Desicritics Category: BizTech: Management

Book Review: Nagios - 2nd Edition

Ganadeva Bandyopadhyay — Fri, 14 Nov 2008 02:52:39 EST

The book comes across as a wonderful companion for utilizing Nagios- an open source system and network monitoring tool. There are twenty six chapters covering a lot of depth and variety with respect to Nagios.

There are five main sections in the book, viz. Source code to a running installation, In more detail,The web interface and other ways to visualize Nagios data, Special applications and Development. Some of the more unusual topics worth mentioning is the configuration for external notification via SMS and via email, monitoring room temperature and humidity, monitoring SAP systems via plug-in check_sap.sh and via SAP's own monitoring system CCMS and monitoring oracle database with oracle instant client.

The chapters are very concise and readable especially for the system, network or other infrastructure administrator already hard-pressed for time. One of the important facets of this book is that although there is an attempt to present the useful information, it also motivates the reader to go further and explore based on the suggestions and hints that is provided in the book.

To summarize, a highly recommended book for interesting and very useful topics in present-day IT infrastructure.

Expansion of IIMs - Credibility At Stake

Moid — Tue, 21 Oct 2008 15:16:51 EDT

Of late, we have been hearing a lot about government's vote-bank politics entering into the education domain as well... an area which was hitherto left to the scholarly and the academia to sort out.

First came the shocker about the IIT cut-offs which are bound to ensure that an applicant with absolutely no sense of physics would still get into IITs with some remarkable performance in Math and Chemistry... while his classmate who was in the top rung of the class with a balanced and excellent performance in all 3 subjects will still not make it to IIT.

This news was only a precursor of things to come... everyone knew that the other schools of repute would not remain untouched... and so here came the R C Bhargava Committee Report on the IIMs... I understand that there are some very pertinent issues that have been addressed in this report which is always a good thing but then... the mediocre polity also has reared its ugly head in there. The vote bank politics again in play... increasing the number of IIMs and increasing the student intake @ IIMs.

However, being an IIM graduate myself and having experienced the educational system prevalent in the IIMs, I have serious reservations against the recommendation of expanding IIMs... personally, I've myself seen the value eroding through the years with increase in intake. One must understand that IIMs draw their credibility partly from the exclusivity... an eliteness that they bring to the corporate world.

And this "value" that the global economy sees in IIM graduates can erode very easily through this expansion for the following reasons:
1. Skewing up of the faculty-student ratio... we have to accept the fact that we cannot find additional faculty (qualified and experienced) to manage the increase in student intake... so even if we end up with more participants in the program, there wouldn't be any good faculty to teach
2. The lower you go in the merit list to pick candidates for admission, the lower goes the quality of the program participants. And I have seen this happening with the recent batches... the same as what is happening to IITs right now
3. One bad fish can dirty the entire pond... so is the risk that IIM graduates carry. One IIM graduate not being able to deliver adequate value to the industry would tantamount to IIM graduates in general losing their credibility... and that is what happens when lower caliber applicants also make it to the business school... this will be the death-knell... the value eroded would never be reclaimable.

I think a better alternative would be to create new management institutions (non-IIMs) on the lines of NITs in the under-grad domain but keep the IIMs distinctive and untouched. Plus the second issue of governance... should again be kept autonomous for the IIMs... I think that is one of the key factors that have kept the IIMs to maintain the leadership in the industry.

The American Financial Crisis -- Dejà vu?

Moid — Tue, 7 Oct 2008 15:03:45 EDT

No sooner did signs of the crisis dawn upon the "market makers", the blame game started, and with more signs of an economic depression, the game only got messier. However, being a market outsider, if you ask me... who is really at fault, I would say that it is neither the Investment Banks nor the Financial Lending Institutions nor the Federal Government nor the average American nor the global citizen. WTH??? Who would it be then? The Aliens?

Nope, it is a vicious circle and all players in the market are to blame... collectively. So, what we see today as the crisis is a result of the greed and gambling of the investors (through I-Banks), lending institutions, borrowers (the average American) and not the least, the US Federal Government. The lending institutions created the environment. The investors took the bait with some help from the I-Banks - the average American saw his long-term dreams getting fulfilled, and the government decided to keep quiet and not even look their way.

This is precisely what in theory was defined as "neo-liberalism" - a concept which eliminates government regulation and oversight under the pretext of a free market economy with minimum federal intervention. Not that, this phenomenon took roots under the present US regime - it has been followed since the Nixon days but then Bush took it too far.

This economic crisis began in the real estate sector and spread its tentacles to the financial sector which was being its god-father. However, the cycle is not gonna stop there. In my judgment, these problems are gonna percolate into the actual economy - which will then break the insulation for every global citizen. And if u ask me, will the famous seven-o-o bailout stem the tide? NO! not at all. I think it is just trying to push the waste under the carpet.

So, for us as common middle-class people - what happens to our lives?

1. CAREER
Somewhere or the other, the uncertainty in our careers is gonna go up... either by our industry of work directly facing the ire of the crisis or pushing up job seekers in our sectors which are still insulated or worse still pushing the salaries down.

