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The C-suite challenges IT: New expectations for business value

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The advent of cloud computing, the ubiquity of smart mobile devices and the flood of data …

The advent of cloud computing, the ubiquity of smart mobile devices and the flood of data
available for analysis are creating new ways for businesses to serve their markets and enhance
their operations. To capitalise on these opportunities, companies are changing the way they use and organise technology, bringing unprecedented change to corporate IT functions, as Economist Intelligence Unit research, sponsored by Dell, demonstrates.

In late 2011 the Economist Intelligence Unit conducted a survey of 536 C-suite executives. More than one-third (36%) of respondents were CEOs and 20% were CIOs with the balance spread across other C-suite titles. This survey was global in scope, with 29% of respondents based in western Europe, 29% in North America, 28% in the Asia-Pacific region and 14% in the rest of the world. Nearly one-half (47%) of respondents came from organisations with more than US$500m in global annual revenue.
Respondents were drawn from a range of industries, including more than 50 respondents from each of the following sectors: financial services, IT, healthcare, education and professional services. This paper is based on the results of the survey and the insights from the in-depth interviews.

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  • 1. The C-suiteChallenges IT:New Expectationsfor Business ValueWritten by
  • 2. Executive summaryThe advent of cloud computing, the ubiquity of smart mobile devices and the flood of dataavailable for analysis are creating new ways for businesses to serve their markets and enhancetheir operations. To capitalise on these opportunities, companies are changing the way they useand organise technology, bringing unprecedented change to corporate IT functions, as EconomistIntelligence Unit research, sponsored by Dell, demonstrates.Key findings, based on a worldwide survey of 536 C-suite executives in late 2011 and interviewswith corporate leaders and industry experts, include the following.• Almost six in ten (57%) of the executives surveyed for this report expect their IT function to change significantly over the next three years; 12% predict a “complete overhaul”. As part of this change, 43% say their company will increasingly use IT as a commodity service to be bought as and when needed. To put this in context, consider accounting, human resources or any other business function: could any of these reasonably imagine such radical change in the next few years?• Conventional trade-offs between using IT to grow one’s business or to cut its costs need no longer apply. Respondents from companies that are focused on using their IT to grow revenue see their companies more effectively cutting costs than those from organisations that prioritise cost cutting. New opportunities in IT can offer effectiveness and cost efficiency, not merely one or the other.• One in six CIOs are only “consulted” or have no role at all when IT strategy is formulated. This means that they are implementing an IT strategy that they had scant influence developing. The marginalisation of the CIO is a choice, exacerbated by disconnects between CIOs and their C-suite peers about the value and priorities of the IT function. The situation is aggravated by a lack of confidence in CIOs: fewer than one-half of C-suite executives rate their own CIO positively in terms of understanding the business (46%) and the technical risks (44%) involved in new ways of using IT.• CIO involvement in setting business strategy appears to go hand in hand with superior financial performance. Of the 37% of respondents who say their CIO is actively involved, nearly one-half (47%) describe their company’s financial performance as superior to that of their industry peers. Of the 20% who say their CIO has no role in business strategy, only 28% say they are performing better than their peers.• Most firms want to use IT to cut their costs (38%) or improve business efficiency (42%), but there is also a clear demand for IT to add value in new ways, such as developing new products and services (22%). These endeavours may not be mutually exclusive: many companies are making improvements that not only improve efficiency but also offer new products and reduce costs.• Cloud computing, a key development facilitating these shifts, is already widely adopted. Nearly one-half of companies (47%) are using private cloud services, and even more (54%) are using cloud models to access business applications as a service. A substantial minority of companies are even using the cloud for business-critical functions (34%).• Security (51%) is executives’ primary concern with regard to cloud computing, and many firms are holding back to avoid the potential risks. Fully 43% of respondents are concerned about their reliance on a third party for their IT, and 38% are explicitly apprehensive about the reliability of available solutions. These downsides are real, but to take advantage of these opportunities, many companies are now managing to treat such hazards as just another of their many enterprise risks: something to be assessed, measured and mitigated.About the surveyIn late 2011 the Economist Intelligence Unit conducted a survey of 536 C-suite executives. More thanone-third (36%) of respondents were CEOs and 20% were CIOs with the balance spread across otherC-suite titles. This survey was global in scope, with 29% of respondents based in western Europe,29% in North America, 28% in the Asia-Pacific region and 14% in the rest of the world. Nearly one-half(47%) of respondents came from organisations with more than US$500m in global annual revenue.Respondents were drawn from a range of industries, including more than 50 respondents from eachof the following sectors: financial services, IT, healthcare, education and professional services. Thispaper is based on the results of the survey and the insights from the in-depth interviews.
