The world is full of cycles. There are stock market highs and lows, periods of good weather and bad weather, even apparent cycles of good luck and bad luck. Many of the people-related cycles are caused by basic human nature. The bad part of a cycle starts when we hear bad things about a particular topic, and we talk about them. The talk turns into concern, and we begin to pay more attention to the problem. The more attention we pay to the problem, the more likely it is that other people will get concerned as well. And the more we’re concerned, the worse things seem. The bad cycle hits its peak of “badness” when someone hears something good, and people begin to say more good things than bad. It doesn’t matter whether the original bad thing was true or not, or whether the new good thing is true or not – what matters is how people talk.
The good part of a cycle works the same way, starting with good comments that escalate due to increased conversation. The good cycle ends when we begin to get skeptical or nervous: “Will the good times last?” or “How good can things get before they get worse again?”. Then people begin to say bad things, and we go back to the bad part of the cycle again.
We hear about certain kinds of cycles every day. “The Dow was up.” “We’re having a warming trend.” “The economy is down.” But while we commonly apply this thinking to certain areas of our life, it’s less common to think this way when we consider business processes that have longer cycles and aren’t typically considered repeatable.
Centralization / Decentralization
Look at the cycle of centralization and decentralization. You may be surprised to hear the word “cycle” used for this subject, but it’s a cycle nevertheless. Companies who centralize any part of their operations (like IT) will eventually begin to find fault with the centralization decision. User organizations throughout the business will start complaining that the centralized IT organization doesn’t meet their needs. All of the benefits of centralization (chiefly related to economies of scale) will be forgotten as negative talk escalates. Unless the negative comments are suppressed by executive management (rare), the talk will grow into an uproar, and eventually the centralized organization will be decentralized, with or without the cooperation of the current manager of the centralized organization.
Peace will prevail for a while, and talk will die down. But then, gradually, the negative aspects of a decentralized organization will be noticed, and eventually those negative aspects will be the main topic of conversation. You can guess what will happen next – you’ve probably seen it if you’ve been in business very long. The advantages of the decentralized organization (chiefly related to better responsiveness to customer needs) will be forgotten, and a push will be made to cut costs and centralize. This cycle will repeat endlessly in a centralization/decentralization merry-go-round.
Outsourcing / Insourcing
Of course, centralization isn’t the only long-term cycle that affects IT. Another related cycle is outsourcing/insourcing, and its popular variation offshoring/onshoring. Just like centralization, outsourcing is primarily driven by cost savings, but there is an inherent loss of flexibility and responsiveness to user needs (see my previous article on “When to Outsource and When to Offshore”). Therefore it fits the pattern that causes a merry-go-round: two conflicting goals that are very difficult to achieve simultaneously.
Unless an outsourcing firm demonstrates extraordinary responsiveness, or unless the process being outsourced is mostly invisible to employees and customers (e.g., payroll), then it’s only a matter of time before business change, human nature, and escalating complaints force the cycle back the other way, and the outsourced business process is brought back inside the company. Then eventually cost savings will become more important again, the cycle will repeat, and the business process will be outsourced again.
This same argument applies to outsourced business processes that are sent offshore. But with offshoring there is one key difference: the current cost differential between insourced and offshore processes will require a very high level of user complaints before action will be taken. I doubt that this cost differential will be maintained in the long run, but we may not see the cost differential change significantly in our life-times. Thus an offshored process is not likely to be brought back in-house any time soon.
The “Jump at the Top” Career Strategy
Some people have decided to pursue a career strategy tied to one of the cycles I’ve described. So, for example, they might specialize in centralization of IT. They’ll get hired into a company that wants to centralize IT (usually to replace an IT executive who’s dragging his feet), and they’ll stay with the company through the glory days of centralization until they begin to hear the first noise about decentralization. Then they’ll quickly find a position in another company that’s about to start its own centralization.
Should you follow this “jump at the top” career strategy? Maybe, if you feel strongly about a particular part of the cycle.
Should you hire someone who is following this career strategy? Absolutely not! Although the person may be very good at his/her specialty (centralizing, decentralizing, or whatever), the person lacks the experience in doing the specialty in a manner that allows it to survive for a long time in a company. It’s easy to centralize IT – it’s much harder to do it in a way that provides lasting benefit to the business with minimal backlash. You have to get the experience of managing through the aftereffects of a change to truly be able to do it right.
Here’s my advice on what to do about business cycles:
- Be aware of them. Know that there isn’t a right way and a wrong way to do most things, but that the current perceived right or wrong way is a function of where your business is in the applicable cycle.
- Take advantage of cycles when you can. For example, if current sentiment is moving toward outsourcing, then figure out the things that you think could truly benefit from outsourcing, and push them to be outsourced.
- Don’t fight current sentiment in a cycle. It’s like being stuck in the middle of a raging river and trying to swim directly upstream – you’ll always end up drowning. When stuck in a river, the best approach is to swim at right angles to the direction of the river, and to take advantage of the current to push you to shore. Similarly, in business the best approach is to take advantage of current sentiment to push for the things you feel are important.
- Look for compromises which don’t weaken your position. If you’re centralized, then consider decentralizing certain processes that are more visible and which don’t derive a great deal of benefit from economies of scale. If you’re decentralized, then consider centralizing key processes like standards or high-volume purchasing. The strongest dam doesn’t try to stop all of the water – it lets some of the water through to benefit those downstream.
The world is full of cycles. It’s frustrating to see business people lobby against something that you’ve put in place, but it’s important to recognize that it’s just human nature to find fault with things and to want something better. Sometimes it leads us in circles, but we can hope that each trip around the merry-go-round will be a little better than the last one. In the mean time, just enjoy the ride.
Note: if you’re interested in a history of weird cycles caused by people’s overreaction, you’ll enjoy the book “Extraordinary Popular Delusions & the Madness of Crowds” by Charles Mackay.