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Danger of over centralization of information department and institutional dementia

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With age many large corporation demonstrate symptoms, similar to what are observed in senile people and top brass including IT bras does stupid, disastrous moves.  This is the case which can be called institutional dementia.

Dementia is a broad category of brain diseases that cause long term loss of the ability to think and reason clearly that is severe enough to affect a person's daily functioning.

in the moderate stages almost all new information will be lost very quickly. The person may be severely impaired in solving problems and their social judgment is usually also impaired

Excessive cost cutting

Race to the bottom in IT costs is self-destructing. There is some limit in cost-cutting after which attempts to diminish IT costs and cut people backfire and actually lead to increased costs. One problem here is the degeneration of corporate brass's and resulting inability to separate wheat from shaft.

The real competitive value of a good IT is not only the infrastructure and smooth operation of network and corporate applications; it also provides valuable protection for the company from ruthless and energetic charlatans (aka consultants) who often try to sell the company some new fashionable snake oil  in best big-pharma traditions (IT analogs of  Vioxx and other useless and/or dangerous medications, produced to generate profit not to solve real problems :-).  Outsourcing also destroys loyalty and that has its own (often huge) costs. It is not uncommon that disenfranchised IT staff stops being the filter against aggressive marketing and soon the affected company successfully completes the useless half-million of more acquisition of useless or harmful software. Vioxx-style appliances and software packages are readily available on the market. For example, SAP/R3 is a mixed blessing in many environments leading to increased not decreased costs and flexibility. Actually to deploy SAP/R3 in unsuitable environment is one of the best way to destroy the company. SOX games also can be played pretty destructively for uninformed and clueless brass after no critical mass of IT IQ left the company. See my IT Outsourcing/Offshoring Skeptic: Fighting Outsourcing Myths article for detail.

That means that it might be hard to use IT to gain a strategic advantage (first of all you need talented people as IT is just a technology), but absence of IT talent puts the company in the cost disadvantage. A lot of firms that tried to outsource IT discovered this dimension of the strategic value of  IT rather quickly. Because IT expenditures remains high and businesses can be held hostage by poorly designed IT system, there's enormous need for technically astute, hard-nosed IT professionals who can navigate the companies between Scylla of IT vendors and Haribda of  IT outsources.  Dilbertalization of IT inevitably leads to  high additional costs, costs that exceed to the cost of keeping local IT staff.  

Global Helpdesk

Global helpdesk is typically an outsourced service supported by common helpdesk software such as SA Unicenter.

It is designed to be a single point of contract for service request and encompass not only IT but other functional areas as well,

But it is especially disastrous in IT context.

The problem is the helpdesk analyst in such helpdesk does not understand context of request for particular continent or large corporate unit. And that create Alice in Wonderland situation when tickets wre assigned incorrectly or are wandering in this mess for a couple of day before being assigned to proper unit.

All this is accompanied completely fake reports about meeting the service level.

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Loss of control due to overcentralization

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Making the Decision to Decentralize - HBS Working Knowledge

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Full text of Centralization versus decentralization of information systems a critical survey and an annotated bibliography

Why Over-Centralization is Bad: 670 Million Without Power in India

Against Crony Capitalism

By on

The disaster in India is likely just beginning. The economic and political ramifications of half of the subcontinent losing power will be felt far and wide. There has already been a cabinet reshuffle and the rising Asian power now looks more like the India of old than the India of Infosys and Tata. At this moment the equivalent of roughly twice the population of the United States is without power. 12 states in India have no power at all.

This means the entire economy has come to a screeching halt. Phones are down, air conditioning doesn't work (India is over 100 degrees all the time), mining doesn't happen, agricultural pumps don't work. This is truly a disaster on a massive scale.

It is a good example of why societies should be careful not to overly centralize.

In an effort to gain efficiency in a system the tendency is to consolidate control in one or a handful of nodes. This is dangerous whether one is talking about an electrical grid or government. If there is a central crux to a system that system is in danger of cascading loss.

If however a system is constructed with many nodes, that system is much more resilient. One area of the electrical grid might go down but if the grid is compartmentalized, it stops without killing the whole system.

The same can be said for economies and government. Spread the risk. Diversify. Avoid concentration. Don't rely on one industry, or one all-knowing central government. Sooner or later that concentration will come back to bite you.

As for India, this is a huge setback economically, politically, and socially. We will see ramifications from this power outage in some form even on this side of the planet.

Click here for the latest on the India power outage.

