The discussion ended unresolved. A good summary of what was left open might be: when a system is technologically "very old" but functions in perfect alignment with one's business model, does it make sense to rip it out and replace it towards being technologically current, or reducing vendor dependence, or to create future (but non-obvious) application development options? Or should IT investment strategy always be driven by forseeable business needs, alignment with current business strategy and the philosophy of "if it ain't broke and does what you need well, don't fix it"?
Wednesday, March 11, 2009
If it ain't broke but obselete, should we upgrade it?
My MBA class and I discussed the case of a successful retailer whose business model was heavily dependent on their IT infrastrcuture, and whose IT infrastructure was DOS-based. The class initially seemed unanimously in favor of upgrading the system to a more modern platform. However, a parallel analysis led us to conclude that the existing system supported the retailer's business model and information needs very well. There were no obvious immediate deficiencies, their IT was well aligned with their business strategy, their processes were carefully engineered, and their employees were trained and empowered. Besides, their key challenges to scaling their business were not IT-related, but had to do with operations and human resources.
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11 comments:
It was an interesting discussion, indeed..
Finally, I agreed that there is no urgent need to upgrade right now. However, there are two threats I see:
1) Replacement of broken parts of the current IT system. One example: Floppy disks. Are they still purchaseable? If a major part of the system can not be replaced, the usability of the whole system will be at least narrowed.
2) Upgradeability when interfaces change. Imagine a broadband world, where it is not possible to send data analogue via the existing modem. (currently not real, though) The analogue-modem-based-system will get isolated, and becomes useless.
So far from my side, Happy springbreak!
It was a very interesting and passionate discussion in my opinion. Once I let my nerves settle down on the train ride back home, the philosopher in me took over and analyzed the situation. He told me that I was potentially biased towards an upgrade because 'not upgrading' would pose an existential question to us in the IT profession.
As I pondered over that thought, several other obstacles to upgrade started popping up in my mind such as:
1) All of us grossly underestimated the cost of upgrade. Even if it would technically cost the company $20 million or so, it will end up costing the company close to $100 million after taking into account the soft costs involved in the upgrade. They have to upgrade in several stores in several countries with employees from different cultures, speaking different languages, in different time zones, with different skill sets, motivation and compensation. We have also not accounted for the inertia that fights change in many people. What if some stores refused to participate because they feared change? What if Internet Service Providers in Latin America did not provide a reliable online service? Maybe we are making too many assumptions because we are spoilt by great service here in the United States!
2) Zara always treated IT as a cost center rather than an enabler. That explains why they do not have a CTO or a CIO. This mentality can and will crush ambitious projects in the company that lacks the management expertise and experience of a senior IT official.
3) If we have computers making trend decisions based on BI gathered through extensive data mining, the human element that makes decisions based on emotions and intuition will be missing. That could translate to morale hits to designers and commercials. If this adversely impacts their creativity and hence company sales, what price can we put on that?
Having said all that, I am still worried about the obsolescence of existing technology and lack of support from vendors.
Does a gradual systemic regional upgrade sound good to anyone? Something like a phase wise roll out where new and old systems coexist until global transition is gradually completed – maybe over years? What if all the new centers operated with new OS but still used the model technology to communicate with HQ? That way we do not need to re-engineer the central systems.
Zara should maintain their business model which has proven very successful over the past.
Whew!! Decisions... Decisions...
An additional point, which we did not really cover in-depth during class, revolves around security practices. As security standards become stricter throughout the world, this could potentially force Zara to upgrade, which in turn would render their current POS equipment useless.
In Zara's current environment, they upload sales from a floppy disk. This leads me to believe that Zara is willing to risk having customer credit card information stolen if a manager decides to pull information from the floppy. How comfortable will customers remain with this type of data exchange? How comfortable will credit card companies remain?
In the US, there is an ever-evolving movement toward tightening controls over the passing of customer data; these controls include such things as encryption and network lockdowns. What is Zara doing to make sure that they can meet these types of standards? Are they willing to pay the hefty fines that may go along with not meeting these standards in order to remain on a DOS platform?
Although their current IT system setup aligns with their business model, it seems that in the near future, a forced upgrade could occur, especially if they want to continue on a path of growth.
The problem I have with the "if it ain't broke don't fix it" thought process is that it dismisses the unknown potential of what technology enables and instead just focuses on technology. An IT group that believes it has solved everything it can is just looking at too small a problem space.
