Technology and Exponential Costs: MBAs Confront a Painful Online Reality

January 20, 2021

The article “When Costs Are Nonlinear, Keep It Small” addresses exponential costs in terms of technology in general. A business uses software; costs can grow exponentially. I completely agree. The author, one Jessitron, states:

When costs increase nonlinearly with delay or batch size, larger batches are not more efficient…. The changes interact, and so batching them up increases the cost of the batch by more than the cost of the change you’re adding. Batching is less efficient.

I want to use this observation to explain why online information services find themselves in a cost swamp. The consequence of the exponential demand for resources are:

  • Management needs cash and must put more pressure on sales professionals to close deals. Pressure leads to overstatement and clever workarounds. Once the deal is closed an an invoice sent, the sales professional moves on either to another company or to another customer.
  • Marketing gets the message that sales are number one, so the art history majors and former hospitality workers crank out hyperbole-stuffed messages. (Post SolarWinds check out the tone deaf pitching of security systems which failed to notice the breach. Sales are needed, and marketing is the cheerful servant of the organization.)
  • Fancy dancing with the books. The number of online companies booking business before cash arrives is probably infinitesimal, right? But there are other ways of producing money; for example, the public information about the activities of Fast Search & Transfer provide and example. Other examples are available.
  • Go back to the funders. An enthusiastic group of clear eyed, good school, sincere individuals explain to an equally clear eyed, good school, sincere individuals why money should be invested. The recipients pray for a big sale or other financial home run because repaying the money is what might be called a long shot.

These activities are often a result of the truths that Jessitron explains and illustrates with annotated drawings.

In the online world, when something goes wrong, money must be spent. The amount required is unknown until the wrong is righted. How much is a new product? Same deal. The amount of cash required is unknown, yet cash must be spent.

Exponential costs are part of the deal. The article suggests that changes be kept small; that is, changing many things increases the likelihood of problems. Problems require cash. A cycle, just not so virtuous.

Online services live with exponential costs. Thus, the online vendors have zero choice but to do the type of thinking which has created some of the more fascinating ethical, financial, political, and technical tactical minefields dotting the datasphere.

Useful paper, Jessitron. Keep it small.

Stephen E Arnold, January 20, 2021


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