CEOs today are talking about profitable growth. The idea of profitable growth has creative tension. Companies have to be much more selective about what they invest in – and in this economy, there’s little room for error if they place the wrong bets. They also have to continue to reduce operating costs as much as possible. To balance this tension requires excellent management abilities, customer insight and flexible, responsive, lower-cost IT
The reason for this tension is that all signs point to a slow recovery as we come out of the current recession. Total world GDP is forecast at a modest 2.5% for 2010, most of that in emerging markets U.S. GDP at a paltry .8% IMF World Economic Outlook, update July 2009 http://www.imf.org/external/pubs/ft/weo/2009/update/02/index.htm
One result of this slow growth will be increased competition between your company and your competitiors for customers and sales. So the most important question CIOs should be thinking about today is how you can help your companies lower costs while innovating more quickly around changing customer and employee needs?
While there are many things companies can do to achieve profitable growth, IT is one of the most important. In fact, according to research by MIT CISR, firms that are IT Savvy are 20% more profitable than their competitors. This is because everything about business is becoming more digitized. There are five main characteristics of IT savvy companies: Senior management commmitted to using IT strategically IT is integrated into all aspects of the business Company has a culture of collaboration and of sharing data and business processes Employees are empowered with great systems and information Management learns from experience by embedding lessons of the past into its governance process If this doesn’t sound like your company today, that doesn’t mean it won’t in the future….
I highly recommend Peter Weill and Jeanne Ross’s new book “IT Savvy: What Top Executives Must Know to Go from Pain to Gain.” This is the result of their many years of excellent research, and not only is it a great read for CIOs; it makes a great gift for you business partners! http://www.amazon.com/Savvy-What-Executives-Must-Know/dp/1422181014/ref=sr_1_1?ie=UTF8&s=books&qid=1254321541&sr=8-1
To help businesses achieve profitable growth, IT has to become more operationally efficient AND enable agility and innovation. Many people think these two areas of focus are conflicting – that a leader (for example, a CIO) or an organization (for example, IT) can be good at one or the other but not both at the same time. They argue for a separation of operational IT and tech-enabled innovation. While that may be necessary in some companies,it’s certainly not an absolute.
While the ability to pat your head and rub your belly is an oversimplified metaphor for this issue, it is illustrative nonetheless. Organizations with relatively immature IT may have trouble delivering both efficiency and innovation at the same time [ Play video clips] Video 1: http://www.youtube.com/watch?v=AqCYtFP3z98 [Stop video 1 at :35] This, sadly, is what most people think IT is capable of. Video 2: http://www.youtube.com/watch?v=b2cZVfhRaMc More mature organizations, however, can be much more versatile. [Pause at :27 … restart at :57 … stop at 1:33] She makes this look easy. I believe the end game for CIOs for the next couple of years will be the ability to both run efficient operations AND help the company better understand what’s going on with customer and quickly innovate new products arournd that customer insight.
Members of the CIO Executive Council developed this model for the current and future State of the CIO. 3 types of CIO – no one just one thing (talk about three types) [CLICK] to be valuable and relevant long term, the CIOs of the future MUST move to the right in terms of how they allocate time. The majority of their focus must shift toward business strategist activities. ADVANCE BUILD SLIDE.
The dilemma in many companies: IT not currently optimized. Over the years, they’ve built up system upon system, feature upon feature, until their infrastructure looks like this. There’s useful stuff down here – the furnace, foundation, some tools. But most of this stuff is not used and never will be. It’s even worse in IT, because a lot of the unnecessary stuff is tied together. The result in most businesses is an overly complex, overly expensive, hard to manage mess.
And it’s not like CIOs don’t know this is a problem, but optimizing IT, like laying any new infrastructure, takes money. And money is scarce.
