Monday, July 16, 2012

Automation Is On the Path to Cloud

It's interesting to me how much the manufacturing world depends on automation today yet how much the majority of IT leaders fear it. Take a tour of a brewery, auto assembly line, or computer assembler and you'll see significantly more machines than people.  In college working for Allen Bradley and then Eaton Cutler Hammer who specialized in  plant floor conrol systems, I was introduced early to two key elements of cloud: distributed systems and automation. Making a trailing arm for a GM "G" car required an amazing quantity of knowledge, data collection, and computing power. The liquid aluminum had to be the right temperature, pumped magnetically into the die with the proper force, the clamping force on the die had to be within a narrow band to prevent having molten aluminum squeeze out the sides, the cooling system had to drop the temperature rapidly and uniformly to ensure the compressed crystaline structure of the metal was correct and no longer dynamic, and the die had to be cooled rapidly while being lubricated to prevent the next injection of aluminum from sticking to the hardended steel. There were natural variables that impacted quality and also had to be measured but could not be controlled so easily: humidty, ambient temperature, seismic events.  The challenge was to sense it all and manage it effectively to create parts within tight tolerances in the thousands per day.  Everthing was automated to the push of one button.

Automation is an extremly important step in moving from mass virtualization to a cloud infrastructure as a service.  At the scale and speed of cloud manual tasks just are not an option. It is amazing how many tools offer automation capabilities and how few companies take advantage. I know of story after story after story where companies were unable to meet demand spikes, traffic spikes, and even threats becuase they had always relied on human intervention but hit that out of band situation where there weren't enough humans who could work quickly enough to prevent the problem.

The value of automation is rarely argued. Everyone wants it, everyone talks about it, and it's often a requirement of a solution. So why isn't it configured or turned on?

I think the answer lies in each of three areas.  First, few people document what they do.  Automating a process is, by necessity, first a process engineering task. If you can't define what happens, when, why, the inputs, the outputs, the error conditions, and the expected results then you can't automate it.  And of course you need a period of "test and adustment" where the automation is phased in under the control of a human to ensure out of bounds conditions are tested, safeties trigger appropriately, and the system always returns to a safe state.  Second, many at the technologist level are very good at protecting their jobs and have tremendous fear in letting go of anything they perceive as "value added" regardless of how much, or how little value is actually delivered.  Third there is an inherent distrust of the unknown. Comfort with automation comes with exposure and experience.  So few IT data center operations are automated that it feels out of character to automate something. Putting the list together of atuomated tasks it basically looks like something out of the 1990's: patches (sometimes), backups, spam filtering, health monitoring, and...and...well that's about the list. Sure some go further but when I say automated I mean ZERO human interaction.

The reality is that automation not only can work, it does work, and it saves money while at the same time preventing errors. The hard fact is that an automated solution does quickly only what it was told to do.  If you don't establish the right rules the results can be disasterous.  However after 20yrs of consulting I can tell you how many process mapping documents I've seen at client companies: zero (discouting ones consultants like me created).

If you re-read the fourth paragraph I belive it provides the answer. Companies need to adopt the same engineering disciplined approach that Kraft, Intel, Ford, Proctor and Gamble and a slew of other companies already use. Define what needs to be automated and then map out the processes. The impact is tremendous measured in reducing cycle time, defects, and labor input.

Sunday, July 8, 2012

The Future and the Big 5

The Big 5 consulting companies have been well entrenched, starting in the 1980's, with the Fortune 1000 as their "trusted advisors". What many outside the Big 5 do not understand is the business model. In essence all the firms operate similarly as denoted by how easy it is for people to move between them at will. The Big 5 are:
  1. Accenture
  2. Deloitte Consulting
  3. PwC (formerly PricewaterhouseCoopers LLP)
  4. KPMG
  5. Ernst & Young
The above rankings are based on revenue as reported by Gartner since, with the exception of Accenture, the firms are all private.

