May 30, 2009


Welcome,

The following is the third in a series of newsletters designed to foster a healthy dialog. I hope you enjoy it and encourage your feedback and discussion.

 

Take a look at http://www.caswell.org for prior articles, access to resources and information on what I can do for you. If you know someone who would benefit from this piece, please forward it, or just let me know and I'll send it to them directly.

Please drop me a line and let me know your thoughts: ward@caswell.org

 

Regards,

 

Ward S Caswell

ward@caswell.org

(617) 304-2689


 

Virtual Organizations, Real Benefits

 

This piece visits the evolving concepts of virtual corporations, social networking and cloud computing. It strives to help you and your organization improve efficiency and accelerate response to changing customer needs and economic conditions. Virtual corporations are those with minimal physical presence. Put another way, they don't really exist until there is work to perform. When needed, they bring together the resources to do the job. When the work is finished, they disband those resources until the next project. Social networking refers to a set of internet based programs allowing people with similar interests to form communities for quick, borderless communication. These programs include Facebook, LinkedIn, Twitter, Ning, and others. Cloud computing in this context is defined as leased, off-site computer hardware and software systems. They are usually connected via the internet and have the benefit of outsourced scalability. Combined, these concepts present powerful new tools for your organization to offer better client solutions in less time for less money.

Commercial real estate (CRE) is a cyclical business with downturns occurring every eight years or so. Property values and construction are heavily influenced by these cycles. Software development also suffers due to economic phases. Projects are often scrapped in mid-stream during economic crises. The business risks for Information Technology (IT) departments are similar to those of property developers. While a commercial property's useful life is far longer than that of a software application, the funding constraints of property and IT developments are similar. Banks rarely sponsor new construction until rents reach high levels. Lags in rental rate growth mean that construction does not begin until near the end of the upturn. IT initiatives mirror that trend. Companies reject new development initiatives until business has been robust for some time. As a result, IT development initiatives get funded late in the economic cycle. The new Dow Jones Economic Sentiment Indicator (ESI) helps visualize why.

While people remember the rough dates of recessions, we often forget the pessimistic periods that occur within periods of growth. The red ovals on the chart below show that the sentiment in 1995, 1998, and 2003 was low, even as the economy was set to expand and add jobs. The Dow Jones ESI is a new measure of public sentiment measured by analyzing the mood of news stories. A barrage of bad news evokes fears of imminent downturns resulting in continued budget conservatism.

Recent Business Cycles

Source: www.solutions.dowjones.com/ESI - reuse by permission only

Not every session of pessimism results in a full fledged recession and so the conservatism may be viewed as an unnecessary restraint on growth. However, a company that accelerates spending in the face of a real and protracted downturn runs the risk of failure. In most cases, firms will wisely elect to continue conservative patterns to ensure survival at the expense of larger potential growth. Superior predictive insight into economic expansion and contraction is one way to get ahead. Another is to be more nimble, rapidly accelerating and decelerating in pace with conditions.

The infrastructure of a virtual corporation can react more quickly, thus cutting the development cycles of systems that can garner revenues.

In hind-sight, the latest economic expansion took hold in 2003. At the time however, pessimism reigned. It wasn't until 2005 that a manager was likely to secure funding for new initiatives. By August 2007, the debt markets stalled and many projects were abandoned in mid-stream. Even projects begun in 2005 were released with version 1.0 feature sets and did not reach maturity. Given the dramatic decline in revenues, most of these in-house systems lost support for continued development. This left users and clients with immature systems, strained support staff, and overall mediocre results. This scenario plays out in most industries and contributes to the lack of overall progress towards the goals of reliable and user-accessible platforms.

 

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