This is the kind of behavior that happens when there is competition for resources inside most organizations that lack good governance and investment models. [The photographer who took this captioned it “Homage to 'Team Work' as practiced in contemporary American corporate culture” – a cynic!] And the competition isn’t just one IT project against another, but all capital spending – is your company going to spend money on a new multi-million-dollar software package or a new warehouse or acquisition? Key competencies within IT for the next few years will include demand management, investment management, portfolio management and developing more believable business cases. Because it doesn’t have to be this way
You can find harmony. Thanks to the recession, businesses of all sizes are pursuing efficiency. And there are two ways CIOs can help: By lowering the cost of IT and by using IT to take cost out of the business. Accenture model: [see http://www.accenture.com/NR/rdonlyres/93531D78-0EEC-43BD-B57A-19F398C63749/0/Accenture_How_CIOs_Increase_IT_Capability.pdf] The first phase is rapid cost takeout, or Quick wins, low hanging fruit. A lot of this has been done, but there always seems to be more: Renogiate contracts, use power management, print services, etc. The next phase focuses on optimizing current operations: consolidating data centers, and rationalizing servers, storage and applications. This is where a lot of that tension I talked about earlier comes in for CIOs. It has to be done in a way that doesn’t get too much in the way of the imperative to get closer to customers and enable business innovation at the edge. There will always be compromise in this regard. The third stage is restructuring or redesign: the goal is to permanently reduce non-discretionary costs and increase agility through the redesign of IT processes, the operating model, IT architecture and sourcing. This includes things like Shared services Cloud computing “ Public” infrastructure
According to various surveys, the average company still spends 70% of its IT dollars on non-discretionary fixed costs. Optimization work not only reduces fixed costs; if done right, it can reduce operating complexities, making it easier to respond quickly as business conditions change. By reducing the number of computing components, CIOs can also improve service levels, because rather than having just a few people who are expert in each of hundreds of systems, the organization could have hundreds of people expert in just a few.
Reducing the fixed cost of IT is one of the great attractions of cloud computing Cloud buzz Cloud = the dynamic provisioning of IT capabilities from third parties over a network (Accenture) Or a computing paradigm where services and data reside in shared resources in scalable data centers, and those services and data are accessible by any authenticated device over the Internet. (Intel) [CLICK] Benefits include… A low cost of entry: You don’t need to buy servers or configure software; you just turn it on. This is increasingly important as orgs shift to a lower capital model for IT. Variable capacity: You can scale capability up and down as needed and only pay for what you use. Executives increasingly believe services should be bought by the drink – and that this is now possible. Data and application portability: Employees – and customers – can access the applications and data they need from any device, anywhere. http://download.intel.com/it/pdf/320566.pdf Risks, particularly around data protection, are still unclear; that’s why early adopters are starting with low-impact applications and proceeding with caution.
Intel’s strategy is to grow the cloud from the inside out – in other words, they’re building an internal cloud. In this way they get many of the benefits of cloud computing and position the company to utilize external clouds over time. They expect to selectively migrate services to external clouds as supplier offerings mature and they learn how to manage the legal barriers and other obstacles. http://download.intel.com/it/pdf/320566.pdf
Some companies will operate private clouds offering services to their business units or agencies and charging based on use. Bechtel transformed its IT department two years ago to modernize its network design and virtualize its servers and storage. The goal: new levels of efficiency – and to turn itself into a software-as-a-service provider for internal users, subcontractors and business partners. http://www.cio.com/article/453214/Cloud_Computing_to_the_Max_at_Bechtel http://www.cio.com/article/457473/The_Google_ization_of_Bechtel
State of Utah doing this in the government arena. In August, Utah announced that it was preparing a cloud offering of hosted e-mail and web applications for cities and counties within the state. http://www.govtech.com/gt/714321
Other companies are delivering an application at a time in an internal software-as-a-service model. North Carolina’s Office of Information Technology Services provides quality assurance and testing tools to agencies for a fee through a Web-based SaaS delivery model.The SQA software is owned by ITS, and state agencies rent it to test their own applications. According to Public CIO, the state saved ~ $30 million in upfront costs. Groupe Danone is running its global ERP this way SAP http://www.govtech.com/pcio/articles/693860
Some of the preliminary steps for organizations to become cloud-ready are the same things you’d do to optimize your operations anyway: Consolidate data centers and virtualize servers, storage and desktops. Not simple, not inexpensive – therefore critical to do thorough cost/benefit analysis and build this into the larger plan of where your company is going. Bechtel justified its transformation on the basis of benchmarks with internet businesses like Amazon, YouTube and Google. For example, they estimated that YouTube spent between $10 and $15 per megabit for bandwidth, while Bechtel was spending $500 per megabit for its Internet-based VPN. You can gain the benefits of some cloud offerings more easily. For example, Genentech has 18,000 accounts on Google apps. Everyone’s on calendar; 2000 on gmail. And many colleges and universities and an increasing number of large government entities are moving to Google apps as well. It’s easier for smaller organizations to jump into some kind of cloud computing, and software as a service is further along than infrastructure offerings. While 29% of companies in a variety of industries and of various sizes are currently using some degree of software as a service, only 5% of large companies in a separate study had used cloud computing for infrastructure. CIO Cloud Computing Survey, June 2009 Forrester’s The State Of Emerging Enterprise Hardware Trends: 2008 To 2009
IT has a critical role to play in most aspects of business innovation today.