  • 3. IntroductionInformation technology (IT) never stands still. The range of technical and strategic There is plenty ofoptions available to large organisations has evolved rapidly since the arrival of the first scope for firms tocorporate mainframe systems in the early 1960s. But amid that change one factor has employ IT in waysremained relatively constant: big firms have had a central IT function that controls the that really make atechnology infrastructure and makes services available to business units and employees. difference to theAlthough the trend to outsource IT services has eroded the dominance of this structure, business, whetherit still persists. But for how much longer? A confluence of new technology trends – by helping tonotably cloud computing, the inclusion of mobile consumer devices into the business develop productsenvironment and the ability to process vast data flows – may transform the way or services, improvecompanies use IT. business processes,The impact of these technology trends will not be limited to the IT function. They cut IT infrastructurecreate opportunities for companies to develop innovative products and services, to costs or someconnect with customers in new ways, and to rethink traditional business processes. combination thereof.Some firms have been quicker than others to spot the potential value in these shifts.But regardless of how they position IT in their business model, fewer than one-half ofrespondents say their use of IT drives competitive advantage for them. This suggests • The divergencethere is plenty of scope for firms to employ IT in ways that really make a difference to between CIO andtheir business, whether by helping to develop products or services, improve business C-suite thinking on theprocesses, cut IT infrastructure costs or some combination thereof. future of IT must be resolved for companiesIf companies are to benefit fully from these trends, chief information officers (CIOs) will to take advantage ofneed to play a new role or IT will change around them. The ability to change depends emerging opportunities.on IT addressing the C-suite’s core needs and doing so through a language that clearly • More effectiveexpresses the business value of technology investments. The divergence between communicationCIO and C-suite thinking on the future of IT must be resolved for companies to take within the C-suiteadvantage of emerging opportunities. is a key aspect of bridging this divide. 3
  • 4. Great expectations of ITA wave of new technologies has the potential to transform the way companies function and howthey generate business value. But because every firm is different, each should have its own ITstrategy. Some companies have made technological innovation an integral part of their businessmodel. For others, the IT function is more of an enabler, providing the infrastructure resourcesthat other departments need to create business value. Today, new technologies are creating anopportunity for businesses to rethink these traditional models, to look again at what kind of ITfunction they want and to understand the connection between technology and value generation.The ubiquity of mobile consumer devices such as smartphones and tablets is eroding the wallssurrounding the corporate IT environment and making it possible for companies to engage withstaff and customers in new ways. Increasing computing power makes it possible for companiesto glean valuable business insights from a flood of data. The volume and range of numerical • A combination ofand textual data susceptible to analysis have grown exponentially. The advent of social media cloud computing,has created new ways in which firms can engage, listen to and learn from consumers. And the mobility and big dataavailability of “on demand” computing infrastructure via the cloud is making IT resources more is changing what ITflexible and lowering the cost of computing-intensive business applications. offers business.Many of the executives surveyed for this report have spotted the potential for these technologies • The C-suite is makingto help their companies achieve their business goals. One-half say they want to improve a choice about thesecustomer service by investing in mobile innovation, for example. Three-quarters feel they would trends, even if it doesmake better decisions if they invested in data analysis tools that distilled meaningful insights from not realise it.the mass of information that flows around their business. To profit from these opportunities, theC-suite has to assess such investments in a meaningful manner. CIOs will need to communicate Tactics from a CIO:their business value, if they are to take on a wider role. • Push budgeting further down into the businessRethinking IT value so the people who payHow companies respond to new IT opportunities is influenced by whether their business is for an IT service aredriven by the need to grow revenue or to cut costs. Most firms invest in IT because they want to those who benefit fromimprove business efficiency; that is the priority for two-thirds of survey respondents. The sluggish it. This can help minimiseglobal economy will dictate IT plans for many of them: one-third say they need to shore up their costs and better alignfinances, but nearly two-thirds (63%) have a more positive outlook. They are targeting increased IT with the business.revenue and see IT investment as an important way to achieve that goal. • Encourage the “culturalGlobal Blue, a business which helps international shoppers to reclaim sales tax on their purchases, expectation” that IT staffis using technology innovation to achieve its revenue growth aspirations. The company is should play an active roledeveloping mobile applications to give consumers location-based information about shopping in growing the business.opportunities, possible savings and advice on how to reclaim taxes. Some of this could be Do not confine this tolocation-specific: one idea is to use mobile mapping to guide customers straight to the airport facilitating the effortsdesk where they can submit a sales tax claim before leaving a country. of other employees.To better seize the business potential of new information technologies, Waleed Hanafi, the CIOof Global Blue, has restructured the company’s IT function. For example, the budgeting processnow pushes IT costs further down into the business, so that the people who pay for an IT serviceare – as much as possible – the people who benefit from it. This helps to minimise costs, becausebusiness managers are reluctant to pay for services they do not need, according to Mr Hanafi.But it also means that IT investment is more likely to provide new services that business managersactually want. “Anyone in the business can propose an IT investment project now if they canshow how it will benefit what they are doing,” he says.There is a “cultural expectation” within Global Blue that IT staff will play an active role in growingthe business. Their role is not limited to facilitating the efforts of others. One reason for fosteringthis change of attitude is that today there are significantly more opportunities to use IT in waysthat enable business innovation than two years ago, according to Mr Hanafi. 4
