attractive. But income is not wealth.

Income pays the bills, but most income streams are not sustainable. Wealth sustains a business. The sell-side firm accumulates wealth in many ways, including intellectual property, a well-honed social system for delivery, people who are highly capable or have deep industry knowledge, and referenceable, long-term clients. Mercenary jobs do not contribute to the development of any of these. This stands to reason, as the mercenary buyer is looking to exploit expertise, not contribute to its development. As a result, mercenary opportunities don’t contribute to wealth. They are income, and little else.

Income can be useful depending on the needs that the supplier has. However, it must be recognized for what it is, and not confused with wealth.

The cost of mercenary income is very high.

Buyers of mercenaries rent knowledge and expertise in pursuit of their own agenda. In so doing, they exploit, but do not build, the wealth of suppliers.

Let’s think back to Machiavelli for a moment. Machiavelli wrote in terms of princes and the states they govern. In Machiavellian “sovereign state” terms, if a state dispatches too many of its best forces on mercenary missions, it will be unable to defend its home and advance its agenda. The same applies to the would-be sustainable IT supplier.

Suppose a sell-side firm chooses to retain its best and supply untrained or unskilled forces into a mercenary mission. The buyer of mercenaries will recognize the skill level of the forces supplied and conclude they are not getting value for money. The buyer will complain and even threaten the supplier (seeking damages, seeking not to pay, etc.). This means mercenary work draws down senior staff almost exclusively.

Being forced to dispatch senior staff is costly as it stunts the development of the sell-side business. Mercenary engagements rarely offer opportunities for the supplier to incubate new capability as can be done when deploying on “one’s own” missions. By extension, because they’re on mercenary missions, senior staff are unavailable to the sell side firm for the “one’s own” missions – developing deep customer relationships, industry knowledge or intellectual property – that build a business. This makes the sell-side business vulnerable and weak.

Sacrificing business development to accept jobs on offer is to trade wealth for income. That, by definition, makes it expensive income. It is dangerous for the supplier to get caught up in the attractiveness of income, especially if they lose sight of wealth-producing activities.

The worst mercenary engagements are destroyers of wealth.

The people you send into a mercenary mission may not return from the mission. For example, they may elect to quit and work for somebody else. Re-acquiring that capability is not inexpensive as you can’t just hire senior staff off the street: it takes time to recruit and train, build experiences, and mature somebody considered to be among the most senior staff.

But losing somebody in a mercenary mission is not just a loss of capability, it’s an erosion of wealth. Losing senior staff in which you’ve invested undermines the fabric of the supplying firm, especially if that person was a cultural icon, a strong leader, had many years of accumulated experiences, or was woven into the synaptic social processes of the organization itself. This form of wealth destruction in mercenary missions is particularly damaging because it results not from the pursuit of the supplier’s agenda, but in somebody else's agenda. That is, it’s not lost in pursuit of wealth, it’s lost in pursuit of income. Income doesn’t compensate for a destruction of wealth.

If you are going to put capability at risk (e.g., put people in a situation where they may be pushed beyond their limits), it is far better to have wealth to show for it.

Mercenary engagements encourage defection among the ranks.

Mercenary engagements favour the independent contractor more than they favour a firm that supplies mercenaries.

Suppose a member of your forces recognizes a mercenary situation for what it is, and furthermore that it’s likely to be a long-term mission. Since the situation is not likely to change, he or she might as well make the best of it for themselves. By becoming an independent contractor, they can negotiate more favourable terms with the buyer. This is usually nothing more complex than availing themselves at a lower cost to the buyer than their current host firm - that is, your firm - bills them out for. As an independent contractor, they’ll be well positioned to strike this bargain, especially once the mission is well under way and they’re already part of it.

The individual has the upper hand over the supplier firm because realpolitik trumps principles. Even with contractual covenants designed to deny a person going independent and taking a customer with them, the supplying firm will typically not impose them in mercenary circumstances. The sell-side firm already sacrificed pursuit of its agenda in pursuit of income. Also, the sell-side firm won't value mercenary work as highly as it will "one's own" or "auxiliary" work. Subsequently, the sell side firm won't risk future income from the buyer by playing the "principles of conduct" card with the would-be independent contractor. And both the independent contractor and the buyer know this.

Mercenary engagements can quickly become high maintenance.

If you send inferior or inexperienced forces, the buyer is likely to reject them and demand replacements and possibly seek damages. This can be as little as the refusal to pay for those initially fielded to expenses related to any transition work undertaken.

You may staff experienced forces, but they run into factors that curtail their effectiveness, things such as work environment, tools they must use, and the aptitude of those with whom they must work. The buyer of mercenaries is usually not inclined to respond to the demands of the mercenary, so they are ignored. The mercenary, unhappy and restless, may cause all kinds of disruption directly to you, or to the buyer (which will find its way to you). The mercenary may also resign themselves to the situation and mentally check-out. This will undermine the sense of value the buyer believes they are acquiring ("I expected more leadership from your people...") In either case, you will be spending a lot of time with the people deployed in a mercenary situation. On top of it, the buyer will be reluctant to pay, which will delay cash flow.

Alternatively, you may staff an experienced person, but one with the wrong personality. Personality conflicts are often not recognized for what they are, and personality problems completely obfuscate the landscape. So whether suitable to task or not, the buyer will claim he or she is not receiving value for money. In this case, the buyer may ask the supplier to intervene in integrating the mercenary, and will often communicate barbs or jabs stated by his or her "own" forces to undermine the credibility of the mercenary. The buyer may seek to renegotiate terms.

All of these increase the supplier’s cost of doing business, which erodes the margin on the mercenary income.

Mercenary engagements are very rarely closed-ended as promised.

