Fidelity

Reviewing files from old work years ago at IBM.  Came across this email in which a colleague and I discussed the issue of simulation and modeling.  Until there is enough processing capability and storage simulations and models will always be an approximation of reality…something to consider when you think what the computer displays an answer.  Kelly Johnson had it right when he said he needed more engineers that could use slide rules…it wasn’t a slight against computers just a forecast that dependency upon the device to do your thinking and understanding is dangerous.

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Internet of Things (IoT): Building a scalable Info-pliance (information appliance) business

Is IoT hype or a new level of capability

“The more things change, the more they stay the same” goes the story.  The Internet is a buzz around IoT (Internet of Things).  But just what is it? Your computer browser , Iwatch, house thermostat, light bulbs, your car?  Basically if technology vendors have their way almost anything could and should be connected to the Internet.  Sounds rather appealing don’t you think?  Imagine laying on the beach and turning you house lights on and thermostat up because you’ll be back home from your vacation in a few hours.  My thoughts are these are devices that create and/or consume information.  Turing on a light remotely has been done via multiple technologies for a while.  However, things change when the light gives you back information like, “I’m off/on, I’m about 70% in my forecasted lifetime. Maybe it consumes information to make decisions: a furnace filter telling your its time to change me because the airflow throughout the house is lower and the blower is having to work harder. Or possibly the furnace will tell you’re house to order a new filter to be picked up when you’re at Home Depot tomorrow.  These are what I will call “Info-pliances” as the primary function is based upon utilization of information, not simply having remote activation.

Now for the reality many devices will have to be modified to realize that dream;  consider the dozens of apps you’ll need on your smartphone because each speaks different language.   What about security?  That small little thing.  If you worry about having your credit card information stolen, consider what will happen when your door locks are just a simply scan or hack.  How about that security camera you bought to monitor your house when you’re away –vulnerabilities in webcams have already hit the news where hackers and the government can turn on your camera without you knowing.  You and you significant other could become the next YouTube sensation without even knowing.

All this sounds like I’m a fear-mongering luddite.  If you’ve read other posts on my blog you know I’m far from it.  During the 70s and 80s I might have well been Microsoft’s, Asus, Radio Shack and Heathkit’s greatest consumer customer.  I had wired up my Condo with all sorts of devices to automate my little place.  Thus driving my future wife crazy when lights would come on without her touch a switch, announcements that someone was approaching the front door, heat and air conditioning settings could be changed from my home office computer.  My home now has its own private datacenter and multiple networks running throughout, in addition being connected to Microsoft’s Cloud.  So if I’m not forecasting doom and gloom what’s this about?

First off most of these issues have similar analogs “in the real world Neo”.  Security and Privacy has always been a spy vs. spy game and is likely to continue to be such in the future.  The real issue to overcome will be integration and scalability if IoT is to become a practical and profitable business.  Consider the consumer appliance industry today.  Unless you are manufacturing high end products, with large margins, and a near first to market provider your market share and profitability is limited and days in market are numbered.  And even then smaller competitors are likely to replace your product and features at a lower cost to consumers.

Enterprise IoT Strategy

What this suggests that if an enterprise is considering entry into the Info-pliances market it would be wise to study the analog business.  Years ago there were many appliance producing corporations.  Over the years these have consolidated with many Brand names being just that, parts manufactured by the same company but Branded differently to segment the market on perceived value and status (Consider the real differences between a Firebird and a Camaro in the 80s).  This façade of differentiation was mainly a marketing strategy.   However, underneath such a strategy to be effective an enterprise needed several elements to come together:

First a product architecture that would enable interoperability.  This is based upon the assumption consumers want interoperability which appears to be the case from a casual observation.  In an info-pliance, this is all the more important as its value is based upon interoperability. With limited interoperability the perceived value of the appliance is less.

Second traditional economies of scale strategies may require reversing.  That is rather than looking how to ramp up production of a single product, vendors may need to create a collection of components than can be assembled and packaged into multiple types of appliances rather than one specific one.  Consider creating a modular family of components that can be assemble like Lego Blocks.  Electronics manufactures already do this at a lower level of capability.

Once such enabling capabilities are in place an enterprise could start a virtuous loop.  That is to say, adding new info-pliances cheaply because the use many of the same components and interoperate together out of the box.  This creates a double loop: Quicker time to market and increase market share loop, Increased customer value perception with each new device  Thus having the potential of creating a competitive advantage at another level.

Will info-pliances  take off and become the killer app of the decade?  Only time and the consumer will tell.