2. PERSONAL INVESTMENT
This is surely gonna be a big mess - after all, even a LN Mittal with his hawk advisers couldn't avoid 16Bn USD getting wiped off his balance sheet. It is high time you evaluate your investment - and best, if you can divert it into a low-risk, low-return bank deposit. However, one question worth asking the US Feds is... who will pay us for the loss we have incurred by investing in the stock markets for no fault of ours? I know what answer you will get - IGNORANCE / at best SILENCE.

3. FAMILY LIFE

The biggest lesson for us is to not rely on "fake" liquidity and always plan our lives based on the "real" liquidity we possess. This reminds me of my dad's advice when I joined IIM - and many banks realizing our future earning potential ran to us offering credit cards and loans - he said one thing, "Never fall into the trap of credit cards. It is not free money which you can use without any accountability. So better pay with what you have in your hand". I did heed his advice albeit having a couple of credit cards years later, but just to manage online transactions. Nevertheless, I would give the same advice to all - avoid credit cards as much as you can and also try to plan your asset acquisitions (house, car, etc.) based on what you can afford and not based on speculation.

As for the US economy, it is in a very dangerous situation - with no disclosure, no oversight, no transparency. The suspicion levels are so high that even a bailout approval couldn't keep the markets from falling. Because, behind the big facade of the financial sector is the real American economy which has been the lifeline for the financial sector and that itself is now reeling in pain.

Book Review: The Ten Commandments for Business Failure

Aaman Lamba — Thu, 18 Sep 2008 14:49:58 EDT

In this time of failing corporate giants, it feels appropriate to review a slim cautionary book called The Ten Commandments for Business Failure, written by the President of a company who has survived quite well so far. Donald Keough was former president of the Coca-Cola Company, and provides us an invaluable how-not-to guide, bolstered by a foreword by Warren Buffett, and reccomendations from the likes of Bill Gates, Rupert Murdoch, and Jack Welch.

As Warren Buffett puts it in the foreword, Mr. Keough is a human personification of the Coca-Cola Company, in all its multi-dimensionality, and has an ability to 'cut to the chase on an issue' and keeps his prescriptions simple, grounded in deep experience, and it is interesting to see how many of the dicta in this book were ignored or outright flouted by recent large failed corporations.

The very first commandment, 'top of the list' as it were, is 'Quit Taking Risks'. This might seem obvious, but as the examples of Xerox and many other giants shows, often enough, the companies that get complacent and believe themselves to be secure in their business model, stop trying to rock the boat, take risks, and bet the farm on the anti-thesis of their core ideas. This was illustrated efectively by Clayton Christansen in The Innovator's Dilemma, and more recently we have seen all the Indian IT Service majors continue to propagate their low-cost services model, venturing only marginally into alternative business models, purely because the current ones have served them well for so long.

The second commandment, "Be Inflexible" is an even more powerful mechanism for ensuring failure. The resitance of the auto industry to shed existing product lines has meant their return to near-bankruptcy. Other classic examples of inflexibility are the IBM PC, Digital Corporation, and as Mr. Keough acknowledges, Coca-Cola's own inability to move beyond the iconic bottle for years, losing market share to Pepsico. The movie industry's avoidance of television for a long time, and more recently, the music industry's Internet blind spot, are compelling examples of the power of inflexibility to destroy an industry's market positioning and value.

"Isolate Yourself" is equally effective, creating a culture where bringing good news is rewarded, and bearers of bad news excoriated. This ivory tower syndrome was observed most recently in the case of Dick Fuld, CEO of Lehman Brothers, who refused to see reason and sell out when he could have got at least a meaningful value for his firm, instead of pennies on the dollar, which will go to creditors rather than the stakeholders. Bringing bad news early is an invaluable skill that advisors must cultivate, and CEOs/leaders reward. The supporting corollaries to this rule are to only listen to those who agree with you, and take all the limelight for successes. As Mr. Keough puts it, "Watch out for bright lights who surround themselves with dim bulbs!"

"Assume Infallibility" means passing the blame for failure, typically on subordinates, but even more effectively on customers - after all, the boss is always right:) A grand alternative is Warren Buffett, who, as Mr. Keough notes, provides a full accounting of successes and failures in his annual letter to his shareholders, as opposed to CEOs who make their annual report 'an exercise in fingerpointing'.

The next commandment builds on the previous, "Play Close to the Foul Line", by highlighting the assumption that since one can do no wrong, whatever one does, no matter how gray, must be right. This enables effortless flouting of ethical boundaries to achieve one's goals, such as when loans were disbursed to people who patently did not qualify for them, leading, in part, to the subprime crisis. N R Narayana Murthy, the iconic founder of Infosys, is fond of saying that the softest pillow is a clear conscience, a dictum that might be the exact opposite of this one. The American International Group failure could be attributed to some extent to the rampant accounting irregularities in the 2000s, inculculated by then-CEO, Hank Greenberg. Mr. Keough notes the pressure for short term results at the cost of longer term perspectives, or outright fudging of earnings, as a pertinent example of 'playing close to the foul line'.