  • 5. Innovation or cost cutting? The companies most excited by the potential of these technologies to aid business innovation are Traditional assumptions those – like Global Blue – that are focused on using IT to drive new revenue opportunities. They about the trade-off are more likely than those focused primarily on minimising costs to want their IT function to help between cost and develop new products and services, for example. However, respondents who say their company innovation have is focused on growing revenue not only expect more from IT, they actually say their IT functions are delivering more effectively across a range of key business objectives. become outdated. IT investments aimed at Understandably, companies focused on driving new revenue tend to be more effective than making the business their peers at using IT to create new products and to find new customers. They also outperform more efficient can end when it comes to improving the reliability of IT infrastructure and aligning IT with the rest of the business. Far more surprising is that respondents from these revenue-focused companies have up being innovative a more positive view of their organisations’ ability to reduce costs than those respondents that as well. primarily prioritise cost cutting. Chris Kimm, responsible for% Verizon’s networks 60% Focused on using outside the US, wants IT to cut costs% to discover better Focused on using% 50% Focused on using IT to drive revenue ways IT to cut costs that of using IT will make his business Focused on using% 40% more IT to drive revenuehe efficient, but% also wants to invest 30% in IT innovations% that could one day 20% revolutionise what the Using IT to Improving Using IT to Using IT to Aligning IT reduce costs the reliability create new find/retain with overall telecommunications 10% across the entire of IT infrastructure products/ services customers business objectives company does. “We’re organisation looking to do both 0% things at once, and Using IT to Improving Using IT to Using IT to Aligning IT reduce costs the reliability create new find/retain with overall that’s sometimes hard.” across the of IT products/ customers business entire infrastructure services objectives organisation Chart 1: Percentage of respondents who say their organisation is “effective,” or “very effective” in its use of IT across various business objectives. This suggests that traditional assumptions about the trade-off between cost and innovation in IT investments have become outdated. As the C-suite integrates these technology trends into its strategies, there are opportunities to drive down costs while increasing innovation, growth and reliability. Chris Kimm, who has global responsibility for the customer-facing network operations centres of Verizon, a telecommunications company, says it is important to strike the right balance between cost, experimentation and innovation. He wants to discover better ways of using IT that will make his business more efficient, but he also wants to invest in IT innovations that could one day revolutionise what his company does. “We’re looking to do both things at once, and that’s sometimes hard,” says Mr Kimm. An IT investment aimed at making the business more efficient can end up being innovative as well, he says. Verizon’s experience in developing its intranet is an example. The initial motivation was to cut internal communication costs, but over time the intranet has evolved into an entirely new way for staff to collaborate, says Mr Kimm. Other technologies can follow the same trajectory, he believes. Chris Nielsen, the CFO of the online retailer Zappos, says he is willing to incur higher short-term technology costs if that helps the firm to build knowledge or skills that will pay off later: “We want to be able to try things out. We don’t believe we’re at the point of just functioning on the cost side of the equation.” Trying something new is a learning process: some companies are deciding that the chance to develop their talent has a value that can keep paying dividends. 5
  • 6. Costs still matterFor other companies, the focus on cost remains paramount. Whenever Dan Morgan, the former Will this cost meCIO at a leading British business which runs hospitals and clinics, spoke to his finance chief anything?about a new way of using technology, the conversation always began in the same way. “His first For IT investments, question is: ‘Will this cost me anything?’” jokes Mr Morgan. “If I can start off by saying we’ll save this question is not money, it’s a lot easier.” going away, but theTheir business needs an effective, secure and reliable IT infrastructure, Mr Morgan explained. answers may beFinding innovative new ways of using technology in the wider business is not the company’s changing as companiesobjective. But their focus on lowering costs does not result from a lack of cash. Rather, it is a learn to deliver greaterreflection of the company’s core business strategy, which is to provide the highest levels ofclinical care while keeping their operating costs as low as possible. This determines the way they business value.approach IT investments.Their IT team is working on projects across the mobile, cloud and data spectrum. It is replacing “These technologiesa 25-year-old patient record system, developing ways of making records available on mobile are absolutelydevices, building a private cloud infrastructure and crunching data to improve the utilisation changing the way werates of its operating theatres. It is also opening up its IT systems to mobile access, so that the operate. It’s all aboutthousands of freelance medical specialists who use it can access patient records, lab tests and our ability to captureappointment schedules whenever they want to. While the focus is not IT innovation, the push forbusiness value drives change. and use knowledge. The change that we’ve seen is the workCase study: Balfour Beatty we do at both endsLeaders in business units alert to the potential uses of new technology of the spectrum. WeThe advent of cloud computing, big data analysis and mobile connectivity is changing the waythe construction and engineering company Balfour Beatty organises its business, says its chief can close the loopoperating officer, Andrew McNaughton. The company is investing in IT solutions that will turn the between operationsrelated tasks of designing, building and operating large-scale facilities into a connected, iterative and maintenanceprocess, Mr McNaughton says. back into design.”When building a hospital, for example, Balfour Beatty considers it a complex system. Thecompany gathers and analyses as many data as possible about how that system operates. – Andrew McNaughtonThis process has helped Balfour Beatty find more efficient ways of running contracts and gaining Chief Operating Officerknowledge that will enable it to design better buildings in the future. Balfour BeattyCloud and mobile technologies play an important part in the process, aiding the capture anddissemination of data and the