The battle over centralization By Dick Munson

April 2012

Battle lines often are drawn in the electricity business. For several decades after the 1920's, the key struggle was between investor-owned utilities and public power. Amory Lovins in the 1970's highlighted battles between "hard" technologies – such as nuclear and coal – and the "soft" path – including solar and efficiency. Yet today's emerging, if little recognized, contest is between a centralized approach – complete with large power plants (be they wind, nuclear, or whatever) and their long-distance transmission lines – and one favoring distributed generators.

Conventional wisdom seems to favor centralization advocates. The wind industry has lobbied aggressively for more high-voltage lines to bring their turbines' power from the windy Plains to major cities. Seeing an opportunity to sell more of its product in order to balance intermittent wind resources, the natural gas industry has joined the chorus. For many, the Federal Energy Regulatory Commission seemed to be singing along with its recent Order 1000 that sets parameters for planning additional transmission corridors.

Centralization advocates, however, are not confident about their prospects. William Johnson, chairman of Progress Energy, a giant utility, frets about the flattening of electricity-demand growth as evidenced, in part, by what he calls the "very significant switch by industrial customers to distributed generation or on-site generation."

Few observers, moreover, paid attention to the FERC commissioners' actual statements associated with the release of Order 1000. According to Chairman John Wellinghoff, the new rule was designed simply as a means to allow the market to decide whether more transmission is necessary, or whether additional efficiency and distributed generation can reduce the need for such massive power-line expenditures. In fact, when asked to name the key disruptive force facing the utility industry, Wellinghoff quickly responded: "Distributed generation." The chairman went further to say one of FERC's missions is to break down the non-economic barriers to distributed generation in ways that let the market decide the most cost-effective investments.

Distributed generation may be ignored, but it already represents substantial investments. According to the Oak Ridge National Laboratory, combined heat and power (CHP) projects alone provide 12 percent of U.S. electricity, more than the output of all the wind, solar, biomass, and geothermal resources combined. By 2020, according to the lab's researchers, CHP power could equal the output of all nuclear reactors, spur more than $200 billion in new private investment in the U.S., and create up to 1 million jobs.

Distributed generators take numerous forms, although their commonality is being close to the demand for their power. Progress Energy's Johnson is most worried about combined heat and power projects at industrial facilities, yet perhaps the most rapidly growing decentralized technology is photovoltaics, the solar cells on building roofs that convert sunlight into electricity. New York Times columnist Paul Krugman recently wrote that solar electricity prices are falling so quickly utilities are unaware and unprepared to incorporate their rapid expansion. Another disruptive non-centralized force is efficiency, the potential for which, according to a growing number of studies, continues to increase. Amory Lovins in Reinventing Fire argues the U.S. by 2050 can get off oil and fossil fuels by moving to efficiency, small-scale renewables, and distributed generation.

The centralization debate first appeared in the electricity industry's early days when Thomas Edison wanted to build small power plants that would supply both heat and power to nearby customers and George Westinghouse preferred larger plants and longer wires. The pair's conflict is often referred to as the "battle of the currents" because Edison advanced low-voltage direct current while Westinghouse embraced the high-voltage alternative current that could send power over long distances. Westinghouse essentially won that battle, but the question of generator size has resurfaced today in new forms and with new players.

As technologies mature, positions and alliances taken by their advocates are changing. Solar and wind businesses, for instance, used to be aligned in their soft-path push for policies such as renewable portfolio standards, but wind lobbyists now have more in common with nuclear and other centralized-generation proponents that seek additional transmission corridors, and for someone else to pay the costs for those high-voltage lines. Wind turbine manufacturers also align with many of the nation's largest utilities, in part because some utility subsidiaries own wind farms and in part because utility planners are used to centralized generators and long-distance transmission. As a result, combatants in electricity battles increasingly line up according to the size of their generators.

The choice, of course, is not exclusive, but rather one of the right balance between centralized and disbursed. Decentralized generators certainly embrace the grid, recognizing it as an amazing machine that instantaneously balances load and demand. They want it made more intelligent, but they certainly don't want it dismantled. Their only question is how much it should be expanded.