First a little Consulting Firm 101. As a Director at a Big 5 consultancy and a small strategy firm I learned the model works like this:
  • Partners are focused only on sales which is their primary success metric. They are 80% sales focused and 20% delivery.  This makes sense given they are the equity holders, and the company must grow to survive.
  • Directors who are on the Partner track are in flux, moving from their days as a manager at 40% sales and 60% delivery to the Partner model of 80% sales and 20% delivery.
  • Managers are making the transition into sales moving from 100% delivery to 60% delivery and 40% sales.
  • Senior Associates are focused on deepening their knowledge within their vertical.
  • Associates are focused on learning about consulting in general.
Big 5 consulting firms have made their money by providing unique insights leading to unique solutions built and delivered by high quality personnel. Combining their knowledge, experience, intelligence, and often too much arrogance, their solutions perpetuate a belief that they and only they can deliver the project on time, on budget, and do so at low risk. These solutions are sold to clients through a relationship model where the emphasis is on the sale; the delivery an afterthought but in the capable hands of the upwardly mobile professional elite. These pre-packaged solutions, where 30-80% of the work is already completed, are the lifeblood of consulting. Each time the consulting firms sells the same work they deepen their expertise, grow their margin, and refine their solution. And for this "proven" innovative solution the consulting firms charge top dollar justifying the rates on the basis of low risk, high reward.

More often this is smoke and mirrors rather than blood, sweat and tears.  I foresee rough times ahead for Big 5, not today but at the start of our next recession.

Clients are wise to the model and attacking it on all sides.  Rates are the first element under attack and have been for the past decade. As technology has increasingly been a part of the success of enterprises, the need for technology talent has leveled the global playing field. Whereas a decade ago a technologist was a second rate citizen, today they often command higher rates than their non-tech savvy business equivalents. At the low end of the pay scale, foreign firms such as Infosys and Cap Gemini, US firms such as Cognizant and HP, and others are working hard to break into traditional Big 5 consulting as a way to grow their revenue and margins. In doing so they are bringing along significantly lower overhead with fewer executives, lower salaries, and honestly less experienced staff. What these companies have, and in spades, is technical expertise. What they have been traditionally lacking is vertical expertise and consulting accumen. They have learned to "diamond mine", a term I used to apply to EDS when they would train people to be software developers ("coal") while sprinking in a few developer experts ("diamonds") so clients would be dazzled by the sparkle not realizing they were paying for diamonds and getting coal. Today the downmarket consulting firms are hiring the consulting talent to handle the client facing roles. As a result a Cognizant can look identical to a E&Y without the high costs. One of my friends oversees a project where his Big 5 consultants charge him $250 while his downmarket consultants charge $100 for the same skill set. He's complained to leadership however they perceive a benefit that is not being realized.

In the past a key ace up the sleeve of the Big 5 was the vertical expert; experienced senior staff who understand the in's and out's of an industry. Today clients are increasingly telling firms they already have all the vertical expertise they need. What they want are new ideas. It's tough to deliver a unique, innovative idea when the Big 5 have been built on replicating their ideas via "solutions" available for sale to anyone who wants it. As a result clients are managing projects differently through the RFP process farming out elements of the work rather than entire bodies of work.  In many areas consulting is now nothing more than BODY SHOP'ING; selling individuals rather than the firm. In my role, even as a Director, I was body shop'ed more often than not, most often because the client wanted the idea without having to pay the high fees for the implementation.

Adding to the Big 5 pain, clients realize they need to keep more of the higher end capabilites (strategy, architecture, process development, etc.) in house leaving the "chore" duties such as PMO to the consulting firms. Sure there's money to be made, but those rates are under the same pressure and it's tough to keep talent when their role is a glorified project manager rather than being a delivery expert.  To strengthen their high skill capabilities, Fortune 1000 companies are hiring Big 5 consultants to join their ranks. It's a trend that started years ago however I see it's pace accelerating over the past three years since the downturn in 2008 and subsequent layoffs by the Big 5. And what's driving the Big 5 talent into industry is the closing of the compensation gap. In days past a Big 5 consultant commanded a 20-30% premium in salary and bonus over similar roles in industry. For that the consultant worked more and longer hours and traveled away from home five days a week. However today many consultants find Fortune 1000 jobs with better compensation packages, better benefits, and significantly reduced travel. And those Fortune 1000 firms are offering non-Partners something you can't get at a Big 5; equity. Consultants are jumping ship and stealing away their friends to lucrative opportunities outside the Big 5. At the same time there is tremendous downward pressure on compensation at the Big 5 because of the downward pressure on margin. The gap in compensation between a Director and a partner is tremendous. I know of many situations where Directors in a given sector averaged less than $5k in bonuses while Partners, one level higher, received $500k and more. As the demand for transparency increases there's going to be a lot of explaining to do.