"Don't Take Time to Think" is another easy path to follow in the frenetic data-driven business stream. The author looks at the costs of such an attitude to business, from the Human Toll to the masking of reality, to finally the dangers and foolishness of not taking time to think about consequences. The volumes of data flowing through the corporate ecosystem do not necessarily contribute to more accurate decision making, and can cause leaders to overlook critical insights.

"Put All Your Faith In Experts and Outside Consultants" is a caution against the millions of con artists who have their own companies' interests ahead of your own. The compelling example used by Mr. Keough is that of New Coke, where the company made a famous and costly misstep, finding out before the Internet-driven meme age the costs of taking the word of consultants to switch the core product that consumers were used to. He notes research that shows 'experts' were 80% confident about their predictions, yet right only 45% of the time. As the old saying goes, we don't know which half was right. Statistics, that favorite tool of the marketer and consultant are counterpoised by the observation of the classical economist Ludwig von Mises, a personal icon, where he said "Statistical figures tell us what happened in a nonrepeatable histocical case."

The author segues into another, perhaps more dangerous constituency than external consultants - the bureaucracy in the organization. He recalls Jack Welch's final letter to General Electric stockholders, where he noted "Hate the bureaucracy in your organization" to coin the counter-intuitive commandment "Love Your Bureaucracy". The support systems and middle managers often enough become obsessed with micro-managing, sustaining their internal power centers, and perpetuating the rituals of their functions. He illustrates how these 'choke points' often become primary causes of attrition, and worse, stifle the company culture, leading to atrophied superstructures of busy workers producing little output.

"Sending Mixed Messages" is an extremely common phenomenon, almost inevitable in large organizations. An interesting example is sending the mixed message "It doesn't matter what you do, you will be rewarded". When a company harps on excellent customer service and delivers piss-poor service through multiple channels, it is sending the worst mixed message possible - that they don't care about their customers. Similarly, the same company, say Coca-Cola, is marketed in different geographies as a low margin, high volume product and at the same time as a high value product in others. A positive example touched on briefly in the book is that of IBM - its shift from a closed organization to an open, customer-friendly society is worth considering, in part, because it entailed the elimination of mixed messages and bringing a consistency to the entire global company on how they approached and engaged with customers.

Finally, "Be Afraid of the Future" is the anti-thesis of "Quit Taking Risks". This refers to the creeping malaise of pessimism that envelops organizations particularly successful ones. Fear-mongering and focusing on failure becomes the norm, leading to decision paralysis and demoralizing the organization.

A hidden eleventh commandment adds a final spice to these recipes for failure. "Lose Your Passion For Work - And Life". This essay goes into more mystical territory, dealing with notions of self-esteem, presentation, and making an emotional connection with one's work and life pursuits. The analogy of any food tasting better in a McDonald's box is an apt one, and tapping into the emotional aspirations of one's people is the critical factor in organizational or individual success.

This slim book is eminently readable and works best if the nuggets are mapped to one's own perspective and experiences. It should come with a handy flash card of commandments of failure. Surprisingly, they work more effectively when worded the way they are rather than in the positive sense.

The CFO-CIO Crossover, Part III

Dr Bhaskar Dasgupta — Sun, 31 Aug 2008 12:30:59 EDT

We spoke about the interesting roles of CFO and CIO and about the development of both roles in the past and the present. In this essay we will look at the future and make some predictions about the cooperation between them.

1. What developments will occur in IT in the next three to five years? If one looks at a standard finance function, then these are the broadly the main chunks: Product Control, Financial Control, Finance Administration, Operations, Mandatory Reporting, Management Reporting, Taxation, ALM, Risk etc. All these areas are going to get impacted by improvements to workflow systems, communication applications, business intelligence systems, reconciliation systems, fraud detection and exception management systems, product control systems, spreadsheet management applications, better reporting cube / data warehouses / data marts, ERM systems, better cost analysis applications, and so on and so forth. One can write a full book on just this question, but those are the application facing bits. There will be huge numbers of finance related changes coming from the internet, the client aspects, the hardware bits, the database bits, the networking parts, the communication channels, the IT people, the service delivery model, and so on and so forth, which is too much to go into now.

2. What issues will arise for finance and accounting in the next three to five years? The main issues which will arise can be divided into the following categories:

(a) future regulatory driven change such as liquidity risk management proposals, contingency funding modelling etc. – this will cause a significant impact, best case scenario – a new regulatory report, worst case scenario – a full-blown Basel II type implementation;

(b) feeding old regulatory changes into BAU such as Basel II – Basel II has been rolled out but it will need more time to bed down and impact BAU aspects such as risk weighted capital allocation and performance evaluation;

(c) hitting barriers to service delivery such as human capacity or process architecture / issues;

(d) sharply increased demands for aggressive capital control and management;

(e) increasing demand for better quality financial intelligence and MIS by the business;

(f) little appetite for errors or operational risk or high emphasis on reputational risk management emanating from financial misstatements or mispricing,

(g) continuing and increasing M&A activity etc.

