Why Returning $1 Trillion to Shareholders is a Bad Idea

According to the Financial Times, companies are on record pace to return over one trillion dollars to shareholders this year via share buybacks and dividends.  With creaking IT infrastructures and under-investment in other areas such as plants, equipment, employee training and more, this isn’t just a flawed strategy; it’s a dangerous one for the future health of companies across the globe.

Courtesy of Flickr. Creative Commons. By Jeremy Yerse
Courtesy of Flickr. Creative Commons. By Jeremy Yerse

Investors are tired of companies hoarding cash. While much of these dollars are often locked away on international balance sheets, there is clamor to return a significant chunk of this cash back to investors via dividends and share-buybacks.  And just about every company of significant size is either boarding or already on the buyback gravy train according to an FT article; “dividends have climbed on average 14 per cent annually over the past four years” and “buybacks to rise at a double-digit rate this year.”

While $1T is expected to go back to shareholders, the strategy is not without critics. There is concern that returning such a large amount of cash to shareholders simply inflates stock prices and earnings per share growth, consequently leaving companies starved for investment.

“We haven’t seen much allocation of resources to capital,” says Bruce Kasman, head of economic research for JPMorgan. This is concerning, as such business investment can arguably help companies meet the needs of customers today and tomorrow. For example, this article shows the consequences of under-investment in keeping legacy systems performing in the banking industry. Even more troubling is the lack of investment in modern and cutting-edge technologies that might enable killer customer facing applications and improve customer satisfaction scores.

While burgeoning balance sheets may require some share buybacks—or at least enough to offset stock based compensation for directors and above—$1T does an seem excessive sum, especially while companies are spending 80% of their ever-so-flat IT budgets keeping existing and antiquated legacy systems functional.

If not share buybacks and dividends, where else could those monies be spent? For starters, while there’s an under-investment in IT on the whole, there are promising new technologies in play that could really make a difference for companies such as: mobile payments, embedded sensors for manufacturing systems, robotics, and even Hadoop and its related YARN applications.

Moreover, with practically a data breach and a destructive IT attack in the news each day, there’s awoeful under-investment in security (physical and software) to safeguard customer data. Another idea:investing in skills and technical training so that employees can serve customers better; this of course ultimately helps increase customer satisfaction and may improve company revenues.

Too many share repurchases may end up hurting the future performance of companies, especially when there are so many functional company departments, divisions and systems withering on the vine from lack of investment. Not to mention the dearth of innovation and creativity that’s kept at bay while investors and activist shareholders gorge themselves on the redistribution of cash flooding into their accounts.

There’s no way to avoid returning some cash to appease activist investors. But for the majority of it, there must be investment opportunities for innovation that aren’t getting a fair shake.  VC icon, Peter Theil, famously said; “We wanted flying cars, instead we got 140 characters.” Let’s not sell ourselves short on innovation. We can do better than returning $1T to shareholders via buyback binges. Indeed, we must for our companies to have a fighting chance in the future.

Building Information Technology Liquidity

Creative Commons. Courtesy of Flickr. By Ze'ev Barkan

Turbulent markets offer companies both challenges and opportunities. But with rigid and aging IT infrastructures, it’s hard for companies to turn on a dime and respond to fluctuations in supplies and consumer demand. A corporate culture built on agile principles helps, but companies really need to build information technology “liquidity” to meet global disturbances head on.

Creative Commons. Courtesy of Flickr. By Ze'ev Barkan
Creative Commons. Courtesy of Flickr. By Ze’ev Barkan

Liquidity is a term often used in financial markets. When markets are deep and liquid it means they have assets that can be exchanged or sold in a moment’s notice with very little price fluctuation. In liquid markets, participants usually have the flexibility to sell or buy a position very rapidly, using cash or another accepted financial instrument.

Companies with liquid assets—such as lots of cash—can take advantages of market opportunities like picking up ailing competitors cheaply, or buying out inventory that another competitor desperately needs. Liquidity then, allows companies to take advantage of unplanned scenarios, and in some cases—to stay afloat when other companies are failing!

In the same way, IT organizations desperately need to embrace the concept of “liquidity”—not by having extra cash lying around, but creating agile and flexible infrastructures that can take advantage of unplanned demand. This is especially hard when an estimated 75% of the IT budget is already spent on maintaining legacy infrastructure.

Even worse, IT capacity planning efforts are often based on simple linear regression models or other quick and dirty heuristics that don’t account for huge spikes in demand such as a major corporate merger or “one-hit wonder” product.

Companies need to build a “liquid” information technology capability that can respond quickly to market and competitive agitations. Richard Villars, Vice President at IDC, says that in building liquidity, IT must; “enable variable workloads, handle the data explosion, and (be able to promptly) partner with the business (when unplanned opportunities arise)”.

