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• Dolog Akf Software Applications 2017

The two most common types of technology due diligence requests we see at AKF are

• Product Technology Due Diligence
• Information Technology, or IT, Due Diligence.

Both types are very different from each other, but often get confused. This article will explain the differences between Product Technology and
Information Technology – and why understanding the difference is critical to a company’s success and profitability.

IT Department

An IT department is typically led by a Chief Information Officer (CIO). The focus of the CIO is on information technology that supports the ongoing operations of the business. The CIO and the IT team’s key outcomes are typically around employee productivity and efficiency, applying technology to improve productivity and to lower costs. This includes technologies that run the financial and accounting systems, sales and operations systems, customer support systems, and the networks, servers, and storage underlying these systems. The CIO is also responsible for the technologies that are used in the office such as email, chat, video conferencing systems, printers, and employees’ desktop computers.

Product Technology

Conversely, Product Technology (or Digital Product Technology) is typically led by a Chief Technology Officer (CTO). The focus of the CTO is building a product or service for customers out of software and running that product or service on cloud systems or company-owned systems, although the latter is becoming less common. Put another way, CTOs build and run software as revenue generating products and services.

Whereas the CIO runs a cost center and is responsible for employee productivity, the CTO is responsible for revenue and cash-flow. Sales growth, time to market, costs of goods sold, and R&D spend are some of the factors included within key outcomes for the CTO.

For example, if you were running a newspaper business, your primary product is the news. However, you also must build applications to read news like mobile apps and web apps. It is the job of your CTO to build, maintain, and run these apps for your customers. Your CTO would be accountable for business metrics – such as the number of downloads, users, and revenue. If your CTO is distracted by CIO issues of running the day-to-day business of the office, they are being taken away from their work to build and implement the revenue generating products and services your company is trying to create.

Differences

Product Technologies and IT Technologies are very different. CIOs and CTOs have very different skills and competencies to manage these differences. For example, a CIO often possesses deep knowledge of back-office applications such as accounting systems, finance systems, and warehouse management systems. In many cases they likely rose up through the technology ranks writing, maintaining, and running those systems for other departments in the company. They are excellent at business analysis, collecting requirements from company users and translating those requirements into project plans. CIOs are often proficient at waterfall development methodologies often used to implement back-office applications.

The IT team is often largely staffed with people who know how to integrate and configure third-party products, with a small amount of custom development. The opposite is true for most product technology teams typically staffed with software engineers who are building new solutions and a smaller number of engineers integrating infrastructure components.

CTOs possess entirely different technology skills needed to build and maintain software as a service (SaaS) for the company’s customers. CTOs possess the skills to architect software applications that are scalable as the company grows its customer base. The AKF Scale Cube is an invaluable reference tool for the CTO building a scalable software solution based on scalable microservices. CTOs must have the skills to run product teams, including user experience design, along with software development. CTOs are more likely to be proficient in Agile development methodologies, such as Scrum. CTOs are expected to know the product development lifecycle (PDLC), mitigate technical debt liability, and know how to build software release pipelines to support continuous integration and delivery(CI/CD).

What We See In The Wild

Regularly, when AKF is called to perform technology due diligence, we often find that Product and IT are combined! This has been especially true for older, established companies, with traditional IT departments. CIOs took on the responsibility of building and running customer-facing internet and mobile software products and services rather than creating a separate Product Development Team under a CTO. The results are often not positive because the technical, product, and process skills are very different between the two.

This mistake is not exclusive to older companies. We see startup CEO’s making the same mistake, often under the rationale of reducing burn. However, when a startup CEO looks to the CTO to help set up new employees’ desktop computers or to fix a problem with email, it is a huge distraction for the CTO who should be focused on building and improving the company’s revenue-generating products.

AKF Recommendations

AKF recommends that CEOs not combine Product Development and IT departments. Understanding this distinction and why these two very different departments need to function separately is critically important. Our primary expertise at AKF is to help successful companies become more successful at delivering digital products. AKF focuses its expertise on helping product development teams succeed. We have developed intellectual property, including the AKF Scale Cube, used to evaluate product architecture and to guide successful product development teams.

We also help CEOs, CTOs, CIOs and IT departments who are looking to improve performance and deliver more business value by creating efficient product development processes and architectures. Give us a call, we can help!

Architectural Principles: Build vs. Buy

In many of our technical due diligence engagements, it is common to find that companies are building tools with considerable development effort (and ongoing maintenance) for something that is not part of their core strength and thus providing a competitive advantage. What criteria does your organization us in deciding when to build vs. buy?

If you perform a simple web search for “build vs. buy” you will find hundreds of articles, process flows, and decision trees on when to build and when to buy. Many of these are cost-centric decisions including discounted cash flows for maintenance of internal development and others are focused on strategy. Some of the articles blend the two.