3. How will these issues and developments impact the CFO/CIO relationship? From a generic basis, as can be seen from the above, the level of technical and technology impact on the CFO is just going to grow and grow and grow. So CFO’s will become much more demanding. Not only that, they will expect CIO’s to take responsibility of BAU activities, something that is not commonly understood and accepted. SOXA approvals by CIO’s have caused a severe issue in terms of how CIO’s see their roles, but if this is going to be extended to other parts of the Finance business, then the CIO will become much more embedded in the BAU Finance Change function. So the impact will be from both sides, pushing each other into each other’s arms. Whether it is a hug or a squish depends upon how open-minded the two executives are.

4. How will the issues change the way IT aligns with business strategy? IT will move up the decision making value chain. Before any changes come down the pipeline, IT will start getting involved, because financial institutions have started to understand the benefit of including IT earlier in the decision making process. The business has started to realise that while they define the strategy, delivery is most often dependent upon IT. So the more they involve IT, the more delivery is improved in lock step. IT has to become proactive as well, in terms of analysing its service delivery model to become far more agile and mobile; in terms of analysing its technology M&A methodology; in terms of its reporting data warehouses; etc.

5. Will IT drive changes in business strategy? Will business strategy changes and external factors (e.g. globalisation) drive changes within IT? Will both occur simultaneously? Will IT drive changes in business strategy? On a corporate level we will see very little of that, but on a line of business level yes we will. I can see and have seen business strategy change because new technology has come forth, such as in trading. For example, expansion of product coverage within the FIX protocol can trigger changes in business strategy by suddenly opening new markets or changing existing markets. Changes in technical market infrastructure, such as addition of a new stock trading platform can trigger and driver changes in strategy. Better risk management and fraud detection technologies can give confidence to managers that they can extend personal loans or credit cards to new customer bases. Will business strategy and external factors drive changes in IT? Of course, completely. And yes, both can and do occur simultaneously.

6. How will these changes play out? Let me bring my tarot card deck, crystal ball and tea leaves cup out. That is to say that anything might be possible.

7. Will these changes have an impact on IT’s influence on the integrity of the financials? Anything that changes IT has a 30-50% chance to impact the integrity of the financials (based very roughly on the proportion of systems impacted by SOXA compared to the non-impacted systems). So that will indicate where we have an issue if any external factor impacts technology.

8. What does the future look like for finance and accounting technology? Very bright. And that is primarily because the finance and accounting arena is and will be hit by a tidal wave of changes from its business clients, regulators, professional bodies (IASB..), and so on and so forth. And massive, rapid and huge change like this is perfect breeding grounds for that perfect storm for technology, it will provide mandatory driven investments, fear, ambition, vagueness, and dreams for results/order where technology loves to breed and innovate

We have spoken about the interesting roles of CFO and about the development of both roles in the past and the present. We have also made some predictions about the developments in the future. One aspect is certain, technology is here to stay. While before a CFO would worry about the professional standards, rules and processes versus the humans who would operationalise them, the CFO has to worry about the technology as well. In many structural ways, technology itself is changing the finance profession and vice versa. The future not only promises to be bright, it promises to be entwined like the proverbial double helix.

Technorati Tags: technology, management, financial institutions

Does Every Cloud Have a Sell Order Lining?

Dr Bhaskar Dasgupta — Tue, 26 Aug 2008 08:35:42 EDT

While my days of sitting in front of a trading screen are now long gone and lost in the dim and distant past, every time I pass a trading screen, the familiar tightening of the chest, thumping of the blood and dampening of the palms still happen. How prices are made in the financial markets is a fascinating phenomenon. The theory is pretty simple. The current price of an asset in the markets is supposed to be the best estimate of all the participants of the future performance of the asset. So if the price drops, then the market (or people like you and me) expect that the future performance will be bad. Of course there is much more to it than this.

We are not all Vulcans; we do not have a straightforward unemotional way of judging the future. Strange things do impact us. If I woke up, toddled off to take a shower and found that the hot water had finished, I would be miffed. My day would not be good after this not so good start and frankly I would not be in a good mood. My performance, my duties and responsibilities, my behaviour towards my family, colleagues and friends, howsoever tiny and picayune, will deteriorate. I will go about my day being grumpy and expect the future to be dark.

If I was woken up by my 4 year old little girl who clambered into bed with me early in the morning and then we spent 15 minutes whispering about frogs, princesses, flowers, babies, naughty elder brother, toys, dresses, boyfriends and so on and so forth, then I get out of bed after getting a big hug and a whispered, “you are the bestest daddy”, that’s it, my day is made. I will go through the day with a spring in the step, a smile on my face, a twinkle in my eye, a song on my lips and heart on the sleeve. My behaviour would be good, and I will do my duties with a cheery smile and it would be a great day. I will think the future will be great and wonderful.