What are some examples of IT liquidity? One scenario could be extra compute and storage available on-premises and reserved for unplanned demand. These resources could be “hidden” from the business by throttling back CPU for example, and then “released” when needed.

A second scenario might be having contracts signed and cloud resources at the ready on a moment’s notice to “burst into” extra processing when required. A third option could be using outside service contractors on a retainer model basis to provide a ready set of skills when your IT staff is crunched with too many extra projects.

In the financial world, liquid assets can allow companies to react and capitalize on market opportunities.  Liquidity in IT means that companies have enough extra compute firepower, people resources and are agile enough with IT processes to respond to unplanned events and demand, in whatever shape, form or order they arrive.

Building resistance to and combating market disruptions is an essential quality—in some cases to thrive and in others, to simply survive.

Are You Using Tricolons in Your Rhetoric?

By Don McCullough. Creative Commons. Courtesy of Flickr.

If you’re a presenter, or simply someone wanting to convey information in a memorable way, you have probably inadvertently or intentionally used the rule of three.  The rule of three is a teaching, writing or presenting device where a key concept is broken into three easy to remember pieces.  Does the rule of three apply to the fields of technology and business? Let’s dive a little deeper to find out.

By Don McCullough. Creative Commons. Courtesy of Flickr.
By Don McCullough. Creative Commons. Courtesy of Flickr.

Financial Times columnist Sam Leith offers executives a few hints on how to make business presentations and documents more interesting. He says that by using a rhetorical device called a “tricolon”, anyone looking to influence or persuade can make their ideas easier to consume and comprehend.

What’s a good example of a tricolon? How about Thomas Jefferson’s prose in the US Declaration of Independence where he writes; “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” Notice the tricolon; “life, liberty and the pursuit of happiness” and how easy is it forget the first part of the sentence and remember the second. Why is this?

Leith advances the concept that humans accept and retain information better when the Rule of Three is used.  “For reasons that remain neurologically obscure, the human mind adores things in groups of three: tricolons sound strong, memorable and coherent,” he says.

Tricolons are found in all types of rhetoric from political speeches to children’s books. Take a look at this gem in Quentin Blake’s Angelica Sprocket’s Pockets:

      “There’s a pocket for mice,”

      “and a pocket for cheese”

      “and a pocket for hankies in case anyone feels that they’re going to sneeze”

Here we have three pockets, but we mostly remember what is supposed to go in them, namely mice, cheese and hankies.

We can use this rhetorical device in our business presentations and messaging for better conclusions.  For example, most readers of this column know that I have marketing duties for Teradata Cloud.

While there are many compelling aspects of this particular solution,  I’ve boiled the ocean down to “fast, flexible and powerful”, where deployment in the cloud is faster than you’d expect, flexible enough to meet your needs for a little or a lot of analytic capability and powerful with the availability of three analytic engines. While it’s terribly tempting to create a longer checklist of all the benefits of this solution, I’ve intentionally limited myself to only three (and arguably even these require more refinement!).

Want to make your next presentation more compelling? And added effect of the tri-colon is that it can provide a rhythm to our discourse.  Rhythmically, we can use tricolons to break up the monotony of an otherwise bland presentation (especially ones that technology executives are prone to deliver!).

Going forward, let’s be sure to use more tricolons (i.e. Rule of Three) in our training materials, internal presentations, customer whitepapers, conference presentations and more. I’m pretty sure by doing so; we’ll end up much more interesting, memorable, and effective.

Privacy Ramifications of IT Infrastructure Everywhere

Courtesy of Flickr. By Jonathan McIntosh.

Most people don’t notice that information technology pervades our daily lives. Granted, some IT infrastructure is in the open and easy to spot, such as the computer and router on your desk hooked up via network cables. However, plenty of IT infrastructures are nearly invisible as they reside in locked network rooms or heavily guarded data centers.  And some IT infrastructures are bundled underneath city streets, arrayed on rooftops, or even camouflaged as trees at the local park. Let’s take a closer look at a few ramifications of IT infrastructure everywhere.

Courtesy of Flickr. By Jonathan McIntosh.
Courtesy of Flickr. By Jonathan McIntosh.

1.  Technology is pervasive and commonplace in our daily lives. Little is seen, much is hidden.

Good news: Companies have spent billions of dollars investing in wired and wireless connections that span cities, countries and oceans. This connectivity has enabled companies to ship work to lower cost providers in developing countries, and for certain IT projects to “follow the sun” and thus finish faster. Also, because we have IT infrastructure everywhere, it makes it possible for police forces and/or governments to identify and prosecute perpetrators of crime that much easier.