With the growth of the capabilities of consumer technology and the expectations of users IT would be better of providing the infrastucture that gives their users power to experiment and collaborate rather than trying to dictate a limited set of solutions.
A more colorful metaphor for my comment
http://blogs.harvardbusiness.org/now-new-next/2009/03/the-high-priests-of-it.html
The way I see this is that there are two main factors at play here;
- Sooner or later, Zara will have no choice but to upgrade because at some point DOS will no longer be supported (or the outdated parts they use will no longer be manufactured).
- While their current IT infrastructure does support their current business model adequately, perhaps they could do even better with an OS upgrade and a fully integrated network. The risk of disruption probably outweighs these potential benefits in the immediate short term. But, if they intend to continue growing and improving margins, they will need to alter their business model accordingly, and a more robust IT infrastructure would likely be needed for that.
So, in summary, there is no pressing need for a full firm-wide upgrate immediately. But if Zara ignores the fact that it will be needed down the road, they risk being blinded by their own current success and being caught off guard when it's already too late.
If they wait 5 years before taking any action, perhaps that would be fine, but perhaps it would be too late! Given that, I believe they have to - at least - develop a strategic IT roadmap so they are able to implement changes quickly when they are ultimately needed.
Though most of us overwhelmingly supported the decision to overhaul and upgrade the IT systems rapidly, the parallel analysis got me thinking as to why every problem in this world is often seen as an IT problem (especially, with we IT folks), and that an easy fix is available through IT ? I believe that investment in IT should only be directed towards initiatives that deliver value to the company and its stakeholders.
Though there are many industries where IT is viewed as the driver for growth, there are a few others where IT stays in the sidelines. For instance, in the pharmaceutical industry, it is the cutting edge Clinical Science that delivers value to companies and molds its strategy. IT only complements the various functions and processes.
Similarly, in the case of Zara, a high-end fashion retailer, the corporate strategy is aligned around bringing trendy and fashionable apparel to market efficiently. This centers around listening and learning from interacting with their customers. This is something that is hard to replicate with a Business Intelligence software or an algorithm. However, Zara does have adequate IT capability to continue running its business.
Therefore, Zara shouldn't invest in IT needlessly, but rather roll out any IT changes on an experimental basis. A full fledged IT system upgrade that most of us suggested would probably be applicable had Zara been a high volume mass retailer.
Just a thought !!
IT use for gaining competitive advantage. Business model can be partially or fully depend on IT service and infrastructure and scaling on the organisation depends on the factor how much IT involve in business model.Implementation concept of IT to manufacturing industries and core IT companies cant be discussed in same manner.
Based on the very little I gather from you post and the comments by some folks who I take are your students, I gather that there might not have been distinction made between necessity vs requiring an upgrade and when if required to make the change.
The 2 questions why/when are orthogonal. This is a very simple practice preached by the agile development principles in terms of product backlog, sprint backlog and prioritization.
Tho the agile principles are a micro function and deal with day to day job functions they can be applied to macro definitions.
Why do we need an IT systems upgrade and When do we need it?
Reasons to upgrade could range from regulatory (government requirements for security protocols not available in DOS), to business requirements (vendor lock in and expensive support contracts), to company core values (IT as an innovation enabler, user experience as a consequence of system glitches).
The when to do an upgrade follows from the reasons.
Regulatory requirements would imply a "drop dead date". However business and core value requirements imply a "have by date".
For the following paragraph, I assume the business requirement of vendor lock in and company core value of user experience. Assuming a prioritization scale weighted more heavily by business requirements the company might be willing to put off the upgrade to the following year. But one weighted more heavily by core values might require the upgrade to be actioned immediately.
Aside : I am generalizing here however, If prioritization were heavily skewed by business requirements it is management and prioritization heavily skewed by core values is leadership. Prioritization skewed by core values would have prevented the scenario sooner rather than later.
My thoughts are you have to keep current when it comes to technology. This is one part of why RIM has had problems. Running on old legacy systems is treading on thin ice.
Finding the right people for IT projects can be done, it just takes partnering with the right agency to deliver resources that can get the job done.
Too late for a post...but neverthless
Given the changing dynamics of the industry how long will it be before the existing infra will find it hard to support. Look at how newer techologies ..say with a focus on consumer experience ...will complement the business and existing infra. Have a roadmap to gradually 'unobsolete' the infra of course with the right business case in place
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