So my mood influences how I feel about how the future will be. And this is why good moods, good news and good feelings/emotions push economies and markets up. People feel good about the future so that they go out and purchase stuff, go take up credit, buy houses, spend money and invest in stocks. When the mood goes bad, they stick the money under their mattress, sell their investments, plonk cash into gold and so on and so forth. Governments therefore constantly try to keep giving good news, putting a positive spin on things. That’s why they love big spectaculars, the 100th anniversary of the country’s founding, the Olympics, the Birthday of the President/Queen, the launch of the first hospital, etc.. Good things, things that make you want to celebrate and feel good about the future. (Also if you feel good, you will re-elect the government…)

Since moods influence our perception of the future so much, it is not surprising to hear that stock prices are sensitive to time. For example, did you know that stock prices move differently on Mondays and in January? Or that they move differently between summer and winter? Yep, not only does time influence trading, the weather influences trading as well. And I was reminded of this when I read a recent paper by Chang, Chen, Chou and Lin in the Journal of Banking and Finance (2008, 32, 1754-1766). These doughty chaps went deeper into the weather and trading relationship to explore how prices moved intra-day. In other words, is there a relationship between the prices on the New York Stock Exchange and the weather patterns during the day? As it turns out, yes Sir, there is indeed a relationship. Stock returns are lower on cloudier days. You have more seller initiated trades during market open if the weather is cloudy (akin to your hot water running out?). When the skies are cloudy, the price jumps about much more and does not settle down as much all through the day. There is a ton of research on this topic already, human bio-rhythms do drive trading and economic behaviour.

Strange, no? You normally would not expect the valuation of your pension fund or your mutual fund to be influenced by something as silly as the weather, would you? Especially when the offices these days are all air conditioned, with scientifically calibrated lighting and all the modern conveniences, and so on and so forth. And after all that, you find that those highly paid traders are being impacted by cloud cover? And you call yourself as BSD’s? Pah, buy some umbrellas, you wimps!

(PS: this has nothing to do with investment advice at all, please do not invest based upon this essay)

Technorati Tags: financial institutions, financial markets, trading

The CFO-CIO Cross-over, Part II

Dr Bhaskar Dasgupta — Sat, 23 Aug 2008 01:14:13 EDT

We earlier spoke about the interesting roles of the CFO and the CIO and what it means to “manage the business” and to “work very closely”? Before we can answer these questions though we have to take a look at the development of both roles. These questions were taken from a workshop arrangement from New Zealand, the answers are mine.

Part A: The past and the present

1. What influence has IT had in getting business to where it is now?

Hugely important, technology has changed the character of financial services, but then, financial services was always at the forefront of adopting technical innovation, whether it was the idea of using wax and clay tablets in Sumerian times to pigeon post in Europe during the middle ages to telegraph during the Victorian and European wars or fax machines or now in terms of global private banking websites, international stock trading electronic gateways, automated insurance quoting engines, offshore call centres linked by CRM systems, intelligent credit risk scoring engines, and so on and so forth.

Technology has allowed firms to gain scale without needing human investment, it has allowed firms to concentrate on their core competitive advantage factor while disposing of all non-core functions and assets.

2. What is the relationship between CFO/CIO at present?

a. What are the positive and negative consequences of the CFO having responsibility for IT?

The main negative consequence is that the CFO, if he is not smart, sees IT as a cost line rather than something that is as important to the bank as the human resources function. Frankly, you wouldn’t put the HR function under the control of the CFO, would you? Then why IT? So the entire IT function starts and stays defensive if treated as a barely tolerated and often thumped cost line. On the positive side, if the CFO is smart and can see technology as a business enabler, then the synergy that the combination of CFO + IT is world beating. IT can benefit from the discipline that a CFO can bring to the table such as demanding business cases for technology investments, driving strategic change, improving technology and delivery sourcing, etc.

b. What are the consequences of having two specific reporting lines into the CEO? Are there any advantages to two distinct reporting lines?

At that level at a big bank, it far too heavily depends upon the three individuals concerned and not on the functions themselves. Because, at that level, the nitty-gritty details of actually running the technology or financial function rarely appears on the radar screen. What does matter at that level is the autonomy given to the two functions, the level to which the finance function is challenging and managing the business to the level to which the technology function has provided value addition to the business. So whether it is good or bad depends upon the three people concerned.

c. How can the relationship between the two be bridged?

Usually it can be bridged with difficulty, because for a good relationship, it requires the CFO to have a forward-looking, change oriented and risk taking frame of mind, while it requires the CIO to be disciplined, talking business, structured, stabilising and think long-term. But some ways that can be useful is for both to write their own visions of where the business will be in five years, then translate that into what it will require their functions to be (people, technology, process, places, etc.) and then get together to dovetail these two plans. Then operationalise by dumping a dollop of agreed governance and investment. Some questions are below which can help you determine if a bridge is needed or some improvements need to be put in:

i. Do the CFO and CIO meet regularly with a set agenda?

ii. Does the CFO challenge the technology plan? And on what basis? Is that besides a cost basis?

iii. Does portfolio management of IT discretionary spend happen? And is that overseen or controlled by the CFO?

iv. Does the IT function provide rigorous business cases which are tracked and followed up?

v. Are there productivity improvement measures which the CFO and CIO agree on the business as usual side of technology?

vi. How involved is the CFO function in the technology sourcing side?

vii. Do you look at purchasing as a stationary and paper purchasing function or is there a strategic sourcing function which has both technology and finance participation?