Bad news: This same IT infrastructure can also be used to monitor and analyze where and how people gather, what they say, relationships, how they vote, religious and political views and more. Closed circuit TV cameras on street corners (or concealed as mailboxes), ATM machines, POS systems, red-light cameras, and drones make up a pervasive and possibly invasive infrastructure that never sleeps. You may be free to assemble, however, IT infrastructure might be watching.

2.  Some information technology is either affordable or in some cases “free”, but the true costs may be hidden.

Good news: Google’s G+ or Gmail, Facebook, or Yahoo’s portal and email services are no to low cost for consumers and businesses. In addition, plenty of cloud providers such as Amazon, Google or Dropbox offer a base level of storage for documents or photos with no upfront hard dollar cost. On the surface it appears we are getting something for practically nothing.

Bad news: There’s no such thing as a free lunch as Janet Vertesi, assistant professor of sociology at Princeton can attest. For months she tried to hide her pregnancy from Big Data, but she realized that Facebook, Google and other free “services” were watching her every post, email, and interaction in search of ways to advertise and sell her something. While she was not paying a monthly fee for these online services, there was in fact a “cost”—Vertesi was exchanging her online privacy for the ability of advertisers to better target her and serve appropriate advertising.

3. IT infrastructure is expected to be highly available. Smartphones, internet access, computers are simply expected to work and be immediately available for use.

Good news: With IT infrastructure, high availability (four to five 9’s) is the name of the game. Anything less doesn’t cut it. Cloud services from IaaS to SaaS are expected to stay up and running, and phone networks are expected to have enough bandwidth to support our phone calls and web browsing—even atbusy sporting events.  And for the most part, IT infrastructure delivers time and again because consumers and business have the expectation that technology is highly available.

Bad news: Not only is IT infrastructure always on, but because of Moore’s Law and plummeting costs of disk, it never forgets.  For example, when disk and tape space was expensive, closed circuit TVs would record a day’s worth of coverage and then write over it the next day. Now, multiple cameras can record 30 days of surveillance on an 80 GB hard drive. And we haven’t even mentioned offsite or cloud storage which makes it possible to store audio, video, documents, photos, call detail records and more—essentially forever. Youthful transgressions can be published for all time. And mistakes today are recorded for years to come. The internet never forgets, unless you live in the European Union.

In the book, Sorting Things Out, Geoffrey C. Bowker and Susan Leigh Star call “Infrastructural Inversion” the process of focusing on various invisible systems—how they work—and how “people can change this invisibility when necessary”.   IT infrastructure is one such system that permeates our daily lives, often unseen but ever so critical to our societies.

There are undoubtedly other ramifications to this unseen IT infrastructure. Here’s hoping you’ll join the conversation with your thoughts!

The High Cost of Low Quality IT

Courtesy of Flickr. By Rene Schwietzke

In times of tight corporate budgets, everyone wants “a deal.” But there is often a price to be paid for low quality, especially when IT and purchasing managers aren’t comparing apples to apples in terms of technology capability or experienced implementation personnel.  Indeed, focusing on the lowest “negotiated price” is a recipe for vendor and customer re-work, delayed projects, cost overruns and irrecoverable business value.

Courtesy of Flickr. By Rene Schwietzke
Courtesy of Flickr. By Rene Schwietzke

Financial Times columnist Michael Skapinker recently lamented about the terrible quality of his dress shirts.  In years prior, his shirts would last two to three years. However, as of late, his shirts –laundered once a week—now only last three months.

Of course, this equates to a terrible hit to Mr. Skapinker’s clothing budget, not to mention environmental costs in producing, packaging, and discarding sub-standard clothing.  Consumers, Skapinker says, should “start searching out companies that sell more durable clothes. They may cost more, but should prove less expensive in the long run.”

Much like it’s short sighted to buy low quality shirts that don’t last very long, it’s also very tempting to select the low cost provider for technology or implementation, especially if they meet today’s immediate needs. The mindset then is that tomorrow can worry about itself.

This myopic thinking is exacerbated by the rise of the procurement office.  Today’s procurement offices are highly motivated by cost control. In fact, some are goaled to keep costs down. This of course, can be dangerous because in this model procurement professionals have little to no “skin in the game”. Meaning, if something goes wrong with the IT implementation, procurement has no exposure to the damage.

Now to be fair, some procurement offices are more strategic and are involved in IT lifecycle processes. From requirements, to request for proposal, to final sign-off on the deal, procurement is working hand-in-hand with IT the entire time.  In this model, the procurement department (and IT) wants the best price of course, but they’re also looking for the best long-term value. However, the cost conscious procurement department seems to be gaining momentum, especially in this era of skimpy corporate budgets.

