When do you start investing in people and stop investing in software?

13. February 2013 23:39 by Jay Grossman in   //  Tags: , , , ,   //   Comments (0)

Yesterday a friend IM’d me this question out of the blue with a really interesting question:

When do you start investing in people and stop investing in software?

Before I get into my answer, let’s explore more about investments and how they relate to software and people.

What is an investment? 

A generic definition for investment is allocating money and /or resources into some initiative with the expectation of gain. Most investment scenarios carry an associated set of risks. So the most obvious motivator for people to make an investment (time, money, energy, etc.) in anything is to get some positive return.

Investment in software 

Software can be defined as a collection of computer programs and related data that provides the instructions for telling a computer what to do and how to do it. It usually consists of a set of programs, procedures, algorithms and its documentation concerned with the operation of a data processing system.

For this discussion, I will also include bringing in professional services (outside subject matter experts) as part of making a software investment.

I spend a good part of my days understanding common problems and trying to find automated/repeatable solutions. I’ve always seen this is one of the biggest value drivers for the software development industry as a whole, and a big reason I wanted to teach myself to program.

Why invest in software?

Investments in software and technology platforms can be cost effective options that often allow companies to meet a great variety of business objectives, such as:

  • Provide an industry standard solution. Avoid trying to work on problems that have adequately been solved for you. 
  • Achieve greater reliability and efficiency of businesses processes at scale
  • Provide capability to store and analyze data/knowledge
  • Interact/collaborate more efficiently with customers, partners, vendors, and other employees.
  • Enforce governance/adherence
  • Tie together complex sets of business rules and workflows

Example Scenario for Investing in Software 

A few years ago I created a software platform on SportsCardDatabase.com that automatically gathers marketplace data and calculates market values for over 1 million consumer products.

Project SportsCardDatabase.com value engine
Investments
  • Purchase of server hardware (money)
  • Purchase of Web hosting (money)
  • Development (time)
  • Integration and partnerships (time)
Return
  • Substantial learning opportunity
  • Revenues from the site
  • Benefits gained by users of site
Alternatives to this Investment I was unable to find an alternative productized solution that met the requirements.

The manual process performing the same steps for determining the values would be a full time job for 10 people. It likely would have had a higher rate of errors.

 

Had I not made the investment to build and support this custom software, then there is no way I could have ever been able to offer the core functionality for this profitable business. It has empowered me to gain greater understanding of the market and build additional functions such as arbitrage deal finder (based off the market values).

Investment in people

Investing in people revolves around allocating resources with the expectation of higher productivity or value. 

How can a company invest in its people

 There are several ways organizations can invest in people:

  • Training - The action of teaching a particular skill or type of behavior. There are many ways people can learn valuable skills and acquire knowledge, such as taking an instructor led class, peer led activities/examples, consuming or writing documentation, testing things, or doing the functions of your desired job.
     
  • Making Process or Culture Changes – Providing an environment that will better position employees with the opportunity to succeed.
     
  • Effective Hiring and Review Process – Employees may often find to opportunities for higher productivity in an environment with more effective and productive coworkers. In general, you are average of your peers.

Why invest in people?

Companies often decide to invest resources in their people with the anticipation of the following positive outcomes:

  • In many cases, your people and your process are what set you apart from your competitors.  
  • It is the people who create future performance and results, in turn helping shape your organizational culture.
  • Leverage talent  to reach strategic objectives
  • Higher levels of employee commitment
  • Create opportunities for learning as an organization
  • Cost savings due to ability to self-staff projects and not having to pay premium rates for in demand skillsets

A recent study documented the positive outcome of people investment:

“The findings are quite remarkable.  In general, we found a clear relationship between training expenditures per employee and financial performance in the following year.  Almost all financial measures (stock performance, income per employee, gross profit  margin, market value per employee) are significantly higher for those companies that  spend an above-average amount per employee on training. “  

Why Companies often Don’t Invest in People?

In general, there are many things within companies competing for resources. It is often difficult to justify committing precious resources to people often over other visible business objectives. 

The same study noted the inherent financial bias against people investment: 

“Further, because training and education are treated on a firm’s books as costs, not as investments, those firms that make such investments must do so in spite of the pressures of the market (to reduce costs) rather than because of them (as might be the case if the market had the information necessary to recognize such expenditures as worthy investments).  This leads to a collective tendency to under-invest in human capital – more inefficiency that affects society as a whole.  It’s bad for stockholders and firms, and it’s bad for the people who work in them, since research has found that workplace training is an important determinant of workers’ future earnings capacity. “

So training is considered an operational expense, but paying a considerable amount more for a professional services (software) solution may be considered a more desirable capital expense in some companies. 