3. How successful is IT in aligning with business strategy both on an organisational level and specific to the finance department? Is it always complementary or can it end up being at cross purposes?

Generally in financial institutions, IT is well clued-up and successful in aligning with the tactical business strategy, but not the very high-level business strategy levels for obvious reasons. Technology is an enabler of business, not a primary driver of business. You rarely go into a country because your technology allows you to do so, however, you go because of revenue, cost or other strategic drivers and technology makes it happen. On the finance department side, I am afraid IT and Finance are rarely aligned. Reasons are many, because many technology folks are scared spit-less of the finance folks. So the bare minimum is provided and initiative/innovation is frowned upon. Consequently, at best the finance and accounting technology function is outsourced in many industries or ignored at worst. The bright side is there is rarely at cross purposes but that is a poisoned chalice, an ignored function is more dangerous to a firm than a contested function because at least there is more chance of somebody actually noticing that contestation and doing something about it.

4. What influence does IT have on the integrity of financials?

A huge, literally earth-shattering influence. It is a direct relationship, because good IT means good financial integrity. This is the reason SOXA has a deep IT element as well. When I had to sign off SOXA compliance previously, it was clear that the impact was huge and any changes made to the relevant technology systems and processes would have a significant impact on the financials of the firm. Let us put it in another way, 90% of all changes that will hit our finance functions will have some kind of an IT component, and a crucial part of the success of the project will be dependent upon the IT performance and delivery.

We spoke about the interesting roles of CFO and CIO and about the development of both roles in the past and the present. In the last essay we will look at the future and make some predictions about the cooperation between the CFO and CIO.

Technorati Tags: technology, finance, financial institutions, management

The CFO-CIO Cross-over, Part I

Dr Bhaskar Dasgupta — Sun, 17 Aug 2008 12:33:47 EDT

The CFO and CIO roles are interesting roles when compared from various dimensions. As it so happens, I just moved from supporting a CIO to supporting a CFO in a bank, so I thought of shedding light on some aspects of these two roles. The two roles are simple, one looks after the financial matters and the other looks after the information technology of a firm. One would expect the twain would not meet other than the CIO is supporting the CFO's technology and the CFO seeing the CIO as a supplier and a cost line, but life is much more complicated. In a small way, a good CFO-CIO relationship especially in financial institutions, can lead to massive competitive advantage.

Where does one start? One way would be to talk about the past and present of the technology/financial relationship and then my thoughts about the future. As there is a lot of information and facts about these two roles, this will be a series rather than an essay. But before delving into the prosaic matters of organizational structures and strategic alignment, there is the small matter of philosophy to be handled. And that is the philosophy of technology to the CFO herself. And this is where I see the crucial issue.

Accounting and finance, by their nature, are backward-looking and are oriented towards making sense of disorder according to strict rules. There is nothing wrong with that, because that is how you come up with a normative view of the world, something that you can compare and contrast with a fair degree of accuracy and consistency across the world. The field and thus the people working in it are also fairly predictive and reactive in nature. Their remuneration patterns are high and consistent in nature, job descriptions are standardised. This world handles change rather slowly, systematically and gradually, with due consideration and with controls - Salt of the (business) earth so to say. But that sits uneasily with the broader technology world.

The technology area, whether on the web 2.0, the applications, the networks, the technology people, their remuneration, the IC chips, the massively online multiplayer worlds, virtual worlds, ERM systems, virtual reality, Offshoring and outsourcing, SOA, you name it, are almost like the anti-thesis of what I described above. Change is something that is constant; it is creative destruction all the time. The basic foundations of what you believe in change so rapidly, skills become obsolete quickly, and so on and so forth.

You might want to ask, how does that matter to me as a CFO? Here is precisely where it hits the CFO, because technology is redefining our customers, our employees, our ways of doing business, our ways of valuing assets, the question of governance, the communication channels, the people interaction, the coverage of events, and so on and so forth. In other words, just when the CFO is desperately trying to make things simple, explain everything and keep things under control, technology is making things agile, mobile and hostile. You do not believe me? Well, here’s something that you can see for yourself. In a finance department, more and more people are non-financial or accounting people. More and more, the regulators are finding it difficult to just rely on accounting data and demand further information to control the business. And internally, the business also demands much more than just accounting data, it demands commentary which allows the business to be agile, mobile and hostile. Customers walk in and demand information which we cannot provide. Can you imagine trying to provide bank account level information as rich as what you can get from a web page counter software application?

How does the idea of a going concern relate to a website originated business which can be fully automated, dealing in virtual assets such as songs or coding applets with payment in Linden dollars and the possibility of doing a gift exchange within the World of Warcraft? How do you handle a customer who has no conception of paying for assets because he has spent his lifetime getting his songs, films, phone calls, entertainment, software, assets etc. for free or through swapping them online?

