Mister CEO, Is Technology Arbitrage Possible?

You are CEO and your organization is about to spend $100 million on a new IT system to replace an outdated system.  That $100 million dollars includes software licensing, hosting, consulting services and internal costs.  The implementation is expected to take eighteen months.  Your CIO has “de-risked” the project by selecting leading software and consulting partners.  He even hired a big IT analyst firm to help legitimize the investment.  You’ve given the project your blessing and have agreed to participate in monthly steering committee meetings.  You’re doing your job properly, right?

Maybe not.  Maybe all the benefits you sought from the new system are available for $30 million, but you didn’t realize it.  Maybe you didn’t realize that the software vendor, the hosting company, your chosen consultancy, the analyst firm and your CIO want the $100 million project because your vendors make more money and delay their accountability, while your CIO gets to play in the “big game” that will help him land a $200,000 salary increase with his next employer. Maybe all those touted benefits from the new system including analytics, mobile, big data, cloud and increased security won’t help your company or your customers one bit.

Mister CEO, do you know how often $100 million projects become $300 million dollar projects?  Or how often eighteen month projects remain unfinished until the sixtieth month when they are declared complete with merely thirty percent of the functionality you originally sought?  Maybe your original objectives could have been realized in a much shorter timeframe for a $30 million investment.  Don’t forget the first axiom of IT projects, “The bigger it is, the more likely it will fail.”

Mister CEO, have you surrounded yourself with people that can help you identify those technology arbitrage opportunities?





Avon Products — Is an IT Project worth $5 billion?

Eighteen month ago Avon Products stopped its global SAP implementation, a.k.a., the “Service Model Transformation” or SMT project.  In its 8-K regulatory filing, Avon stated that it planned to write off the $125 million investment in SMT.  The Canadian SMT pilot failed to produce the results Avon was looking for, and the CEO decided to nix the rest of the global rollout.  On the day of the 8-K filing, Avon shares closed at $16.82. Today the stock sells for $6.75, down 60% from the filing date.  The Dow is up 12% in the same period.  If Avon tracked the rise in the Dow, it’s market cap would be more than $8 billion, versus today’s actual market cap of $3 billion.

Is an IT Project worth $5 billion?  According to Information Week, “the technology worked, but it was so hard to use that Avon salespeople — many of them part timers who network among friends and hold in-home parties — left the company in droves.”  This tells us that the Avon sales force didn’t want to use a system that made their lives more difficult!  We hear the same complaint from doctors about their Electronic Medical Records systems.

A company’s worth can pivot considerably based on whether it invests in IT wisely. Perhaps Avon should have spent its IT dollars toward giving its salespeople the tools to make more money, more easily, and in less time!


Computerizing Health Care Is Making Us Poorer, Not Healthier

Healthcare.gov. Electronic Medical Records.  HIPAA.  Meaningful Use.  Telemedicine.  Insurance Coverage.  COBRA.  Privacy.  Medical Errors.  Productivity Requirements.  No-Recourse Billing.  The Cloud.  For the remainder of this decade, the health care industry will be overwhelmed by managing its information, and less able to help you manage your health.  The long-term outcome may be good, but the near term is sure to be rocky.  The launch debacle at Healthcare.gov is the first act in what will likely be a sordid tale.

The private practitioner cedes his Lexus to the repo man and gives up his country club membership because he can’t afford to computerize his practice.  Corporate and university health systems are gobbling up independents and group practices, because they are the only ones that can afford the massive fixed cost investment of health care IT.

Like other sectors, health care is starving for information in a swelling sea of data.  Medical costs are skyrocketing, and this is partly due to the exponential explosion of health care data, enabled by the cheap storage, ubiquitous bandwidth, and hungry technology vendors.

Go to a doctor today and then examine your bill.  Do you understand it?  Is it correct?  What recourse do you have if it’s not?  Did you receive a bill from the doctor’s hospital in addition to the doctor’s bill, even if you didn’t go the hospital?  Thought your insurance coverage would cover it, right?  What can you do?

The Federal Government entered the fray via Meaningful Use, which pays doctors for computerizing, but the legions of IT consultants are the real winners.  They’ve thrown their Re-Engineering, Six Sigma and Sarbanes-Oxley brochures into the trash to make room for their health care IT services.  The big consulting firms lobby lawmakers to codify complexity so they can sell our heath care providers a lifeline out of it.

Until heady ambitions are distilled down into doable projects, we will continue to wait for results.  We must curtail the data deluge and pare the consulting legions or our health care industry won’t get healthier.

Jon Bellman






HealthCare.gov Needs Surgical Strikes, Not a Massive Surge — An Open Letter to President Obama

October 22, 2013

Dear Mr. President,

I don’t have your phone number or email address, so I am posting this online.

Congratulations on getting live with HealthCare.gov!  That was no small feat and America will benefit from your vision and steadfastness.  That said, you are the CEO in Chief, and you must realize that you are speeding toward the edge of an Information Technology Black Hole.  It is time for a Reality Check!