insights the business derives from them. “The volume of data wecan gather about the performance of an asset is growing rapidly,” says Mr McNaughton. “We areworking out ways to turn that into knowledge, to manipulate it, to make it interesting.”This complex systems approach applies to other projects, such as mass transit networks, MrMcNaughton says. The company is exploring ways of using data about mobile phone-callvolumes to predict changes in traffic flows. A spike in calls, for example, might be an indicatorof a traffic snarl-up. The company can use that knowledge to change traffic-light sequencing toreduce congestion.Balfour Beatty has developed its own Building Information Management system to capture andcrunch performance data. Notably, the application was created inside an operational businessunit, not in the central IT function. “The people in the IT department are focused on deliveringinfrastructure, not generating business solutions,” says Mr McNaughton. “They are not there tolead innovation.”This is an important organisational change for Balfour Beatty, which has been pushing IT expertiseout into the business. Operating units now employ people in leadership roles who are “smartfolks, thinkers and deliverers”, according to Mr McNaughton. “What’s different now is that wehave leaders in the business units who are more alert to the potential uses of new technology.And these technologies are absolutely changing the way we operate. It’s all about our ability tocapture and use knowledge. The change that we’ve seen is the work we do at both ends of thespectrum. We can close the loop between operations and maintenance back into design.” 6
  • 7. Overcoming C-suite disconnectsTransformations in IT also open up the possibility of a more strategic role for CIOs. Adopting Can the C-suitethis role, they will be able to concentrate more on what makes a real difference to the business, empower the CIO?and less on keeping basic services up and running. One example is Chris Cook, the former CIO There are risks andof a company that provides diagnostic images for doctors. He was examining how sourcing opportunities. commodity IT infrastructure could help him to focus more effort on innovations that would helpthe business to grow. For example, the high-resolution patient scans that the company generateshave traditionally been captured on photographic film. This is expensive and limits how the scans • To merit this, thecan be stored and shared. CIO needs to communicate andThe company is moving to digital image capture, which raises new technology challenges. Someof these are specific to digital imaging, such as controlling the precise calibration of the screens deliver businessused to view images; others are generic IT issues such as how to store data securely. Mr Cook value.looked at ways of sourcing the latter on demand, so that he could focus on making sure the • One tactic is to bringbusiness excels at the former. “We want to be the best in the business at medical imaging, so we IT leaders and seniorneed to be the best in medical imaging IT.” Any other IT capability is secondary, he explained. business executivesFor some CIOs it may be difficult to refocus their efforts on the projects for which their input together: at thereally makes a difference, even if they agree it is necessary to do so. The survey shows that both board level.CIOs and C-suite executives at many organisations believe their IT function needs to changesignificantly. But they do not always agree about what the new priorities should be. For 40% ofthe C-suite, streamlining the business process is the big issue; only 28% of CIOs agree. One-third “We want to be theof CIOs, meanwhile, want IT to make product and service development a priority, but only 20% of best in the businessthe C-suite feel this is important. at medical imaging,In a period of such significant transition, organisations must work harder at keeping their senior so we need to betechnology staff connected to business leadership. One way of achieving this is to build formal the best in medicalmanagement structures that bring IT leaders and senior business executives together. Since 1999 imaging IT.”the logistics services company FedEx has had a board-level IT Oversight Committee, comprisingheavy hitters from the technology world. Its role is to appraise major IT projects and technologyarchitecture decisions and ensure that the company’s IT investments support FedEx’s business – Chris Cookobjectives and strategies. FedEx CIO Rob Carter reports to this group at every board meeting. “We former CIOuse a lot of horsepower to provide a broad understanding of technology trends and innovationopportunities in the marketplace because of the integral role that IT plays in our overall operationsand in value creation for our business,” he says.Few companies can boast such a formal connection between IT and board-level executives. Butmost respondents (81%) say their company has found a way to give the CIO a central role in theformulation of IT strategy. Just over one-half (51%) say the CIO leads the process.Yet some firms are marginalising their CIOs. A significant minority (16%) say the CIO is only“consulted” when IT strategy is formulated or that the CIO has no involvement in the process.That means one in six CIOs are implementing IT strategies that they did not determine. Evenwhere CIOs are involved, their focus is often on “back-office” efficiency rather than revenuegeneration. Two-thirds (63%) of survey respondents say the CIO plays a key or leading role indeveloping efficient business processes, with a similar percentage (67%) focused on providingreliable business information. But at present only about one-third (37%) have a key or leading rolein finding new ways of engaging with potential customers or in product and service development.This points to substantive disconnects between the CIO and the C-suite. Ideally, businessexecutives should be able to rely on their CIO for a briefing on the technical and business risksinvolved in new ways of using IT. But fewer than one-half of C-suite respondents say their CIOhas a good understanding of these risks; up to one-quarter say it is poor. There are also gapsbetween the CIOs and their C-suite colleagues about how and where IT investment could bestadd value. Moreover, CIOs and C-suite executives have very different views about whether theirIT function is aligned with business needs. Two-thirds of CIOs feel their function is well aligned;fewer than one-half of the C-suite executives feel the same way. This is a challenge to the CIO: ifyou do not recognise an alignment problem frustrating the majority of the C-suite, how can youbegin to address it? 7