What is the role of an intermediary - like a financial institution - when the concept of assets themselves is changing and everybody is running like mad after Intellectual Property and Virtual Assets? How do you account for depreciation of assets which have no discernible way of judging decay or usage? I can put aside 33% every year for a machine because I guess it has a three-year life, but how much should I put aside for an online constantly regenerating random number generator which theoretically has an infinite life? Actually, most software online technology assets have infinite lives. And if the value addition is happening by a group of enthusiasts based on a free open source model, then what do you say to the tax man?

Lest you assume I am just talking about software, how about virtualization of servers? If the asset based was dependent upon a number of servers, then it has just been virtualized, and if you want to go for the virtualized servers, then they have just gone into the Google or Amazon cloud. It is not like everything is moving 100% into the technology world, but every bit of interest to the CFO is being impacted by technology and is making structural changes. Take the example of resource planning. Previously, if your business grew, you would simply increase the number of analysts and accountants you had and kept on supporting the business, but now you cannot do that. You have to have technology to preserve history, run the rules, generate the reports, do the regulatory stuff.

Basel II taught a deep lesson to the world of finance, namely that if a CFO ignores what’s happening in the business, then satisfying requirements such as Basel II will not be possible. This is so, because the front office business and their systems are simply unable to provide the information in the right fashion which the CFO wants, and mostly, it is because the CFO did not specify or demand the front office business and systems to be transparent and fungible as far as accounting and financial information are concerned. This very same point also applies to the CRO by the way. While there is a surprisingly large number of CFOs who are forward-looking and technology literate, CFOs should recognise that there is a philosophical tension between their profession and technology.

While you might differ, my gut feel is that a CFO has to have a very firm control over the technology that she/he has, what’s coming down the pipeline and what’s generally happening around the technical world. In other words, she/he has to be clued-up and work closely with the CIO to manage the business going forward. Now what does this “manage the business” mean? And what does “work very closely” mean? All these questions are strictly with reference to banking because the relationship between IT and Finance is industry and to a lesser extent size, specific. This is what we will find out in the next part.

The Value of Sustainability to Business

Dr Bhaskar Dasgupta — Mon, 11 Aug 2008 10:16:32 EDT

I firmly believe in the virtues of sustainable development. Forget about the green open-toed sandal brigade, it simply makes economic sense. Resources are limited and if you are not being optimal with your resources now and for the future, what kind of a manager would that make you? Looking around the world, one observes some enlightened global businesses heavily involved in sustainability in their business processes,

Who would like to pay more for electricity usage, or for recruitment costs, or waste an opportunity to be with loved ones rather than struggle through Heathrow, that gateway to hell? Who would actually want to be on the front pages of the tabloids as someone who committed unethical behaviour? There are economic upsides on the revenue side (you can sell more to this emerging sustainable consumer, taxpayer, citizen and shareholder) and on the cost side (your costs are reduced on the manpower, capital, materials, machines etc). But many firms and managers still think of sustainability as "green stuff" which is a shame. One way to remove this doubt is to define sustainability.

At a business dinner with the great and good of the British and the international industry, we were discussing the issue of sustainability. An interesting survey was presented by EIU and BT on this issue. The most prominent sustainability activities carried out in the company are environmental guidelines, PR matters, engagement in community investment projects, corporate charitable donations, employee volunteering, ethical trading and sourcing, supplier code of conduct, etc. Quite interesting, aren't they? A very wide range of activities and all they think of is that "green stuff", but when asked about what sustainability should contain in the context of their organisation, a totally different picture appears:

It should contain environmental impacts, ethical corporate behaviour and corporate values, carbon footprint, long term financial health / competitiveness of an organisation, product responsibility, regulatory compliance, social impact, good governance, community relations, workforce diversity and inclusion.

Can you see any difference from what the C-Suite people said about what sustainability should contain and normal business practice? I don’t. So while you might seriously consider it to be a fad, but work with people's Luddite behaviour. Do not say it is to do with sustainability. Say that it is simply normal business practice. For example, I was briefed by our brilliant sustainability chaps on how we can deploy a simple piece of code on the network which will automatically put monitors on standby after 10-20 minutes and switch it off after 30-60 minutes. When you come back, just move the mouse or hit the monitor on/off button. Guess what that will do to the power consumption of that particular monitor? It will reduce the yearly wattage consumption by over three times. Now you tell me, why on earth will you say no to saving two-thirds of your power costs? If you do, then I have a nice bridge to sell to you.

There is much more to this. Think about ethical behaviour. It is vital for people to behave ethically and it is not really that complicated either. You might spend millions on consultants to come up with ethical rules, but actually it is much simpler. Remember what your mother and father taught you? Be good, be nice, don’t do bad things to people, don’t steal, don't lie, don't bribe, don't break laws, and so on and so forth. I do not really care much about exclusions and lawyerly behaviour. And if you are going to argue with me about ethical behaviour, then let me ask you something. Is this what you will do to your child? Will you teach him/her to look at rules of behaviour and think they are to be broken and give them no moral compass? Then why on earth would you do the same in the office? Please don't come into the office drunk. Please do not steal from the company. Please do not be violent towards the staff, do not swear or abuse people. See what I mean? I was told once in a class of reputational risk management, "Don’t do anything that you would not like to read about in the tabloids tomorrow morning". Pretty simple, isn’t it? Because if you do, then your stock price will take a hit (if you aren't fired, that is) and you can’t have a more compelling economic argument than that. Remember, pulling up the stock price is much harder than pulling it down.