The “surge” approach will likely fail.  Massive code rewrites, server upgrades, and new spending will result in more time wasted, and extend the time that it will take for your concepts to be properly executed.  HealthCare.gov needs a few plucky whiz kids in hoodies, not legions of vendors and consultants from the big firms that profited handsomely from bringing you to the edge of that Black Hole.  How do I know this?  I have been turning around faltering technology projects for fifteen years and I have seen this many times.

Think about it.  Have your project leaders identified and described the site’s true problems with absolute clarity or are they just very aware of the symptoms of those problems?  So American taxpayers will pay to throw teams of experts to treat the symptoms? How will their efforts be coordinated?  Prominent, high-living CIOs and billionaire technology executives will not bang out the code that will lead Healthcare.gov out of the Black Hole. Their game is about getting you to spend more money as you simultaneously lower your standards for success.

Escape is possible from that Black Hole, but by leveraging lean and light commando teams in incremental surgical strikes, focusing on the worst problems first and building logically from there.  Problem resolution should be rapid and incremental, with code releases every one to three weeks.  If there are major structural or design flaws that require the system to be re-architected, then those flaws should be corrected off line and released in a Version 2.0.  That release should be invisible to the users.  The user experience, reliability and safety of HealthCare.gov must be protected and fortified.

You probably know that IT projects are framed in terms of time, cost and quality (or scope).  Projects typically fall behind in time and run over on cost while delivering a lower quality outcome than was originally intended.  Why? IT vendors and consultants have a financial incentive to embed complexity into IT projects, because it enables them to sell more hardware, software and consulting hours.   Complexity exponentially magnifies risk.

In my book, Escaping Delete, I present the <CONTROL><ALT><DELETE> paradigm for attacking IT problems.  CONTROL errors relate to efficiency and occur when time and/or cost run amuck.  ALT errors relate to effectiveness and occur when an organization makes bad choices, e.g., it computerizes a feature that users don’t need or care about.  ALT errors need to be resolved first, because it doesn’t make sense to focus on efficiency if you’re going in the wrong direction.

A toxic buildup of too many CONTROL and ALT errors drives toward the fatal DELETE error, wiping out the value of the entire investment and sometimes drowning the sponsoring organization along with it.  The way to avoid a DELETE error is to take a good hard look at the mega-scope  and break that work into Little-Triangles, or bite-size, surgical strike projects.

Each surgical strike should be intense and quick.  Expert resources should be overloaded, enabling a deft project leader to see results quickly and make on-the-fly changes.  Progress is made in days and weeks and not months.  An essential requirement is the battlefield observer, a completely impartial auditor that reports directly to you regarding the progress of the recovery.

The entire approach is described in my book, Escaping Delete: A CEO in the Black Hole. http://www.amazon.com/Escaping-Delete-CEO-Black-Hole/dp/0615331947/

I hope to hear from you in the coming days.

With warmth, gratitude and respect,

Jon Bellman
Founder, Reality Check LLC, www.rcheck.com

Comment to the WSJ on the PA Unemployment Compensation System Fiacso

From today’s WSJ:

The Morning Download: IBM IT Implementation Goes Astray

Steve Rosenbush

Good morning. The state of Pennsylvania will not renew an  IBM Corp. contract to build an unemployment compensation system after software defects and other problems pushed the project $60 million over budget and 42 months behind schedule.  Pat Phelan, a Gartner Inc. analyst, tells CIO Journal that the state could have done a better job working with IBM to fix the problems, but ”you can only blame the customer so much because they don’t know what they don’t know.” The company has previously crossed swords with other public agencies, such as the states of Indiana and Texas and the Air Force. It should be noted that Pennsylvania was trying to replace software 35 to 45 years old. IBM said it was working to resolve the problems.

My comments:

Hi Steve,

I am a technology project turnaround guy and have seen my share of projects like this.

The next level of analysis beyond the typical yawners, i.e., over scoped, poor executive participation, poor controls, data migration problems, etc., would probably uncover the following:

The vendor sold the state by parading the A players, soon switched to the B players, and then switched to the Level 5 certified subcontractors that are sitting on the other side of the world and don’t speak English the same way as the State’s employees do.  Once that happens, the client’s key decision makers bolt and then the consultants have their gold-mine: a bill-at-will situation.  The killer here is that State pays the same bill rate even though the vendors margins continue to expand as the vendors hunt deeper into the barrel for the C players with the lowest pay rates.

The State’s decision makers were greased by the vendor in the form of Super Bowl tickets, VIP treatment at conferences, golfing opportunities or other inappropriate compensation.  When projects go on for years, those decision makers already parachuted into new jobs at other organizations with high expectations and great references, ready to pull the same old nonsense all over again.

The scope of the project was too large, too ungainly and undoable.  The team attacked the easy challenges first and then postponed dealing with the thorniest issues until the project was clearly blowing up.

My guess is that there is money here to be recovered from the vendors – I’d like to see the consultants time sheets and match those to the project’s interim deliverables.

My new book, Escaping Delete, details why these projects fail and how to avoid the pitfalls. http://www.amazon.com/Escaping-Delete-CEO-Black-Hole/dp/0615331947/

Keep uncovering these failures – it’s a shame when PA can’t pay claims properly but it’s more of a concern when similar failures imperil our national defense systems.

Jon Bellman

Reality Check, LLC