A Big Winner

Without question, though, IT's mandating public-key encryption for all internal and supply chain communications has been a big winner. Everybody feels more confident about the security of their messaging and - of course - the added benefit has been our ability to screen out all manner of spam and viruses that aren't appropriately keyed. The initial resistance we saw from vendors and suppliers two years ago has vanished. More open exchanges of proprietary information have resulted. Ironically, the rise of traceable encryption has led to greater levels of trust and respect than anyone had anticipated. Good for us.

Better yet, our decision to require "personal" communications to be sent in nonencrypted clear text has cut down on systems abuses while preserving employees' needs to coordinate their private and professional lives.

Let's now talk about what doesn't impress: We all acknowledge that IT's global outsourcing of development over the past six years has proven to be a financial and business debacle. We got suckered by flawed accounting models that didn't incorporate hard dollar and time value-of-money costs for functionality upgrades. When Indian and Chinese developers cost 10 cents in the dollar for slightly lower productivity and quality, we could live with inefficiencies and slips. After all, we had saved a bundle by getting rid of our own older and disproportionately expensive developers. Getting 80 per cent of the value for 20 per cent of the cost was a good deal. I accept that.

But IT invested in Third World software development as if the 80/20 value proposition would exist in perpetuity. It obviously hasn't. To the contrary, IT seems addicted to believing it can always get good enough developers for 25 cents in the dollar. I'm here to tell you they can't and don't. (See Attachment C - our spreadsheet/Monte Carlo simulation of "cheap" programmer development on our cash flow.)

For our division, that 80/20 proposition has degenerated into 60/40, and I'll bet that holds true for more than half the divisions in this company. While that still looks like a bargain, it's not. Do the maths. Except for commodity systems changes, any value-added software development initiative must now undergo an elaborate requirements analysis before being shipped overseas. We lack the in-house capability to do major application upgrades. We typically find that what should be accomplished in a quarter takes at least nine months. This in a marketplace that's demanding faster response times. Maybe that's why we're so Wizard-driven.

IT has at least three major in-sourcing initiatives under way, and I can describe them only as chaotic. Our involvement in the supply chain in-sourcing initiative only underscores that our IT leadership thinks Hindi or Cantonese is the most important software language. We don't agree. We think our IT leadership is less interested in being a partner than a low-cost supplier of IT services. Unacceptable.

What I have to say about IT's botching of our real-time CRM/SCM integration implementation I don't want circulated. So let's set up a time when we can videocon.

Michael Schrage is codirector of the MIT Media Lab's eMarkets Initiative