Rarely does a patient tell a doctor the prognosis, what procedures to perform, what staff to have, what medications and treatments to prescribe, and so forth. In fact, in medicine, we do the opposite: doctors provide independent assessments, and proceed accordingly with the patient.

Yet mercenary engagements are defined by the buyer, not by the supplier. Mercenaries are rarely granted an opportunity to assess the battlefield, because they’re simply signing up to fight in somebody else’s battle.

Successful, clean extraction from the mercenary mission requires that the mercenary perform relative to the buyer expectation of the mission, and that the mercenary can explain how he or she has fulfilled consistent with buyer expectation. This requires the buyer to accurately articulate the problem space and how the mercenary will contribute to resolution. It also requires the buyer to completely articulate the problem space and how the mercenary will fit into that solution. Given the intrinsic optimism and selective amnesia that buyers of mercenaries typically have, it’s a stretch to assume that the buyer’s definition of the mission will have any bearing on the reality of what can, let alone what should, be done. The buyer has self-prescribed treatment, and most often, the prescription is well wide of the mark. This will obfuscate the definition of “success” of the mercenary mission, and make it difficult for the sell-side firm to conclude and collect.

The buy side may also wish to retain a mercenary for indefinite periods. People often buy mercenaries because their own forces are not performing well. The buyer can become unusually attached to a mercenary because this is the one person who speaks with clarity and authority and gets things done. The buyer may be unwilling to let the mercenary go, offering both extension and increased income. They may drag their feet on extracation procedures such as hand-off of mercenary work to their own, even if this comes at a cost to their own business. This positive vibe with a buyer may make the “income” more palatable, but it remains income just the same. And that vibe can just as quickly turn toxic due to some change in the buyer's situation.

Regardless the circumstance, a clean extraction from a mercenary mission is the exception rather than the rule.

Very few IT firms succeed as purely suppliers of mercenary forces.

Gaining a reputation as a “good mercenary” is not necessarily wealth building. It may create more mercenary opportunities. It may allow you to increase your fees. But it will not create wealth generating opportunities.

Mercenary skills tend to be highly specialized. The mercenary must be very fluent with a specific technology, a specific technique, or the specific nuances of how a particular company works. But as technology goes through cycles of obsolescence, as management fads come and go, and as companies are bought and sold, mercenary skills are high value for relatively short periods of time. The mercenary must therefore keep skills current and up to date and be in a position to influence technology cycles and management fads.

Conversely, there are few opportunities for generalist mercenaries. There may be people who can figure out a technology or collection of systems given time, but the buyer of mercenaries isn’t looking for generalist skills. They’re generally looking to have a very specific problem (e.g., involving a very specific collection of technologies) solved.

As mentioned above, mercenary work lacks characteristics of sustainability. Mercenaries are brought in to perform closed-ended jobs. While a job may command a high income, it is temporary by definition. The mercenary is removed from the situation at the first opportunity. Using the parlance of Machiavelli, once the battle is over, the mercenary will not be invited to be a “colonist.” The mercenary must therefore have a secure home to which to return and the opportunity to ply his or her trade elsewhere.

This means that a mercenary must always be on the lookout for the next opportunity, which usually means a different buyer. Because mercenary work tends to be very challenging and consuming, the mercenary can usually only go looking for new opportunities once the job at hand is completed. A mercenary is truly fortunate if he or she has a strong enough network that opportunities seek them out. On top of it, a mercenary must constantly evolve his or her skills to remain current, something difficult to do when deployed as a mercenary as opposed to an “auxiliary” or “one’s own” force.

Didn't the Swiss make it work?

What of Switzerland? Famous throughout the centuries as suppliers of mercenary forces (it wasn’t uncommon for Swiss forces to be engaged on opposite sides of the same battlefield), the Swiss were notoriously good mercenaries and converted mercenary income to wealth. Do they not offer a model for the would-be supplier of mercenaries? The Confederatio Helvetica benefits from a natural defensive geography. It is difficult for an invading force to mount an offensive as it’s tough to win an uphill battle, and then have sufficient forces remaining to sustain the victory. Switzerland has abundant natural resources, notably water, meaning an opposing force isn't going to win a war of attrition. A victor would have the unenviable challenge of administrating a government over the fiercely independent Swiss. All in all, the Swiss could avail a greater percentage of their population to mercenary pursuits without putting their own agenda (rather, the agenda set by each Canton) at great risk. Arguably, this was how the Swiss did advance their agenda.

While this model worked, it was also highly situational. There weren't a lot of other regions of Europe that had so many factors creating a natural invulnerability, let alone a population that sought principally to form a sustainable and symbiotic relationship with it. While it's not out of the realm of the possible, there aren't too many businesses today benefiting from market forces that make them similarly sustainable.

The sell-side has to know what it’s buying in a mercenary opportunity.

Clearly, the sell side buys into a mercenary situation, just as the buyer is buying mercenary forces.

The buyer of forces will often try to represent a mercenary opportunity as something other than “mercenary” to the supplier of forces. This can be innocuous: perhaps they don’t understand the distinction themselves, or this is how procurement has taught them services are contracted. It can also be malicious: a buyer can willfully deceive a supplier, perhaps because they’re engaged in a political battle with other people in their business and simply wish to deceive.

Mercenary work is still the most prevalent form of demand on the landscape. There is internal pressure to enter into these engagements as many people in the sell-side business will champion them for reasons ranging from hitting quarterly numbers to the brand association of doing business with those firms. Just ask yourself going in: where's the line between getting a “foot in the door” to build a business relationship and simply opening a short-term income spigot?

Throughout time, the sage advice to those on the buy side wishing to press forward an agenda as an independent "nation state" has been to avoid mercenaries. This advice is just as applicable to those on the sell side who aspire to be sustainable businesses pursuing an agenda of their own.