  • 8. Given the intense IT changes and economic challenges, it may not be surprising if someexecutives are unsure about the way forward, and what kind of IT function they will need. Butresolving these uncertainties has positive results: organisations that fully involve their CIO in theprocess of determining strategy perform better than those that push the CIO to the sidelines.Nearly one-half (47%) of respondents who say their CIO plays a leading or key role in businessstrategy formulation (37% of the total) also highlight that their business significantly outperformsits competitors. Among the one-fifth who say their CIO has no role in business strategy, only 28%are performing better than their peers.50%45%40% Financially ahead of their competitors35% Survey respondents30%25% Devolve IT directly20% into the lines of15% the business? This strategic decision10% carries consequences: 5%0% • In a range of The leading role or a No role key player companies this is driving new businessChart 2: Financial performance sorted by CIO role in business strategy formulation. value, offering room for experimentationFrom infrastructure provision to value creation and controlling costsThere is scope for the CIO to become a strategic player, but also uncertainty about what the more effectively.priorities should be. Some CIOs have been sidelined and others empowered. If IT staff mustbetter address business needs and more firms (43%) are going to buy IT as a commodity on • There can be issuesdemand, CIOs should change their focus. Mr Kimm of Verizon suggests this could be a liberating of coherenceexperience for many IT leaders. They will be able to concentrate more on what makes a real that need to bedifference to the business, and less on keeping basic services up and running. considered beforeAnother approach to better align IT and derive the benefits of these technologies is to bring IT decentralising IT.directly into lines of business. Marketing communications agency DDB, part of the Omnicom The C-suite shouldGroup, illustrates this transition. Its IT function used to focus simply on “keeping the lights on”, weigh the risks andsays Nick Fox, its Chief Client Officer. The head of IT reported to the chief financial officer. benefits carefully.This reflected the unit’s main priority: to provide the IT services the business needed, at thelowest cost. “The creativity comesThe proliferation of new ways in which its clients can pump out advertising and marketing from the collisionmessages has changed the way DDB operates. The process of making a print, radio or TV between what can beadvertisement used to revolve around two key people: the art director and the copywriter. Butnow that DDB creates work for such a wide range of digital outlets, such as Facebook pages, done, what has beenTwitter updates and YouTube clips, technological know-how has become an essential element of done and the idea. Sothe creative process. unless you’ve got the“Digital work involves people who specialise in user experience, building sites – it’s just a much IT people around you,bigger team,” says Mr Fox. “You’ve got to have ‘the creatives’ working cheek by jowl with the it won’t happen.”people who, operationally, deal with the technology. The creativity comes from the collisionbetween what can be done, what has been done and the idea. So unless you’ve got the ITpeople and digital technologists around you, it won’t happen.” At the start of this year, to reflect – Nick Fox Chief Client Officerthe changed significance of the IT staff, the senior technology executive began reporting not to DDBthe CFO but to the chief operational officer. “IT has become an integral part of what we do,”says Mr Fox. 8
  • 9. DDB’s move reflects a wider trend. Over the next three years the pace of transformationin corporate IT functions is set to accelerate. Over one-half of respondents (57%) predict a DHL used to have“significant overhaul” of their company’s IT function, with one in eight expecting a “complete an IT function fortransformation”. Moving IT staff closer to the business can help to better align technology with each of its operatingbusiness objectives; this is a goal for one-quarter of survey respondents. divisions; they haveDHL, the parcels and logistics company which operates in 220 countries, has also organised its IT now been brokenstaff to get tech-savvy people closer to operational business managers and benefit from scale by up. Infrastructureconsolidating all infrastructure internally. Since the arrival of a new CEO three years ago, DHL has responsibilities, and thebeen investing in IT to simplify its business processes. The aim is to make it easier for customers staff who specialisedto work with the global logistics company, says Alex Pilar, IT leader in its supply chain business. in that area, wereDHL used to have an IT function for each of its operating divisions. These have now been broken moved to a centralup. Infrastructure responsibilities, and the staff who specialised in that area, were moved to a IT services function.central IT services function. Teams responsible for the development of business applications Other staff remainedremained with one of its four operating business units, but were told to work more closely with with one of its fourmanagement. Their job is to find new ways of using IT that will help DHL’s customers. operating businessDHL runs its own delivery chains, but it also outsources its skills to large clients, offering full units, but were told tosupply-chain management services. Facilitating these “customer-facing” business projects is an work more closely withimportant part of Mr Pilar’s work. Using IT investment to streamline DHL’s own business processes management. Their jobenables it to offer better services to clients, he says. For example, DHL uses sensors and packagetags to capture vast amounts of information about the items moving around its logistics network. is to find new ways ofAnalysis of these data can aid efficiency improvements. But when applied to a client’s supply using IT that will helpchain, it could become a significant source of business improvement, says Mr Pilar. DHL’s customers.Companies selling electronics, for example, waste a lot of money on recovering faulty goodsfrom customers, according to Mr Pilar. Some of these products will need to go back to thesupplier for replacement or repair, but often they could be fixed quickly at a repair centre nearerthe customer. In other cases, there is nothing wrong with the product; the problem results fromuser error and could be solved through better product documentation. Capturing and analysingdata about product returns and integrating them with logistics data would enable a company toship returned products far more efficiently, says Mr Pilar.“This information is highly valuable for clients,” affirms Mr Pilar. “But it’s been very expensive tocrunch it in the past, there is a risk of working with bad data, and the people with the skills neededto make sense of the analysis are in short supply. But I’ve got no doubt the opportunities arenow there.” 9
