Technology Monetarism combats Technology Inflation
By Huw Webber, with contributions from Darren Chiappinelli, Sarah Elizabeth Hager, Greg Scala, and Amy Sears
Unmanaged Technology Inflation: the enemy of profits
Companies are complex entities when scaled. At the same time, CxOs bemoan complexity while often increasing it through their actions. How does this happen? And what is the effect on profits?
Mathematics explains why simpler systems are better than more complex ones. The fewer elements in a system, the easier a system is to predict and control. The more elements in a system, the more unpredictable and costly such a system becomes. It takes much more effort to try to control and maintain a complex systems environment, so the economic benefits of a large scale system are harder to realize without some idea of how you will manage that system.
What usually happens in a company is this: when you are small, your business is in a relatively simple state. It requires few systems and the volumes of transactions are manageable. These systems are managed by people who have technical expertise and not necessarily much business acumen. These systems may even be manual. Data, processes and employee or customer experience are easy to define and control.
As a company grows, it accrues systems because there’s no obvious penalty for adding a system or increasing complexity for some marginal business utility. Systems become core to the customer facing workflow. Business leaders get what they demand to manage millions of transactions, customers and associated increased revenues: they obtain customized solutions and/or dedicated packages to manage business-critical functions like Finance, Inventory, CRM, ERP, billing and workflow. This happens while your existing technical staff is stuck in a start-up mindset: old systems are almost never retired, upgraded or properly integrated1. The technical environment becomes more complex, and ad hoc integration becomes common.