Companies, big and small are looking to information technology to drive the next wave of growth.
Peter Sondergaard, senior vice-president of research at Gartner, suggested that IT departments face the challenge of balancing four factors in their use of technologies: Cost, value, risk and innovation.
While
IT departments are still under pressure to deliver process cost
savings he adds, “the real focus is about how technology delivers value
to the
organisation, value defined as either revenue, or if it is a
public-sector
organisation, by increased service levels to citizens.”
If IT
is to deliver on this opportunity, it must be closely aligned
with an organisation’s overall business strategy. Steve Schuckenbrock,
president of Dell’s Large Enterprise business agrees: “CEOs, CFOs and
CIOs all
recognise there is zero separation between business strategy and IT
execution
today,” he says. “There is pretty much nothing you can do, from cutting
costs
across your company or growing across a company, without the enablement
of IT
in one way, shape or form.”
Given
the flat or only slightly rising IT budgets, “IT departments
need to become much more efficient and effective within their current
constraints,”
says Mr Schuckenbrock. “You have this torque in the rope between IT
teams’
ability to efficiently execute and deliver a lot more innovation to the
business within a strained environment.”
CFO’s
and CIO’s are both looking at newer technologies, such as cloud
computing, which can be deployed to reduce costs – and at improved
methodologies for delivering IT services. In particular, there is
growing
interest in applying “lean” processes to IT.
“The
CIO’s role is rapidly changing,” says Alexander Peters, a
principal analyst at Forrester Research. “The recession accelerated
this change
but the drivers – social technologies, service oriented applications
and the
cloud – are strategic and require changes beyond tactical cost-cutting.”
Mr
Peters (co-author of a report that looks at how IT departments can
apply “lean” thinking to their operations) argues that CIOs can draw on
methods
developed in fields such as manufacturing, and use them to make IT not
only
cheaper, but more effective. “Best-practice executives view lean as a
performance improvement strategy, rather than merely a cost-cutting
exercise,”
he says.
At its
heart, Mr Peters argues, “lean” is about ensuring IT is more
closely aligned to the business. This makes for more effective
technology, and
less waste. Lean thinking includes considering whether an enterprise
should
build or buy its IT infrastructure and services, moving on to newer,
more
efficient, platforms and making greater use of standardised processes.
Bringing
IT closer to the business, and ensuring it is more flexible
and responsive, are key to lean thinking. It also requires businesses
to
reconsider the way they run IT, both to cut costs and make it more
responsive.
Technologies
such as virtualisation (allowing a single computer to
host multiple “virtual” machines), server and storage consolidation
(where
those machines are run on fewer physical computers) and the shift to
cloud-based service delivery could be the means to achieve that.
In
most IT budgets, 75 or 80 per cent of what IT organisations spend
their money on is running what they have. Mr Schuckenbrock predicts
that
“everything from a desktop to the biggest of public cloud companies
will be
virtualised. What does virtualisation mean? It means not just much
better
utilisation of core hardware assets, but critically it also means
better use of
your people.” That is because at least half of the 75 to 80 per cent of
the
budget for an organisation’s IT systems is usually spent on labour. He
says
virtualisation helps companies get more value from “hard” assets such
as
facilities, storage and networks, but that it can also help make better
use of
employees. If you look at the big cloud companies they are often 10
times more
efficient than traditional data centres, he notes.
So
what is different? In a traditional data centre there are
decades-worth of technology decisions – proprietary mainframes and
infrastructures, multiple databases, storage architectures and
relatively
little virtualisation – typically about 25 per cent of servers. In
contrast,
the big cloud-based companies such as Amazon or Google use full-scale
virtualisation infrastructure and are designed for optimisation of
power and
cooling, the way people work, and use of the hardware through
virtualisation. “In
a traditional data centre you might have one administrator that
supports 30 or
40 servers, in the cloud it is one per 3,000,” says Mr Schuckenbrock.
“What
is happening is that technology is moving at such a pace that we
have to help customers absorb it faster. And they need to use that
technology
in a manner that allows that 75 to 80 per cent number to be more like
40 or 50
per cent and the other 50 per cent will be put to good use in driving
new
applications that enable the business strategy.”
Mr
Sondergaard believes chief executives have exaggerated expectations
of what IT can deliver at the moment, in part because IT teams are
still
largely focused on optimisation rather than growth and creating
business value.
But IT plays a pivotal role not just in increasing operational
excellence and
the performance of an enterprise, but also in helping drive the revenue
and
value of the company. This approach to boosting business performance is
as
important as the conventional focus on squeezing every ounce out of
operational
costs. At present, far too much IT budget is spent on keeping the
lights on and
not enough on innovation that can drive growth.
For
instance, intelligent software can integrate data and systems
across organisations. It can help businesses understand what customers
want,
optimise supply chains, manage risk more effectively and improve
profitability.
But intelligent applications that analyse all business activities from procurement and manufacturing to sales, marketing and human resources, are still relatively unusual. More commonly, data are held in electronic “silos” with little or no interconnection.
Companies often fail to understand the benefits of integrating applications across the organisation, says Lynne Munns, vice-president of Florida-based V1 Document Management. Companies have understood how much they can save in data storage and staff input costs by moving to an electronic system. But the true value is when the data are integrated with existing systems. Many companies are unaware of this, but once they realise the potential, it is like “opening the floodgates, because they are desperately looking for efficiency gains and want to be in better shape once the economy improves.”
For
example, invoices can now be submitted electronically or scanned
into one system, and budget holders can check how much they have spent
by
accessing the system online. In the past, there was a lack of
visibility – it
was very difficult to say how much money was being spent and where.
Budgets
were less well controlled, because if you can’t see that you’ve
overspent,
you’re less likely to worry about it. Now they can see exactly how much
they’ve
got left. Managers in or out of the field can now access detailed local
information that was previously buried in head office systems beyond
their
reach.
Success in such projects hinges less on software functionality than on winning commitment from the people who are going to use it. Lots of large-scale software projects fail because they are introduced at head offices by managers thinking about what makes life easy for them, not about the users.
One of
the ways CIOs and IT departments are delivering innovation is
by embracing mobility, including the latest generation of smartphones
and tablets.
“This
leads to an opportunity that we call ‘context-aware’
computing,” says Mr Sondergaard. “Once you know the
contextual positions – in this case the location, or things like the
relationship between one person and another person and the desires of
those
people when they either meet or are in proximity to something – this
allows for
the emergence of a large number of business service that will enable
companies
to increase the value they deliver to customers and to be able to
develop
product and services.”
Mr
Schuckenbrock also highlights the importance of
location-based or GPS information from mobile devices that allows
companies to
know where their assets or employees are relative to a specific event
or
transaction. “Those kinds of applications are going to drive an
enormous
increase in data requirements and server requirements and in data
centres, not
to mention the application development capacity that will be needed to
support
and maintain them,” he says.
The integration of social networking and corporate internal processes over the next decade will create the next wave of innovation in IT, predicts Mr Sondergaard.
In the future, there will be an increasing need to use intelligent software to look outside an organisation to social media. Software can trawl the web, reading between the lines of social networks such as Facebook and Twitter, and drawing on strands of web-based dialogue, to discover what customers think, how they are influencing each other, and who is talking to whom.
Being able to see this picture is like gold dust for companies, and is the natural evolution of business software.
based
on Financial Times articles:
- A
tricky balancing act: cost, risk and innovation, by Paul Taylor, 27 Oct
2010
- Business
efficiency: IT can help paint bigger picture, by Jane Bird, 27 Oct 2010
- Small spending steps can bring big productivity leaps, by Stephen Pritchard, 27 Oct 2010
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