Ultimately, technology purchases and implementations aren’t like buying widgets. A half-baked solution full of “second choice” technologies may end up being unusable to end-users, especially over a prolonged period of time. And cut-rate implementations that are seriously delayed or over-budget can translate into lost revenues, and/or delayed time to market.

When evaluating information technology (especially for new solutions), make sure to compare specs to specs, technical capabilities to capabilities, and implementation expertise to expertise.

Some questions to consider: Is there a 1:1 match in each vendor’s technologies? Will the technical solution implemented today scale for business user needs next year or in three years? What does the technology support model look like, and what are initial versus long term costs? Is the actual vendor supporting the product or have they outsourced support to a third party?

For the implementation vendor make sure to evaluate personnel, service experience, customer references, methodologies, and overall capabilities. Also be wary of low service prices as some vendors are able to arrive at cut rates by dumping a school bus of college graduates on your project (which of course then learn on your dime!). The more complex your project, the more you should be concerned with hiring experienced service companies.

A discounted price may initially look like a bargain. But there’s a cost to quality. If you’re sold on a particular (higher priced) technology or implementation vendor don’t let procurement talk you out of it. And if you cannot answer the questions listed above with confidence, it’s likely that the bargain price you’re offered by technology or implementation vendor X is really no bargain at all.

 

It’s Time to Ditch Scarcity Thinking

Image courtesy of Flickr.  By SolidEther

In J.R.R. Tolkien’s “The Hobbit,” Smaug the magnificent dragon sits on his nearly unlimited hoard of treasure and coins and tells “burglar” Bilbo Baggins to “help (himself) again, there’s plenty and to spare.” While it’s certainly true there are many things in this world that are physically scarce, when it comes to living in the information age, we need to retrain our minds to ditch scarcity thinking and instead embrace “sky’s the limit” abundance.

Image courtesy of Flickr.  By SolidEther
Image courtesy of Flickr. By SolidEther

Most of us have been taught there are resource constraints for things such as time, talent and natural items such as land, fresh water and more. And of course, there are very real limits to some of these items. However, we currently live in an information age. And in this era, some of our previous thought patterns no longer apply.

Take for instance, the ability to have an ocean of knowledge at our fingertips. With non-networked computers or and other devices, we’re limited to the data at hand, or the storage capacity of these devices. But add in a dash of hard-wired or wireless networking and suddenly physical limits to knowledge disappear.

Apple’s Siri technology is a compelling case in point. Using the available processing power of an iPhone (which by the way is considerable), Siri could arguably answer a limited amount of questions based on data in flash storage.

But open up Siri’s natural language processing (the bulk of which is done in the cloud) and suddenly if Siri can’t understand you, or doesn’t know an answer, the web may provide assistance. By leveraging cloud computing and access to the internet, Siri brings a wealth of data to users, and even more intelligence to Apple by capturing all queries “in the cloud” and offering an immense data set for programmers to tune and improve Siri’s capabilities.

It used to be that TV airtime was in short supply. After all, there are only so many channels and airtime programming slots for content, especially during primetime hours. And there’s still an arduous process to create, discover and produce quality content that viewers will want to watch during these scarce blocks of time.

Without regard to conventional thinking, YouTube is turning this process on its head. A New Yorkerarticle details how YouTube is growing its market presence by offering unlimited “channels” that can be played on-demand, anytime and anywhere. “On YouTube, airtime is infinite, content costs almost nothing for YouTube to produce and quantity, not quality is the bottom line,” explains author John Seabrook.  Content watching then (whether via YouTube, Netflix, DVR, Slingbox etc), is no longer constricted to certain hours, and in effect time is no longer a constraint.

In the past, the music we liked was confined to physical media such as records or compact discs. Then MP3 players such as the iPod expanded our capabilities to listen to more music but were still confined to available device storage. That’s scarcity thinking. Now with wireless networking access, there are few limits to listening to our preferred music through streaming services such as Pandora, or renting music instead of owning it on CD.  Indeed, music subscription services are becoming the dominant model for how music is “acquired”.

There are still real limits to many valuable things the world (e.g. time, talent, money, physical resources, and even human attention spans). Yet even some of these items are artificially constrained by either politics or today’s business cases.

The information age has brought persons, businesses and societies elasticity, scalability, and the removal of many earlier capacity constraints. We seem to be sitting squarely on Smaug’s unending stack of treasure. But even in the great Smaug’s neck there was a gaping vulnerability. We’ll still need to use prudence, intelligence and far-sighted thinking in this age of abundance, with the understanding that just because some of our constraints are removed, that doesn’t necessarily mean we should become gluttonous and wasteful in our use of today’s resources.

 

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