Why? Digitization…. Accenture: the fundamental transformation of some core element of your business – not just the product but how you create, store, market and distribute it – due to the embedding of digital information in the product – think of GM’s OnStar or Amazon’s Kindle. This is being accelerated by what Cisco calls hyper-connectivity. In a white paper called Hyperconnectivity and the Approaching Zettabyte Era, they describe how this trend is being fueled by four things: the growing penetration of high-speed broadband the expansion of digital screen surface area and resolution the proliferation of network-enabled devices the increases in the power and speed of computing devices. Implications are huge: Examples (LifeFitness, Prius) http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/VNI_Hyperconnectivity_WP.html
Increasingly, IT will be developing for a full-functioning internet-based mobile world Todd Pierce, Genentech, 30 apps, including SAP shopping cart [http://lundbergmedia.com]
Next generation web MIT Sloan School of Management study: Companies that could adapt the content and engagement experience of their web sites based on individual visitors’ unique information needs and cognititve styles could increase sales up to 20%. What does it take to do that? Who knows that best in most organizations today? Marketing or the CIO? Multivariate testing and responding in real time Applied analytics
The web is different from traditional IT Where IT has been very structured and linear, developing for the web has to be much more agile, serving a more demanding, less captive and, frankly, higher-stakes audience. This requires different development, delivery and operating models.
IS will also have to reach out beyond its own walls like never before to: New and existing customers – global and extremely diverse Emerging markets Gen Y Experiment now. Also have to reach out to product development and marketing colleagues and learn how to work as a team
Social media – changing business operations both inside and outside the org
Forrester’s forecasts show strong and steady growth over the next four years, with total Web 2.0 spending expected to reach $4.6 billion by 2013 Social networking, mashups, and RSS.
IBM was one of first companies to roll out enterprise-wide internal social networking. Started with corporate intranet, IBM’s Blue Pages, for knowledge sharing and collaboration. This iteration was fairly basic, with e-mail, phone, basic info, nice picture of Roo Reynolds, IBM’s metaverse evangelist, who created the next three slides.
next iteration goes much further. People connecting to each other Employees tag themselves – and others can tag them too Roo says he would never have filled in a skills profile the way other people have tagged him. Can’t always anticipate what’s relevant to other people. Keeps connections – e.g., a person may move on from working on a particular project, by tagging, can refer people to others who work on it now
IBM’s system lets employees take a defined group and view the profile pages of the individual members. It creates mashups, maps of where people are – you can drill into a particular community or subject area and see who’s working in those areas. Networking diagram - who you know that knows somebody who knows somebody who knows something relevant useful if you’re looking for a subject matter expert or looking to influence someone you don’t have a direct relationship with Many other companies getting into this now. Sabretown Genepool Rspace Companies are finding that, in combination with unified communications tools and “presence,” social tools are a way to “collapse” the organization – to achieve the speed and knowledge sharing of a small organization on a large scale, and to create a sense of engagement and personal investment among employees. The great news is there are so many different tools available to do this, and the barriers to entry are low. IBM Lotus MS Sharepoint to… Jive SocialText http://www.socialnetworkingwatch.com/2009/01/
Three things to do now Simplify your environment. Start cleaning out the excess cost and complexity of your IT basement, and do it within an architectural framework of simplicity, flexibility, speed & a lighter capital model moving forward. This is important for both cost reduction and innovation. Be a co-owner with your business colleagues; make sure they’re committed to the strategic use of IT, and collaborate with them around that. Your company will be much stronger and more successful if you do. This won’t happen just by being nice – you’ll need to develop good governance processes and become a black belt in business cases and portfolio and demand management. Make the “I” in CIO count. Digital information is increasingly at the heart of new products and the way they’re delivered. You have to decide now whether you and your organization are going to be a part of that innovation or not.
The Demanding State of I.T.
The Demanding State of IT
How CIOs can help their companies grow profitably in a slow economic recovery Abbie Lundberg, Lundberg Media Former Editor in Chief, CIO Magazine
Morphing your web site to
match the needs & styles of individual visitors can increase sales by almost 20% “ Web Site Morphing,” by Glen L. Urban, John R. Hauser, Guilherme Liberali, Michael Braun and Fareena Sultan, MIT Sloan School of Management