Think about diversity. It simply makes sense, more so in this day and age of tight resources (check out some of the industry turnover figures, it can go up as high as 20-25%). Secondly, it takes about six months to a year to really make an employee effective. Now why on earth would you not put in policies to keep your resources happy and with you? If you have to spend 25% of your time annually in dealing with resignations, hiring, negotiations, etc, then you are a masochist. That is such a waste of time! One could be using that time to develop more business and earn more money. So make an extra effort to manage your workforce smartly, get your employees’ daughters and sons into work to see what their parents do. Nothing like increasing loyalty than to have family in the same firm. Pull in more LGBT people. Make sure there are more women engaged in the firm. Make sure that people find working in the firm a good experience. Not only will you not keep your attrition rate low, you will attract better candidates. Who on earth wants to go and work in a firm which is full of Neanderthals? Well, only another Neanderthal, but then, if that is the case, you wouldn't be reading this essay anyway!

If you have a powerful sustainability policy and execution, then you protect your reputational risk. You get to be proud of your firm, when (not if, be prepared for some things happening which are going to impact your reputation), some bad event happens, then you can say: "look, we are good corporate citizens, we are sustainable folks, and mistakes were made, we apologise, we will make sure it does not happen again", and move on. If you do not show evidence that you are consistently sustainable, then nobody will believe you and your share price will tank, but otherwise, you can protect your job, bonus and stock price!

One final thing, keep a beady eye out on what governments are doing. Normally, I would have said that governments impact about 30-40% of your business via laws, rules and regulations. It is my belief that sustainable regulations will jump massively and we will end up with almost 60-70% of our business being driven or influenced in some way by government regulations. Now government regulations are usually meant for protection or guidance. So just pre-empt the guidance and protection as far as possible, but not too much. No point in putting in scrubbers on your chimneys when the rest of your industry has not, as that will simply drive you out of business. However you can surf this regulatory wave by pushing for industry wide scrubber regulations, trying to get cheap scrubbers, use the fact that you have scrubbers to differentiate your products from your competitors, reduce environmental penalty costs by installing scrubbers, and so on and so forth. It just needs intelligence and smartness to surf and manage the regulatory tsunami which is bearing down on us. And no point in moaning about red-tape, it will remain. Well, do moan, it’s good for the soul!

Overall, while there are many more exclusions and issues, I firmly believe that better management of resources is simply better management. Those who get it will make more money, those who don't, will pay for the first lot. Which lot are you with?

All this to be taken with a grain of piquant salt!

Technorati Tags: Management, Sustainability

Project Management - You Can't Have Your Cake And Eat It Too

DeeptiA — Tue, 29 Jul 2008 14:48:54 EDT

This is a true example from around 6 years back when I was working for an IT software solutions provider (the firm did software projects for different customers). This was a decent sized company that had something like 12000 people on the rolls, doing everything from development to testing to requirements analysis, and so on. I was more into the area of a business analyst, translating the requirements document into a form that the developers working on the project would understand.

This was a new project with a new medium sized bank in the Midwest, and the hope was that we would be able to do this project well enough and give them a system that would work so well for them that they would continue with the company and be the start of a long and serious (and profitable) relationship. Sounds good, right ? Well, read on.

Around this time, our company, which was a publicly listed company was getting on just like the other service companies of that time, doing okay, but not generating great figures. Management was getting hit by analysts, and passed on a directive that every project needs to meet the company defined margin. Exceptions only when pleaded before the executive committee, and not otherwise. Implicit was the expectation that anybody who does a project that does not promise enough margin would need to explain the project.

Now, since our project was with a new customer with whom we had high hopes for the future, we could not charge our expected rates; after all, why would the customer then select us? So, our account manager along with the Vice-President of the unit went ahead and quoted a rate that was at least 20% lower (getting fewer people assigned to the project than necessary). Guess what? Pretty soon, the strains and missing people started to show.

Ego also plays a part. For a Vice-President to go before the committee and plead for more money (a reduction in margin) would reflect adversely. The members of the committee, who might be expected to provide an experience of being able to handle these kind of situations and offer some latitude did not do so since they were never offered this project for review. Pretty soon, somebody senior in the team had the bright idea that weekends could be converted into work hours (maybe 1 weekend in 3 could be off), and this idea was implemented with gusto.

You can guess the rest. People from outside the project did not want to join, quality reviews of the project were hesitant because of the many exceptions, and eventually the customer could make out that the quality was not as desired. Project over, account over, and pretty soon the project manager and other senior team members quit and went to other companies.

This was a disaster caused by the management reacting adversely to poor numbers, and unwilling to exercise the due diligence in doing a project (after all, the first criteria for a project should be to make it successful).

How many of you have had similar experiences?