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Charles H. Green

Charles H. Green

Posted: October 21, 2007 07:51 PM

Software Programming and the Economics of Trust vs. Transactions


In a charming blogpost, Paul Duval says that developers should "Fire your best people and reward the lazy ones."

As he explains, developer shops often consider "troubleshooters" to be among the best employees. They know where all the hard-coded quick fixes are, and they can spot them like lightning. Trouble is -- those hard-coded fixes are impenetrable to other programmers.

Troubleshooters perpetuate impenetrable coding -- because it's faster, and perhaps because they are the beneficiaries of continued arcane language.

"Lazy" developers, by contrast, are those who can't stand repetition. Every time they encounter a hard-coded arcane fix, they take the time to craft a generic solution that any future developer can understand.

One key fact: Duvals says that for every time a method is written, it's read (and maintained) ten times -- a 10:1 ratio. Suddenly, the "lazy" developer is the one reaping relationship economics for the employer; and it's the "troubleshooter" who is perpetuating a repetitive, transaction-based high cost structure.

So it is that the world of software development is a microcosm of the broader world of business relationships -- rewarding transactional behaviors in a non-transactional world.

We live in a world of incredible inter-dependence, connections, networks -- and it's moving ever-faster toward more, not less, of those connections. Yet we live by ideologies that focus on and reward transactions, not relationships.

• In software development, it's a focus on how fast the problem can be solved -- rather than on the systemic cost of solving the same problem over and over.
• In sales, it's the dominance of linear "models" that begin with a lead and end with a close -- rather than on lifetime and network-based models of business development in a sustained relationship environment.
• In investment banking, over the years it's become about how to get the deal, rather than nurture the relationship.
• In commercial banking, it's about transaction fees (e.g. overdraft charges), rather than about earnings based on assets under management.
• In mortgage banking and credit cards, it's become about penalties charges (prepayment penalties and late penalties) rather than underlying economics.
• A major aspect of the subprime mortgage debacle has been the "transactionalization" of what used to be a relationship business. Mortgages have been on the ownership dimension -- being sold repeatedly; on the risk dimension -- stripping principle from interest; and on the time dimension -- dealers in mortgage "products" increasingly get paid from transaction fees for moving on to the next step in the chain, rather than on the underlying interest paid.
• Private equity in its entirety is arguably an example of transactionalization of the corporation, though at the outset it introduced a needed jolt to stodgy bureaucracies. Of late, however, PE firms are increasingly finding earnings based on -- you guessed it -- transaction fees.

In all these arenas of business, we are seeing a structural challenge to trust. If you disrupt the relationship aspect of business in favor of approaches that are one-off, transactional, short-term in nature, you destroy the natural economics of trust.

Ironically, the long-term economics of trust far outweigh those of short-term transactionalism. But an ideology of get-in-get-out-fast has overwhelmed commonsense. The result is not only housing bubbles, but a paucity of social trust in business.

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