Portfolio Management: Project Portfolios

Enterprise Portfolio

Projects are more like investments than any other asset class in that these provide anticipated returns. That is these are a forecast to future value. As such the projects are a more dynamic portfolio and thus require a more active curation.

IT Asset Allocation Matrix One

Curation of a project portfolio demands balancing short term returns with long term objectives. Focusing on one attribute over the other becomes a recipe for disaster; either in the long term through the creation of enormous amounts of technical debt or short term through not creating value to sustain the corporation or business entity.

Portfolio Investment Attribute Classes

Curation is thus an exercise of management establishing multiple priorities classes and integrating these to create a consistent evaluation schema. Three areas of concern with most approaches are:

  • Objective measurement of strategic alignment
  • Measuring and mitigating technical dependency between components that projects interface with
  • Portfolio Management of time horizon interconnected projects

Project Portfolio Curation

If the Project Portfolio is managed as a zero based budgeting exercise there is a danger that the next project may not meet resource investment criteria in the next portfolio management action. As such interconnected projects should be justified at the Portfolio Investment Level and exist the portfolio management activities as an earmark for resources. How this manifests itself in lower levels of the portfolio management process is that resources needed for this activity are reserved and removed from the open queue.

Terms

Investment Class –type of activity (Innovation, Increasing existing performance, keeping current running)

Business Objectives –Business Strategies & Themes

Metric Alignment Strength – How strongly does the primary Portfolio Metric align to Business Strategy

 

Procedure:

  1. Rank priority of investment classes
  2. Rank Business Strategy Objective Priorities
  3. Identify the Primary Business Strategy the Portfolio Epic is associated with
  4. Identify Primary Portfolio Epic Primary Metric
  5. Rank alignment strength of Primary Metric
  6. Identify Portfolio Item Investment Class
  7. Identify Business Impact level (High to Low)

 

  • These factors provide a quick proxy to Strategy Priority Alignment and Business Impact which is calculated in Business Priority Column(s):  Index and Stack Ranking
  • The Business Impact calculation can be used as a proxy for alignment throughout the portfolio hierarchy (Portfolio, Program, Program Increment, etc.)

Structure in Threes: Economics R&D IP depreciation – appreciation

The financial success both internally and externally for enterprises now has two masters Money and Time. The later appears to be the more dominate master at this moment in time.   What this suggests is that optimization around time both internally and externally has become the driving force. Development concepts such as LEAN and AGILE are becoming the dominate philosophy around offering realization.

The current economics model underpinning these concepts that LEAN and AGILE propionates advocate is applied to only the production portion of offering realization. Much time and effort is focused around queue sizing and scheduling of the software development (DEVOPS) portion of offering realization. This is based upon the concept of Lifecycle Value. The assumption is an asset (offering) will depreciate in value over time and that the later its induction to use the less total value can be captured (See Figure 2. Lifecycle Value).

Lifecycle Value

Asset Value Erosion due to delayed

In my belief what is missing from such a model is the ability to account for ideas and conceptualization.   Offering Realization actually starts further upstream and while accounting systems today still have problems addressing the value of intellectual property these none the less have value or patents would not be of any value. This issue and how to determine value add as ideas move through the development process from problem identification through design is an area rich in future research potential that I’ve only scratched the surface on years ago (Seitz B. K., CIM Architect Notebook, 1986). In terms of perceived worth people know that solving a problem or a design to address a problem is worth more than identifying the problem. However, accounting systems today do not effectively value or manage such intellectual inventories within a firm.

IP Lifecycle

This profile only considers a standard asset depreciation model.  However, as has been commented on prior post there are two major scenarios I’ll label the beer and wine models.  Beer typically as a short shelf-life similar to most assets; while wine can have a value increase over time as it matures.

Structure in Threes: Economics R&D

Been really business the past several months researching materials on Portfolio Management again.  Business Design and Portfolio Management seem to be a common thread in the work I do and the issues I find within corporations.   It appears that half the problem corporations run into is around business designs that are counterproductive to the goals and strategies stated by executive management.   It seems like a giant game of telephone.  Executives state a murky vision to the first level of management which alters the message to support their division’s goals and so on down the hierarchy.  By the time it reaches the execution level, its still the same old way of doing things despite the need to change.  When faced with the issue, each level says of course I’m doing what I was asked (e.g., switching to agile, but al that has happened was a language change for the same behaviors they already have).