Recent research, in fact, suggests distributed generators provide substantial – but unrewarded – benefits to the grid. Studies from Carnegie Mellon University and Massachusetts Institute of Technology show decentralized power plants can cut line losses in half by reducing the flow of active power and by providing balancing reactive power The researchers explain how each megawatt-hour of distributed generation could displace 1.2 to 1.5 megawatt-hours of centralized generation, offering a 20-50 percent benefit. Extrapolating these findings to the U.S. 80 gigawatts of strategically placed distributed generation, reduce U.S. end-user electric costs by $21 to $29 billion per year, free transmission lines to carry over 100 gigawatts more renewable energy, and avoid over 4% of CO2 emissions per year. Unfortunately, distributed generators receive no value for these benefits they provide, so worthwhile investments are avoided.

Viewed from another perspective, today's centralized paradigm wastes a lot of energy and money. Line losses along high-voltage transmission lines average 6 to 6.5 percent, but can exceed 20 percent when wires heat up and sag during peak periods. The U.S. transmission and distribution system each year loses 236 million megawatt-hours, equivalent to the annual consumption of California. With an average retail power cost of 9.8 cents per kilowatt-hour, such line losses cost $23.2 billion each and every year. As noted above, distributed generation could cut those losses in half, saving about $12 billion per year.

Despite such benefits, most utilities ardently oppose distributed generation. California Energy Commission chairman Robert Weisenmiller, while asserting CHP projects result in customer savings and greenhouse-gas reductions, described the utility policy toward cogeneration as "just say no." At a February 2012 workshop, the Commission heard horror stories from CHP developers of multiple barriers imposed by utilities. Joe Allen of Solar Turbines highlighted utilities' departing load charges that can add 2.2 cents/kilowatt-hour to the cost of a CHP project. Others pointed to standby charges, interconnection delays, and other utility-advanced disincentives that keep otherwise economic distributed-generation projects from being built.

Chevron's experience is telling. In mid-2009, the giant petrochemical company began petitioning Pacific Gas & Electric to interconnect with a 3-megawatt waste heat recovery project at its enhanced-oil facility. PG&E pushed back, forcing Chevron to scale the project down to 1 megawatt. Then the utility demanded the oil company perform an expensive systems impact study, move to a new site, provide new engineering for these interconnection points, register as a wholesale generator (which it isn't) and assume a distributed access tariff. Four years later, despite Chevron's substantial resources, interconnection barriers continue to delay the distributed-generation project that should have been providing low-cost, pollution-free power.

Part of the utility industry's resistance results from memories of being forced to purchase power from "PURPA machines." Yet most opposition occurs because utilities have no incentive (and face several disincentives) to embrace distributed generation. The current regulatory paradigm is for power companies to profit according to how much they invest in generators and wires. Having others make those investments – even if such projects improve the grid, increase economic development, and reduce pollution – cuts into utility profits … and raises their hackles.

A few utilities and policymakers are trying to reconsider the paradigm so utilities could benefit from distributed generation. Duke Energy and Senator Jeanne Shaheen (D-NH), for instance, are discussing legislation to encourage utility capital expenditures in industrial and commercial efficiency and CHP. Utilities would get to rate base (or profit from) their investments. Consumers would enjoy lower cost power than if the utility built new centralized generators and the accompanying long-distance transmission lines. States also would benefit from increased productivity of industrial and commercial customers, increasing the tax base.

The electricity business also would gain. Ever since Dwight Eisenhower occupied the White House, the average power plant's efficiency has remained stagnant at just 33 percent, an abysmal record over 50 years for any industry. As a result, three units of fuel are needed to generate just one unit of electricity. In contrast, many distributed generators, particularly those that capture both heat and power, achieve efficiencies above 80 percent. Such efficiency improvements translate into more productivity and less pollution.

As FERC considers the wisdom of new long-distance transmission lines, it has the opportunity to recalibrate today's outdated regulatory paradigm. Two key actions would be to encourage utility investments in efficiency and distributed generation as well as to reward those decentralized generators for the substantial benefits they provide to the grid.

Richard Munson leads the public affairs efforts at Recycled Energy Development. He earlier directed the Northeast-Midwest Institute and coordinated with the Northeast- Midwest House and Senate Coalitions, bipartisan caucuses that conduct policy research and draft legislation on issues pertaining to agriculture, economic development, energy, the environment, and manufacturing. Earlier in his career, the author served as secretary of the U.S. Clean Heat and Power Association, director of the Solar Lobby, director of the Center for Renewable Resources, co-coordinator of Sun Day, coordinator of the Environmental Action Foundation, and lecturer in history at the University of Michigan. His most recent book, From Edison to Enron (Praeger, 2005), recounts the history of electricity and proposes an innovation based vision for the power industry.

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