  • 10. Are these trends transformative?The adoption of cloud computing, the ubiquity of mobile devices and the ability to capture and • Why think of theseextract insight from massive flows of data each offer companies significant benefits. But it is often trends in isolation?where these technologies overlap that they can have the greatest impact. Their confluence canMatt Isaacs, the chief executive of Essence, a digital marketing agency, is excited about the ways drive greater value.this is changing his business. He has been sourcing basic applications as a service for over twoyears; that has helped to keep IT costs down and made it easier for staff to access files away from • Question for thethe office. But over the last nine months Essence has started to source computer processing C-suite: How can ITpower to crunch data. create effectiveness, innovation andEssence is using cloud-based, pay-as-you-go computing power to analyse the performanceof its clients’ online marketing. It gathers data from billions of website visits to work out how to efficiency?make advertising more effective. “It’s the Nirvana of marketing,” says Mr Isaacs. “Everyone knowsthat half of their advertising is a waste of money, but they don’t know which half. The analysis “The analysis EssenceEssence performs has been theoretically possible for years. But for us to invest in the hardware performs has beenand software just wouldn’t be feasible. We’d never do it.” The confluence of these trends opens theoretically possibleup new means of operating his business. for years. But for us toOur survey suggests that, for now, many companies are focused on the process aspects of cloud invest in the hardwarecomputing: they want it to lower costs (49%), improve efficiency (45%) and increase flexibility(40%). But as the cloud model matures, its impact may be more profound, says Jos White, a and software justpartner at Notion Capital, an Internet-focused venture-capital firm. “Cloud is the next megatrend,” wouldn’t be feasible.according to Mr White. “It touches all areas of technology and moves everything onto the We’d never do it.”internet. That’s a major shift in the way business works.”Stanley Young, the chief executive of NYSE Euronext’s technology arm, NYSE Technologies, – Matt Isaacssays these technologies could transform the way the financial market company operates. NYSE Chief Executive OfficerEuronext is experimenting with a cloud built exclusively for financial firms. The idea is to give Essencemedium-sized institutions access to computing capacity and trading facilities that they could notafford to build themselves, while offering top-up computing facilities to bigger companies. “It cantake a firm six months to get a server in place, due to audit and compliance rules,” says Mr Young.“That makes it hard for them to be agile and innovative.”If it becomes popular, this service could redefine the role of the stock exchange in the 21stcentury, says Mr Young. “We will still run markets, but we will be the owner and operator of amarket community. Our role as facilitator and manager will evolve,” he explains. “In some regards,it’s like going back to the traditional role a stock exchange had a couple of hundred years ago –creating a place or community where people came to trade.”Like Mr Isaacs at Essence, some of the smaller financial firms within the NYSE community aretrying out business activities which would previously have been beyond their budgets. Forexample, NYSE Euronext holds seven years of complete financial market data; firms are nowaccessing that data to test which of their experimental trading algorithms would have mademoney in the past.Whereas Essence and the NYSE are finding opportunities to combine cloud with data, FedEx isexploring its connection with a different trend: mobile. In some of its FedEx Office print outletscustomers can produce documents directly from their mobile phones. They can also havein-store access to files stored on retail cloud services, which they can download into Kinko’sspecialist applications for formatting and customisation. Using these services, customers can thenprint the resulting document in a store elsewhere, if that is more convenient. This is changing theway FedEx engages with its customers and the kinds of services it can offer. 10
  • 11. “We are using cloud services to manage content more broadly, offering things that would have “We are using cloudbeen far more difficult,” says Mr Carter of FedEx. “Our newest data centres are built on a private services to managecloud infrastructure. That gives us the ability to straddle between our own implementations andthe public cloud services that we can tap into.” content more broadly, offering things thatFedEx is also investing in the overlap between mobile devices and data analysis. It alreadyconducts detailed analysis of such things as the accuracy of package delivery and trends in would have been farcustomer shipping patterns. “We essentially know, day-to-day, the exact performance of the more difficult.”business. And we can look at that through almost every imaginable demographic,” says Mr Carter.The next step is to enable real-time data analysis. – Rob Carter“All of these package scans, all of the detail, all of the accumulation of traffic and volumes, there Chief Information Officerare new analytics technologies that can make those events available for enquiry on a real-time FedExbasis,” says Mr Carter. “As opposed to capturing that information in a database and runningqueries, we could have in-flight visibility of transactions so we can make routing changes and veryfast adjustments in the heat of battle.” If better real-time analysis shows that part of the deliverynetwork is suffering delays, for example, FedEx wants to be able to redirect planes that are alreadyin the air.“The combinations [of big data and mobile technologies] are very powerful,” says Mr Kimm fromVerizon. “We use enormous data warehouses and advanced business intelligence tools in thework we do. We’re constantly slicing and dicing data, trying to understand how to get better atso much of what we do. My understanding of the business now versus what I had two years agois just radically different. But now I’ve started putting those tools in the hands of people who arefield-deployed, giving them the chance to access them remotely.”The ubiquity of mobile devices can also enable new customer experiences. In tech-savvy SouthKorea, for example, retailer Tesco launched a trial “virtual store” in August 2011. It put photos of itsproducts on the walls of a subway station, which customers could buy simply by photographingthe relevant barcode with their phone; the products were then delivered to their homes. Sincelaunching the virtual store, Tesco’s sales using mobile devices in South Korea have increasedsubstantially, according to Richard Ballard from the company’s international corporateaffairs department. 11