Compounding the challenge for the Big 5 is the pace of innovation in technology which continues to accelerate. Simply put the Big 5 don't have the technical talent to keep abreast and advise clients. And since innovation projects are small, many in the Big 5 are happy to look the other way while searching for $1M and larger deals.  The new world is being developed in mobile apps, collaboration, social media, and big data on a cloud engine in less than $100k increments.  Cloud service providers such as Amazon, Rackspace, AT&T, Terremark and Google each have more cloud experts and experience than the entire Big 5 combined and multiplied by a order of magnitude. Add to this that companies have learned to manage their technology vendors better requiring them to often talk in generic, agnostic terms, and much of this expertise is given away for free as part of the pre-sales cycle. How can the Big 5 compete when the talent and expertise being given away is done so by former Big 5 talent? That's a tough sell, one that is most often made by arguing "3rd party independence".

Consultants at the Big 5 will argue until they're blue in the face that they are vendor neutral, independent "3rd party" experts. It's not only not true, it can't be true. Look at how many companies use the logos of the Big 5 on their web sites and list them as "partners". All the Big 5 have large vendor relationships who drive a significant part of their go to market strategy and investment. Talk with Gartner, Forrester, or IDC who are all very knowledgeable of who's working with whom across the industry. There is no such thing as 3rd party independence if you're talking to anyone with experience.  Everyone has an agenda.

All of these issues, from margin pressure to body shopping and the incompatability of the Big 5 business model are having a tremendous impact.  However, the single greatest threat to the Big 5 is the dwindling opportunity to become a Partner. Consutling firms are, whether stated or not, up or out organizations. You advance or you leave. In addition to the fact that an increasing number of staff (Director and lower) no longer want to be Partners, there are fewer and fewer Partner opportunities every year. I was told for years by people at Accenture the path to partner was on hold for everyone because they had enough.  Due to margin pressures firms are expanding their partner-to-staff ratio moving from 30:1 to as many as 150:1. As a result many firms already have too many partners. Consulting firms thrive when they grow, but when growth stagnates its layoff time. And no longer are people waiting around to see what happens. I survived several rounds of layoffs at a Big 5 consultancy and its subsequent buyer. However I saw an increasing number of talented people with no risk of losing their jobs leaving for greener pastures. One firm actually commissioned a company to write a report on how much better it was to stay than go, but apparently never circulated the repot realizing it's fundamental arguments were flawed (although a copy could be found on their Intranet site). As a result the modern partnership in Big 5 consulting looks more like Amway than McKinsey.

Now Big 5 consultancies can save themselves however they don't operate in a vacuum; most have Audit and Tax partners to consider. Changing the model for one business will have repercussions throughout the firm and the industry.  It will take a significant change in thinking and an amazing amount of risk to take charge of and upset 100+ years of status quo in the Big 5. Changing course will require the firms to become more democratic: transparency in decisions, rules that apply equally to everyone, compensation based on contribution instead of position, and the distribution of equity to everyone.  I believe IBM Business Consulting Services is thriving in part because they distribute equity to top performers, the rules apply equally to everyone, and compensation is at least in part driven by contribution.

Talent today is drawn out of college to the Big 5 in large part by the money. However as the Fortune 1000 hire more of the senior consulting talent they'll hire their own staffs which will give graduating college students more opportunity and they'll end up competing for that same pool of talent. Once that happens the value proposition of the Big 5 will have faded away...

...and so might they.