The other aspect is prioritization.  This one appears to be a more difficult nut to crack.  Everyone wants to prioritize to account for multiple factors.  However, when faced with realities of what it takes to do such most back off into a simple gut feeling rather than a data oriented approach.  Part of that reluctance is due to fear that their items of concern will not be address in a timely manner, part is the effort involved in gathering the information, part is understanding how the math works underneath the prioritization schema, and part is being uncomfortable with uncertainty of answers.  Corporations today seek to get the exact formula 1+1 = 2 of business.  But the plain truth is its not 1+1, its  (1+/- 20% + 1+/- 20%) in a random distribution adjusted for time.

The past two days I spend researching value calculations for IT projects.  Reading a good book on the topic covering the economics behind Agile methodology: The Principles of Product Development Flow, Donald G. Reinertsen.  He has –in my opinion successfully identified the lean manufacturing concepts that Goldrait and Toyota’s Dr. Ohno advocate for scheduling.  There are some gaps in the approach: Value calculation of Intellectual Assets; though he brings up that financial does not address work in process value of such assets so proxies are used as a poor substitute.

While I don’t have the complete formula figured out to calculate IP value –current line of R&D — I did manage create a visualization of the concept of value capture discounting due to delayed introduction.  When merged with the portfolio management approach I’m working on I’m sure the systems dynamic model will give a better prediction of results.  I hope to implement some day as a service enterprises could use to be more effective.

Asset Value Erosion due to delayed

Will be considering presenting this and other findings for an internal only conference at Microsoft (though nothing here is confidential).  However, I’ll need to check with conference owner/management as to whether this will provide some value to the audience.  It seems like more of this type of information while beneficial no longer has a place within that venue.

Internet of Things

During yesterday’s drive home and this morning’s drive into work I considered the latest Hype-cycle meme “IoT”, the Internet of Things.  That magical connection of every device to…  While we’ve had IoT in many forms prior consider X10 which many a RadioShack customer “wired” their house with, then PowerBus, etc.  Then as microcomputers truly became ubiquitous, home started getting wired for TCP/IP and later WiFi.  Now the amount of Wifi Hotspots around businesses and homes is staggering.  At an apartment a few years ago I was amazed to find no less than twenty-three private networks within range, no doubt all connecting various devices beyond a PC and providing services such as video and audio media.

Now as the term “IoT” comes into play I wonder if this and the “app” crazy has created the ecosystem that is the digital equivalent of what we all complain about airlines and hotels these days?  a la carte pricing and thereby cause the consumer and business to be the systems integrator.  The question become does “IoT”, “App Stores” and consumption economics become the perfect storm to devalue Information Technology and the complexity involved in integration.

I as this questions as more business executives question the value of enterprise and other technology architectures while in the same breath can’t understand why the pieces don’t fit together easily in just a flew clicks.  I wonder if that CxO’s car stops dead in the desert out of range of a cell tower will her or she be lost forever, given the likely inability to fix the technology they’ve asked for and become dependent upon.   About to decades ago and reprised the thought a few years ago, that one day businesses are likely to fail due to technology failure.  As this decade reaches the halfway point, I see that risk increasing beyond the obvious threat of hackers.

Structure in Threes: Modern IT Portfolio Management Investment Strategies

Like financial investments using investment classes to allocate across the portfolio to attain sub-goals. Consider the Balance Portfolio strategy that many financial advisors have given to financial investors. In such strategies different types of investment are employed for sub-goals. At the highest goal one is attempting to achieve the maximum return for the level of risk an investor is willing to take.

IT Asset Allocation Matrix One

In the IT domain, I propose the three types of investments are Innovation, Optimization and Operation. And like financial investment each has risks associated with the change and the risk associated with doing nothing (opportunity costs). These three classes represent the spectrum of significant change (innovation) to moderate (optimization) to maintaining the status quo (operation).

For businesses in previous decades changes to the market and ecosystem where slow. As such innovation to address these changes could be limited to only serious immediate threats and funds reserved to optimization which increased revenue streams or reduced cost. Operations was then second in priority as optimization could reduce operating costs.

As the years have progressed the rate of change in markets and the ecosystem have accelerated leading the need to adjust the balance of investment in the portfolio, first allocating more to optimization, innovation and reducing operational investments. Now as hyper competition has arrived, enterprises are again looking to change investment allocations to becoming more innovative. The issue arises in that further reducing operational costs may create areas of high risk due to the creation of single points of failure –which may not be known. This could place an enterprise at a point of catastrophic failure as the cascading effects of this single point of failure ripples through the corporation.

This underscore the need to balance investment goals with risk management in the IT arena.

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