  • 12. Case study: Roche - Finding out what the business needs from ITDealing with the “big data” challenge does not always involve crunching vast amounts of financialor transactional information. Increasingly, the data companies want to mine for insights areunstructured and textual. This is something that the pharmaceutical giant Roche is trying totackle. To develop effective drugs, the company needs to keep pace with the published body ofscientific work done in laboratories and universities around the world. It is developing new waysto capture this data and extract meaning from them.The amount of information involved is vast, says Bryn Roberts, Head of Informatics for thecompany’s pharmaceutical research and early development business. “Our people working indisease biology need to understand everything that’s been published on biology,” he explains.“We draw data from a lot of different sources in different formats. We have well over 25 millionscientific abstracts alone. We have to structure those data, harvest the assertions – some of whichcan appear to be contradictory – and integrate them in a way that makes semantic and scientificsense so that our researchers can ask complex questions.” This means the ability to search andquery massive amounts of data in a way that is useful for researchers.Roche also encounters big data challenges with its gene sequencing research. Its scientists willsoon create so much data in this area that the company will need completely new technologiesto capture and store them, Dr Roberts says. “We can see emerging technologies that will enableus to sequence DNA and read markers within the sequence faster than we can write the data todisc,” he explains. “There will be huge problems when you have petabytes (one thousand billionbytes) of data being generated in a very short time. How do you manage it?”Capturing such data is just part of the problem; there is also the issue of backup. This is now doneto tape, but that will not be feasible when the data sets are so large, says Dr Roberts. One optionis not to back up the data at all, but simply to keep the original DNA samples as a highly efficientand low-cost “data” storage medium, so that the data can be recreated if needed. “It could bemuch cheaper than building redundancy into the computer system,” says Dr Roberts. “That wouldbe a completely new paradigm for how we think about system design and how we managedata, and will be determined by the cost and speed of sequencing compared to the alternative ITbackup solutions.”Another option would be to use cloud resources, and this is something Roche is experimentingwith already. “Cloud is definitely an enabler for us to work with massive data sets, to have accessto very large computational machines that we otherwise wouldn’t be able to afford to build in-house. However, moving high volumes of data also has its challenges.”“Our direction, our strategy and everything we are doing is linked to supporting research anddevelopment,” Dr Roberts says. “We work in a very close partnership with the research scientists.We rely on our corporate IT colleagues to provide our commodity IT. We focus on enablingscientific decision-making.”What’s the hold up? Risks and obstaclesThe combined impact of the cloud, data and mobile technology trends may have game-changingpotential, yet some firms remain cautious. In part, this reflects need. Mr Nielsen at Zappos, forexample, believes cloud computing could play a significant role in the future of the business,but he has not invested yet. “It’s an area that’s continuing to evolve, and it’s something that we’repaying a lot of attention to,” he says. “And the cloud conversation is increasing in frequencyand importance within our IT organisation, but it’s still in the early stages.” For now, at least, thecompany has sufficient capability inside its own computing systems, he explains.At Global Blue Mr Hanafi is also keeping some of his powder dry, but for different reasons.Because the pace of change has been so rapid over the last 18 months, with storage and serversespecially, he delayed significant investments to see how the market evolves. “I want to wait aslong as possible,” he says. Likewise at Roche, Dr Roberts is experimenting with cloud but expectsto take “one to three years” before having a clear position on the extent of its value for hisR&D activities. 12
  • 13. More broadly, the main drag on cloud and mobile investment tends to be worries about security.One-half of survey respondents (51%) say this is among the top three obstacles companies How can companiesface when considering an investment in cloud. Security is an even bigger worry for mobile address security as adeployments: 67% of respondents say it is a problem. That is nearly twice the number of business risk?respondents who point to cost as a barrier. • What steps are calledIt is no surprise that firms are sensitive to the security risks associated with technology investment.Mobile and cloud deployments both move sensitive customer and business information outside for to separate thethe relative safety of the corporate IT environment. A loss of such data can be a significant perceived risks fromreputational blow, and evidence that management does not have things under control. “A lot of the actual?lawyers will focus on the legal risk, but what keeps the chief executive awake at night is worrying • What vulnerabilitiesabout what the city will feel or what the media will say,” argues Graham Hann, the London-based are already presenthead of technology at Taylor Wessing, a global law firm. but overlooked?“Security is a significant issue in financial services, but it’s perceived as well as actual,” says MrYoung at NYSE Euronext. “When customers own and can touch something physically, theyunderstandably feel more comfortable. When the technology is virtual and hosted in one of our “Security is a hugefacilities, it becomes a question of trust. Customers might say: ‘I can’t see it, I don’t own it, but I issue, but it’sknow I have complete access to it’. To help them better understand and fully utilise the benefits perceived as well asof a hosted and managed service model, you need to establish a high level of trust and a value- actual. When theyadded partnership.” own and can touchMr Pilar at DHL identifies another issue: some IT cloud providers need to “rethink their attitude” something physically,to service management. The IT outsourcing industry has developed robust standards for assuring people feel morereliability and availability, which many cloud-service providers have yet to match, he argues. MrHann agrees that the small print in many cloud contracts, for instance, especially those from comfortable. Whenproviders that do not have an enterprise-focused model, “is a bit one-sided and do not address the technology isthe risks”. Indeed, 43% of respondents from these firms cite concerns about placing reliance on a virtual, it’s a questionthird-party company for their IT needs as one of the top obstacles for adoption. Mr Hanafi agrees. of trust. ‘I can’t see it,“The problem with cloud is not security, it’s reliability,” he says, emphasising the importance I don’t own it, but Iof choosing a provider carefully. Because of these concerns, many businesses are delayinginvestments as they observe the market develop. know I have access to it’; you need toBut attitudes towards these risks are maturing, says John Winstanley, a technology partner atDeloitte, the consulting firm. Most large corporations have segmented the way they use the establish that levelcloud, for example. “They’ll have a governance structure in place so that users get the benefits of of trust.”speed and low cost, while the organisation has control over what goes into the cloud,” he says.Ultimately, these technologies carry risks that can be identified, assessed and managed just