Utility Vs Strategic Dichotomy
29 July 2010
One of the steady themes I've seen throughout my career is that of the nature and importance of software development. A few years ago a prospect told one of our salespeople that "software is like sewage pipes, I want it to work reliably and I don't want to know about the details". This is the kind of approach that Nicholas Carr talked about in IT Doesn't Matter.  On a contrasting note we've done work for many businesses where IT has been a clearer strategic enabler to their business, allowing them to enter new markets or significantly increase their market share. So is IT a utility, like sewage pipes, or a strategic asset?
I take that the view is that it can be either, depending on the system. A classic example of a utility IT effort is payroll, everyone needs it, but it's something that most people want to "just work".
So what is the distinguishing factor between utility and strategic projects? To my mind it's all about whether the underlying business function is a differentiator or not. If how you do this function is a crucial part of what makes you better than the competition, then the software that supports this function needs to be as good as you can make it. As Ross Pettit puts it "This is not a separation of IT by the nature of the technology, but into what technology does for the host business".
The most important point about this dichotomy is to realize that there are two kinds of software projects and they need to be treated entirely differently. The way you staff, run, and budget a strategic effort is entirely different to how you do a utility project. Too often people assume that what is good for one is good for the other - and trouble inevitably follows.
Another consequence is that only a few projects are strategic. The 80/20 rule applies, except it may be more like 95/5. While certainly it's most common for people to not recognize the dichotomy at all, it's also common for people to think that too many projects are strategic.
One of the most important ways in which these efforts differ is where the risks lie. For utility projects the biggest risk is some kind of catastrophic error - you don't want the sewage pipe to break, or to miss payroll. So you need enough attention to make sure that doesn't happen, but other than that you want costs to be as low as possible. However with strategic projects, the biggest risk is not doing something before your competitors do. So you need to be able to react quickly. Cost is much less of an issue because the opportunity cost of not doing something is far greater than costs of software development itself.
This is not a static dichotomy. Business activities that are strategic can become a utility as time passes. Less often, a utility can become strategic if a company figures out how to make that activity a differentiator. (Apple did something like this with the design of personal computers.)
One way this dichotomy helps is in deciding between building custom software and installing a package. Since the definition of utility is that there's no differentiator, the obvious thing is to go with the package. For a strategic function you don't want the same software as your competitors because that would cripple your ability to differentiate.
Often people realize this and buy a package for a utility function, but then spend huge amounts of money customizing this - which is just as wasteful. My view is that for a utility function you buy the package and adjust your business process to match the software. Usually this is politically infeasible, so the workaround is to put a low grade software team to work on it. Provide enough care to avoid catastrophe, but otherwise you don't need a high-grade team.
Another way the dichotomy makes its influence felt is the role of agile methods. Most agilists tend to come from a strategic mindset, and the flexibility and rapid time-to-market that characterizes agile is crucial for strategic projects. For utility projects, however, the advantages of agile don't matter that much. I'm not sure whether using an agile approach for a utility function would be the wrong choice, but I am sure that it doesn't matter that much.
Like many classifications, there's a lot of grey in between. Yet this is one of those rare cases where I think there's a strong argument to turn up the contrast and force more binary thinking. As Ross commented in a discussion of a draft of this post: "'shades of grey' give license to pile things into the wrong category; things that are really utility will be given an inflated importance, rather than dispositioned as the utilities they really are." Forcing a binary decision, tilted to minimize what's in the strategic bucket, would help provide the focus that's often lacking in IT initiatives.
Ross goes so far as to argue that there shouldn't be a single IT department that's responsible for both utility and strategic work. The mindset and management attitudes that are needed for the two are just too different. It's like expecting the same people who design warehouses to design an arts museum.
Recently some consulting companies have popularized the notion of Bimodal IT (or Two Speed IT) . At first blush this seems the same as the Utility/Strategic dichotomy, but in fact it's quite a different notion. Bimodal IT is also a path that heads in the wrong direction.
The first difference is that Bimodal IT is based on separation of IT systems by layer rather than the underlying business activity. Bimodal IT separates rapid-moving front-end systems of engagement from slow-but-reliable backend systems of record. But if you're trying to innovate rapidly in a strategic business function, you're usually going to need rapid change in both the front-end and back-end systems.
My second beef with Bimodal IT is that a driving reason for the separation is the notion that rapid-changing systems of engagement are inherently full of defects and we tolerate these defects in order to gain speed. However the decade-plus experience at Thoughtworks and other leading agile organizations tells us that this TradableQualityHypothesis is a false trade-off. Usually we find that when we introduce agile approaches with rapid cycle times, we also see an order of magnitude decreases in production defects. Indeed without reducing defects like this we wouldn't be able to cycle so rapidly: high quality (and low defects) are a crucial enabler for rapid cycle-time.
To explore more...
- Ross's article calls for a Glass-Stegall of IT departments.
- Marc McNeil talks of projects as Tractors, nuclear power plants and the bleeding edge
- Neal Ford points out that integration efforts, such as SOA, can't be strategic.
- Jez Humble explains three flaws in the bimodal IT model
Originally published on 2010-07-29.
Updated on 2016-04-07 to describe the difference between this and Bimodal IT.
1: This is a well-known paper in Harvard Business Review where he questioned whether IT was ever of any great importance to business. He followed this up with a book, which is reasonable even if it does read like a padded HBR article.