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.

I work for ThoughtWorks, the global leader in software delivery and consulting.

Sunday, March 31, 2024

Don’t queue for the ski jump if you don’t know how to ski

I’ve mentioned before that one of my hobbies is lapidary work. I hunt for stone, cut it, shape it, sand it, polish it, and turn it into artistic things. I enjoy doing this work for a lot of reasons, not least of which being I approach it every day not with an expectation of “what am I going to complete” but “what am I going to learn.”

As a learning exercise, it is fantastic. I keep a record of what I do on individual stones, on how I configure machines and the maintenance I perform on them, and for the totality of activities I do in the workshop each day. I do this as a means of cataloging what I did (writing it down reinforces the experience) and reflecting on why I chose to do the things that I did. Sometimes it goes fantastically well. Sometimes it goes very poorly, often because I made a decision in the moment that misread a stone, misinterpreted how a tool was functioning, or misunderstood how a substance was reacting to the machining.

My mistakes can be helpful because, of course, we learn from mistakes. I learn to recognize patterns in stone, to recognize when there is insufficient coolant on a saw blade, to keep the torch a few more inches back to regulate the temperature of a metal surface.

But mistakes are expensive. That chunk of amethyst is unique, once-in-a-lifetime; cut it wrong and it’s never-in-a-lifetime. If there isn’t coolant splash over a stone you’re cutting, you’re melting an expensive diamond-encrusted saw blade. Overheat that stamping to a point where it warps, or cut that half hard wire to the wrong length, and you’ve just wasted a precious metal that costs (as of today’s writing) $25+ per ounce for silver, $2,240+ for gold.

Learning out of a video or website or a good old fashioned book is wonderful, but that’s theory. We learn through experience. Whether we like to admit it or not, a lot of experiential learning results in, “don’t do it that way.”

Learning is the human experience. Nobody is omnipotent.

But learning can be expensive.

* * *

A cash-gushing company that has been run on autopilot for decades gets a new CEO who determines they employ thousands doing the work of dozens, and since most of these people can’t explain why they do what they do, the CEO concludes there is no reason why, and spots an opportunity to squeeze operations to yield even better cash flows. Backoffice finance is one of those functions, and that’s just accounting, right? That seems like a great place to start. Deploy some fintech and get these people off the payroll already.

Only, nobody really understands why things are the way they are; they simply are. Decades of incremental accommodation and adjustment have rendered backoffice operations extremely complicated, with edge cases to edge cases. Call in the experts. Their arguments are compelling. Surely, we can we get rid of 17 price discounting mechanisms and only have 2? Surely, we can we have a dozen sales tax categories instead of 220? Surely, we can get customers to pay with a tender other than cash or check? All plausible, but nobody really knows (least of all Shirley). Nobody on the payroll can explain why the expert recommendations won’t work, so the only way to really find out is to try.

Out comes a new, streamlined customer experience with simplified terms, tax and payments. Only, we lose quite a lot of customers to the revised terms, either because (a) two discounting mechanisms don’t really cover 9x% of scenarios like we thought or (b) we’re really lousy at communicating how those two discounts work. We lost transactions beyond that because customers have trust issues sharing bank account information with us. And don’t get started on the sales tax remittance Hell we’re in now because we thought we could simplify indirect tax.

Ok, we tried change, and change didn’t quite work out as we anticipated. It took us tens of millions of dollars of labor and infrastructure costs to figure out if these changes would actually work in the first place. Bad news is, they didn’t. Good news is, we know what doesn’t work. Hollow victory, that. That’s a lot of money spent to figure out what won’t work. By itself, that doesn’t get us close to what will work. Oh and by the way, we spent all the money, can we please have more?

Let’s zoom out for a minute. How did we get here? Since the employees don’t really know why they do what they do, and since all this activity is so tightly coupled, what is v(iable) makes the m(inimum) pretty large, leaving us no choice but to run very coarsely grained tests to figure out how to change the business with regard to customer facing operations that translate into back office efficiencies. Those tests have limited information value: they either work or they do not work. Without a lot of post-test study, we don’t necessarily know why.

This is not to say these coarse tests are without information value. With more investment of labor hours, we learn that there are really four discounting mechanisms with a side order of optionality for three of them we need to offer because of nuances in the accounting treatment our customers have to deal with. That’s not two but still better than the nineteen we started with. And it turns out with two factor authentication we can build the trust with customers to share their banking details so we can get out of the physical cash business. Indirect tax? Well, that was a red herring: the 220 categories previously supported is more accurately 1,943 under the various provincial and state tax codes. Good news is, we have a plan to solve for scaling up (scenarios) and scaling down (we’ll not lose too much money on a sales tax scenario of one).

Of course, we’ll need more money to solve for these things, now that we know what “these things” are.

That isn’t a snarky comment. These are lessons learned after multiple rounds of experiments, each costing 7 or 8 figures, and most of them commercially disappointing. We built it and they didn’t come, they flat out rejected it. We got it less wrong the second, third, fourth, fifth time around and eventually we unwound decades of accidental complexity that had become the operating model of both backoffice and customer experience, but that nobody could explain. Given unlimited time and money, we can successfully steer the back office and customers through episodic bouts of change.

Given unlimited time and money. Maybe it took five times, or seven times, or only three. None was free, and each experiment cost seven to eight figures.

* * *

There are a few stones I’ve had on the shelf for many, many years. They are special stones with a lot of potential. Before I attempt to realize that potential, I want to achieve sufficient mastery, to develop the right hypothesis for what blade to use and what planes to cut, for what shape to pursue, for what natural characteristics to leave unaltered and what surfaces to machine. Inquisitiveness (beginner’s mind) twined with experience on similar if more ordinary stones have led me to start shaping some of those special ones, and I’m pleased with the results. But I didn’t start with those.

Knowledge is power as the saying goes, and “learn” is the verb associated with acquiring knowledge. But not all learning is the same. The business that doesn’t know why it does what it does is in a crisis requiring remedial education. There is no shame in admitting this, but of course there is: that middle manager unable to explain why they do the things they do will feel vulnerable because their career has peaked as the “king of the how in the here and now.” Lessons learned from being enrolled in the master class - e.g., being one of the leads in changing the business - will be lost on this person. And when the surrogate for expertise is experimentation, those lessons are expensive indeed.

Leading change requires mastery and inquisitiveness. The prior without the latter is dogma. The latter without the prior is a dog looking at a chalkboard with quantum physics equations: it’s cute, as Gary Larson pointed out in The Far Side, but that’s the best that can be said for it. When setting out to do something different, map out the learning agenda that will put you in the position of “freely exercising authority”. But first, run some evaluations to ascertain how much “(re-)acquisition of tribal knowledge” needs to be done. There is nothing to prevent you from enrolling in the master class without fluency in the basics, but it is a waste of time and money to do so.