like – Stanley Youngany other business risk – with a combination of policies and controls, says Mr Winstanley. But as Chief Executivewith any risk, there is no guarantee that staff will comply with these measures. NYSE Euronext’s technology armThe key obstacles are different in the big data space. Here the main concern is the high costinvolved, cited by 59% of respondents. They also have doubts about their company’s ability toachieve the expected benefits: 47% say they are concerned about its ability to gather reliable datafor analysis, and 40% are worried about its ability to understand and apply any metrics that a moresophisticated analysis might generate.Mr Fox spends much of his time at DDB looking after clients. When it comes to a challenge suchas big data, he is clear about what he wants his IT people to provide: “I want ideas that will affectbusiness results,” he says. Data, he argues, are like crude oil. “I’m not interested in the raw material;I want refined petroleum.” So when it comes to the technology around data analysis, “I wantclever people who can help me understand data and refine them,” he explains.Even when a company does invest in more sophisticated data analysis tools, it can be hard towean people away from software they know and are comfortable with, typically MS Excel, saysMilind Khamkar, Senior Director of Information Solutions for South Asia with Sanofi, the globalhealth business. “We are always fighting Excel,” he says. The company’s finance operations usemore sophisticated data tools, but the challenge is encouraging their adoption in areas such assales and marketing. “So much data is unused,” he says. 13
  • 14. Cost and security obstacles play out differently across business sectors. Mr Cook, for example Even when a companyaimed to make medical images available on mobile consumer devices, but there are strict does invest in moreregulatory controls about the kind of screen that can be used for diagnostic purposes: it hasto be above a certain resolution and its colour palette has to be calibrated and certified to a sophisticated dataset standard. As the latter is the significant obstacle, Mr Cook has looked at ways of certifying analysis tools, it can becalibration remotely. hard to wean peopleLegal obstacles are also a major drag on Mr Hanafi’s plans to develop mobile shopping away from softwareapplications for Global Blue’s customers. He has experimented with mobile-phone platforms, they know and arebut to deliver a better experience he would like to be able to capture and store data about comfortable with. “Soa customer’s preferences and location. “The problem is, where can I store this data, even if much data is unused.”customers let me collect it?” he asks. European regulations are strict about where data can bestored geographically; the terms and conditions that customers agree to need to be legallycompliant with 39 different jurisdictions. That cost is prohibitive, Mr Hanafi says. The risk that – Milind Khamkarcustomers might perceive mobile-data capture as some kind of “creepy Big Brother” activity is Senior Directoralso a concern. “We have to be responsible about how we behave,” he says. Information Solutions for South Asia with Sanofi 14
  • 15. ConclusionMany companies see a transformation of their IT function and the role it plays in their business.“It seems like we’re on the verge of a next generation of capabilities, both in terms of how we useinformation technology within our company as well as how that technology helps us to engagewith our customers,” says Mr Nielson from Zappos.Cloud computing could not have emerged at a better time. In a tough economic climate it offersan attractive way to cut fixed costs. Most firms are experimenting with some form of cloud usage,testing whether their lingering doubts about security and reliability can be overcome.But some are doing more, using the massive computing power that the cloud can make availableto power innovation. This can take a multiplicity of forms – from digging out the nuggets of goldburied away in the ash heaps of corporate data to unlocking the secrets of DNA. The mobiletrend is important too. On a simple level, the value of business insight and knowledge increasesexponentially when it can be made easily available to whoever needs it. But the growth of mobiledevices – from consumer-owned smartphones and tablets to a “dumb” sensor attached to aparcel – is further eroding the already fragile walls that mark the boundary of the corporateIT environment.Does the combination of these forces represent a turning point for the way organisations useIT? For some, the answer is clearly yes. They are discovering ways of overcoming the traditionalframeworks for assessing a new technology’s ability to either cut costs or drive revenue: applyingthese technologies effectively can drive innovation, raise revenue and cut costs. Some companiesare only experimenting at present, working out how these technologies fit together. But manyexpect to transform their use of IT over the next three years.How fast they move will depend on their ability to negotiate a series of barriers, including sector-specific regulations, customer concerns and their own business culture. Many will also need toestablish a more harmonious relationship between their CIO and the rest of the C-suite. If they donot get that right, they will find it far harder to move forward with confidence.As your business moves forward, consider the following: • Think widely. A new wave of technology innovation has the ability to transform corporate IT functions and the fundamental ways in which businesses operate. The potential impact need not be viewed solely as the future of the IT function, but also as the direction of the wider business. • Empower your CIO. Increased access to IT infrastructure as a commodity presents an opportunity to rethink – and at times reduce – the scale and scope of the IT function. But do not confuse that with limiting the role of the CIO. This trend can liberate them to really add value. • Do not hold “the IT function” in isolation. There is no connection between the value of IT to the business and the size of the central IT function. Some of the organisations best adapting to these broader trends are moving IT leaders out into the business, so they can align more closely with the needs of the wider company. • Reconsider how the company assesses investments. We could be on the brink of a genuine inflection point in corporate IT, where the trade-off between investing in new technologies to either cut costs or drive revenue becomes redundant. Companies can achieve both. • Risk is still just risk. Organisations are concerned about the hazards associated with these technology trends, and rightly so. But their understanding of the threats is maturing: they can be identified, assessed, managed or avoided – just like any other business risk.For more information about solutions for your organisation, contact your Dell accountrepresentative or visit dell.com/services.Availability varies by country. © 2012 Dell Inc. All rights reserved.

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