Example Scenario for Investing in People 

I recently made the decision to stop working on new features (despite significant pressure to progress on feature development) and spend 2 full weeks writing detailed user documentation for new set of tools. 

Project Documentation of Toolset
Investments
  • Development of Documentation (time)
  • Presentation of Documentation to various user groups (time)
Return
  • Onboarding materials allowed for greater productivity for team members
  • Lower volume of support issues and time spent
  • Better collaboration and integration with other teams
  • Better opportunity to avoid inconsistent implementations and technical debt in future projects
Alternatives to this Investment Without the documentation, members of the team and outside teams had less clarity of the toolset, leading to significant inefficiencies.

 

Had I not made the investment to create this documentation, the most valuable resources would have continued to be consumed with low value tasks (such as support). With the documentation, much of the support is eliminated and it improves the opportunity for all team members to contribute on higher value contributions.

Should We Invest in People or Software?

So back to my friend’s question, When do you start investing in people and stop investing in software?

After a little bit of back and forth, I found the reason for his question originated because his boss showed interest in automating a bunch of manual or inconsistent procedures to improve efficiency.  

My immediate answer to him was “when it makes sense or it is more cost effective”.

We know that companies only have a limited set of resources to invest (time, money, energy). Each company needs to prioritize the business objectives it wishes to solve, and managers need to come up with the most effective strategy to support solutions to the top priorities. 

When it makes sense:

So there is no one answer, each business objective will likely need its own analysis.

In some cases, a software solution can look like a good candidate to make progress in solving the designated problem, such as implementing an accounting package/ERP system to help with tracking uncollected Accounts Receivables.

In other cases, there may not be some software product or solution that is a good fit to solve the designated problem. An example could be the objective for better overall adherence to the company’s organizational policies through better training materials and sessions for middle level managers. 

When it is cost effective:

So I can think of many scenarios where cases could be made for an investment in both people and software.  

These days analysis of big data is really hot in enterprises, but it is challenging to find people with the Data Science background to fill this role. While I could certainly see an internal teams wanting to take on this type of project (and gain from the very valuable learning), it likely would be more cost effective to bring established software tools (Hadoop, Hive) and an experienced outside vendor.

Time to market is often a huge priority for startups and new projects. Implementing a quality software solution may require most often considerable time (and likely budget), as well as a certain level of skill, and new ventures may not be able to wait.  Instituting in a less efficient manual process up front may allow to move forward. You’ll have the opportunity to actually use the process, get feedback, and learn. Then you can make iterative educated decisions based on what you have learned, deciding if/when you need to automate. 

Conclusions

  • You can certainly invest in both software and people, they are not mutually exclusive.  For some reason they don't always occur in tandem like I'd think they should.

    It just seems like a lot of companies are very comfortable with the investment related to buying or building a piece of software to fill some business need. They very often don't realize or don't properly scope out the corresponding investment in people that will need to be made to enable the software implementation to be successful. I lose sleep thinking about how my career has been littered with me having to pick up the pieces from these scenarios - Content Management Server, Interwoven, Documentum, Sharepoint, Vignette, Commerce Server, BizTalk, Control-M, Bladelogic, and a slew of homegrown frankenstiens.
     
  • I’d think the companies that prioritize becoming efficient in the execution toward their objectives will invest in their people. It is part of their culture and employees understand how the investment will benefit both them and the company. While investment does not mean the company will be successful in reaching the objectives, but it enforces the objectives’ priority.

    I read this exchange on a linkedin forum and it hits home:

    CFO asks his CEO, “What happens if we invest in developing our people and then they leave the company?” CEO answers, ‘What happens if we don’t, and they stay?” 

    A member provided this very insightful comment:

    “Everybody leaves sooner or later, but if you're going to implement a strategy it's going to take skilled people. You only have two choices: buy the skills developed by somebody else at a cost premium that stays forever or build them internally more cheaply. An added bonus is you could become an 'academy' company like GE, IBM, and Xerox that talented job applicants compete to work for because of the development opportunities.”
     
  • I’ve spent time at both companies that invest in their people and those that do not invest in their people. I realized greater productivity and higher satisfaction when I recognized a planned investment was being made in me and my teams. 
Comments 

About the author

Jay Grossman

techie / entrepreneur that enjoys:
 1) my kids + awesome wife
 2) building software projects/products
 3) digging for gold in data
 4) rooting for my Boston sports teams:New England PatriotsBoston PatriotsBoston Red SoxBoston CelticsBoston Bruins

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