The Business of IT

An article in the June 2005 issue of MIT’s alumni magazine Technology Review by Howard Anderson called “Good-Bye to Venture Capital” got me thinking. The article says technology spending has crashed because there’s a limit to the number of things that companies can implement in any given period of time, and there was simply too much stuff around for a long while.

I am not sure this is true in all industries, but in many of the businesses I’ve encountered over the past few months they can’t even use all the technology they’ve already purchased. Even TCG has a bunch of software we bought months or years ago that we’ve never been able to implement because we simply didn’t have the bandwidth to make god use of it. And if a small technology company can’t use everything on which we’ve spent our hard-earned money, well, I assume the same is true of other businesses large and small. 

There are two important lessons to take from this observation. 

#1: Technology companies need to focus on making existing products better/easier/faster/cheaper. If nobody is going to buy new stuff for a while, obviously their focus is going to be on improving existing systems. I liken this to a building owner. Until they decide to do a major renovation, they’re not going to be looking for bricks and concrete and dishwashers. Rather, they’re going to look for small stuff — replacing stuff that breaks, or mild improvements that make their lives better. I’m having under-cabinet lights put in my kitchen so it’s easier to see what I’m cooking. This isn’t a major improvement; it’s just a little change. If nobody’s going to buy my major improvement in, say, kitchen lighting, because it’s untested or expensive, I should instead be focusing on improving my mid-level or low-level offering, or on my process for creating them so I can lower my prices and grab more market share.

#2: Technology buyers should stop chasing the newest thing or even version upgrades. They’re typically not going to have time to implement them anyway, even if they do get money to purchase them (which is unlikely because the budget folks are going to do a cost-benefit analysis and notice at some point that the cool new stuff that promised big savings is still sitting on a shelf somewhere). Rather, they should concentrate on process improvement and system enhancement, and those functions should be outsourced. I always say, “Outsource everything but your soul.” (Yes, of course I stole that. I’m a advisor!)