We have many examples from our customers developing load balancing software, building their own databases, etc. In nearly every case, a significant percentage of the engineering team (and engineering cost) go into a solution that:

1. Does not offer long term competitive differentiation
2. Costs more than purchasing an existing product
3. Steals focus away from the engineering team
4. Is not aligned with the skills or business level outcomes of the team

If You Can’t Beat Them - Join Them
(or buy, rent, or license from them)

Here is a simple set of questions that we often ask our customers to help them with the build v. buy decision:

1. DOES THIS “THING” (PRODUCT / ARCHITECTURAL COMPONENT / FUNCTION) CREATE STRATEGIC DIFFERENTIATION IN OUR BUSINESS
Shiny object distraction is a very real thing we observe regularly. Companies start - innocently enough - building a custom tool in a pinch to get them by, but never go back and reassess the decision. Over time the solution snowballs and consumes more and more resources that should be focused on innovating strategic differentiation.

• We have yet to hear a tech exec say “we just have too many developers, we aren’t sure what to do with them.”
• More often than not “resource constraints” is mentioned within the first few hours of our engagements.
• If building instead of buying is going to distract from focusing efforts on the next “big thing” – then 99% of the time you should just stop here and attempt to find a packaged product, open-source solution, or outsourcing vendor to build what you need.

If after reviewing these points, if the answer is “Yes, it will provide a strategic differentiation,” then proceed to question 2.

2. ARE WE THE BEST COMPANY TO BUILD THIS “THING”?
This question helps inform whether you can effectively build it and achieve the value you need. This is a “core v. context” question; it asks both whether your business model supports building the item in question and also if you have the appropriate skills to build it better than anyone else.

For instance, if you are a social networking site, you probably don’t have any business building relational databases for your own use. Go to question number (3) if you can answer “Yes” to this question and stop here and find an outside solution if the answer is “No”.

And please, don’t fool yourself – if you answer “Yes” because you believe you have the smartest people in the world (and you may), do you really need to dilute their efforts by focusing on more than just the things that will guarantee your success?

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3. ARE THERE FEW OR NO COMPETING PRODUCTS TO THIS “THING” THAT YOU WANT TO CREATE?
We know the question is awkwardly worded – but the intent is to be able to exit these four questions by answering “yes” everywhere in order to get to a “build” decision.

• If there are many providers of the “thing” to be created, it is a potential indication that the space might become a commodity.
• Commodity products differ little in feature sets over time and ultimately compete on price which in turn also lowers over time.
• A “build” decision today will look bad tomorrow as features converge and pricing declines.

If you answer “Yes” (i.e. “Yes, there are few or no competing products”), proceed to question (4).

4. CAN WE BUILD THIS “THING” COST EFFECTIVELY?

• Is it cheaper to build than buy when considering the total lifecycle (implementation through end-of-life) of the “thing” in question? Many companies use cost as a justification, but all too often they miss the key points of how much it costs to maintain a proprietary “thing”, “widget”, “function”, etc
• If your business REALLY grows and is extremely successful, do you want to be continuing to support internally-developed monitoring and logging solutions, mobile architecture, payments, etc. through the life of your product?

Don’t fool yourself into answering this affirmatively just because you want to work on something “neat.” Your job is to create shareholder value – not work on “neat things” – unless your “neat thing” creates shareholder value.

Dolog Akf Software Applications 2017

There are many more complex questions that can be asked and may justify the building rather than purchasing of your “thing,” but we feel these four questions are sufficient for most cases.

A “build” decision is indicated when the answers to all 4 questions are “Yes.”
We suggest seriously considering buying or outsourcing (with appropriate contractual protection when intellectual property is a concern) anytime you answer “No” to any question above.

CONCLUSION

While startups and small companies roll their own tools early on to get product out the door, as they grow, the timeline of planning (and related costs) needs to increase from the next sprint to a longer-term annual and multi-year strategy. That, plus growth, tips the scale to buy instead of build. The more internal products produced and supported, the more tech debt is required and distracts medium-to-large organizations from competing against the next startup.

While building custom tools and products seems to make sense in the immediate term, looking at the long-term strategy and desired outcome of your organization needs to be fully-weighted in the decision process. Distraction from focus is the number one harm we have seen many times with our clients as they fall behind the competition and burn sprint cycles on maintaining products that don’t move the needle with their customers. The crippling cost of distractions is what causes successful companies from losing their competitive advantage as well as slipping into oblivion.

Like the ugly couch your auntie gave you for your first apartment, it can often be difficult to assess what makes sense without an outside opinion. Contact us, we can help!