September 2008
Something doesn’t quite compute.On the one hand, information technology—from computers and mobile devices to collaboration, search, social networking and user-generated content—is revolutionizing how we, as individuals, live, work and play. The new capabilities that IT has given us—the ability to work from anywhere, communicate with anyone, find any information published anywhere in the world, or even take care of mundane chores like filing taxes or buying plane tickets online—have clearly expanded what we can do in our personal lives.
On the other hand, for companies the value of IT is increasingly under debate. A popular but controversial article in Harvard Business Review a few years back declared that “IT doesn’t matter” because it does not bestow any competitive benefit on a company. A recent survey by the Society of Information Management reports that more and more CIOs are reporting to CFOs rather than CEOs, suggesting a diminished role and importance for IT at many companies.
Why this mismatch? How is it possible that the same technology that’s dramatically expanding the capabilities of individuals is being perceived as less and less strategic to companies?
To answer this question, let me turn the clock back by about a decade. With the advantage of hindsight, I see three events that may have led to this mismatch: Y2K; the recession following the dot-com bust; and the passing of the Sarbanes-Oxley Act of 2002. While these three events are unrelated, collectively they have defined the role of IT departments and CIOs in most companies by focusing their attention on standardization and control.
The standardization of hardware, software, end-user devices, processes and policies (along with the control needed to enforce those policies across a large organization) has indeed helped companies ward off the risks associated with Y2K, meet the strict new compliance requirements of Sarbanes-Oxley and deliver the cost reductions demanded by the recession. But standardization and control have also had some not-so-desirable side effects.
From a competitive standpoint, standardization around package software processes and industry best practices has reduced or eliminated IT-based differentiation vis-à-vis competitors. Internally, standardization and control have led to the imposition of one-size-fits-all (or lowest common denominator) processes and policies across different business units and different classes of users, all with very different technology needs—which, in turn, has led to a less-than-cordial relationship between IT and business. In some companies, business units routinely bypass IT departments to create what has come to be known as “shadow IT”—hardware, software and custom applications operated below the radar of the IT department.
In other words, for most companies, the aftereffect of the three events—Y2K, recession and Sarbanes-Oxley—is an IT department fixated on risk minimization and cost reduction rather than reward maximization and value creation. By contrast, individuals not rattled by these events have come to look at information technology very differently: as an enabler and value creator.
How can companies retain the gains achieved in risk and cost management over the last decade and still manage to reap benefits similar to those that individuals are getting from information technology in their private lives?
I think that a set of converging technological trends holds the answer: Eliminate technologies that are becoming commodities; empower, rather than control, front-office users and, where applicable, customers; and exploit the power of internal and external information.
Eliminating commodity technologies
Cloud computing—the ability to source a capability from anywhere through the Internet—is maturing rapidly. Today, one can buy raw hardware capabilities from Amazon or Google; almost any enterprise back-end software as a service from pure-play software-as-a-service providers such as Salesforce.com or Workday as well as from traditional software vendors like SAP and Oracle; and hosted e-mail services and hosted desktop applications (as services) from Google, Microsoft, Yahoo and others. In addition, service-oriented architecture—an integration approach based on emerging industry-wide standards called web services—is in a position to integrate software capabilities sourced from multiple providers across the Internet. (For related articles, see “Computing in the Clouds,” Outlook, May 2008, and “Eight Trends That are Redefining IT,” Outlook, September 2007.)
It’s important to understand that adopting cloud computing is not the same as resorting to traditional “my mess for less” outsourcing. Cloud-based services enable a company to convert fixed cost assets into variable cost services, paying for what it uses rather than what it owns. It gives a company the flexibility to expand or contract its IT capabilities as needed rather than plan for peak demand, and the ability to experiment with new capabilities without incurring capital costs. And, of course, cloud computing eliminates much of the operational, non-differentiating overhead associated with managing everyday IT.
Empowering users
Two sets of technological developments—“light” systems and Web 2.0—are part of the consumer Web mainstream today but grossly underexploited in enterprises.
Light systems are software applications that can be built by end users themselves. In particular, “mashups” enable users to do simple manipulation of live data from multiple sources with little or no programming.
For example, a retail store manager can get the sales data for some product—say, air conditioners—from last July (taken from an internal database), combine it with the average temperature for last July and the weather forecast for this July (both available from any number of public sources), and project the expected sales of air conditioners for this July. Thousands of user-built mashups are publicly available on the Web today (see Zillow.com for a good example), and enterprise-grade mashup development tools (from vendors such as IBM, JackBe and Serena, to name a few) are entering the market.
For companies, light systems represent two distinct types of benefits. They cater to unique, niche or idiosyncratic application needs on which, arguably, a company’s differentiation and innovation are predicated; and they free IT departments from building—or worse, refusing to build—a number of niche applications requested by various user groups with unique technology needs.
With respect to Web 2.0, it’s important to recognize that individuals today have three remarkable new capabilities that didn’t exist a few years ago: more or less ubiquitous connectivity, new means of collaboration through social networks, and the ability to generate and distribute content. However, it’s not uncommon for many companies to block employee use of social networking sites like Facebook and content-sharing sites like YouTube, or even to restrict the use of mobile e-mail to certain devices or certain classes of employees.
But a number of more enlightened companies are beginning to put these new capabilities to good use: peer-to-peer training among employees through blogs or even streamed video; open collaboration through wikis; training, recruiting or surveying customers through social networking sites such as Facebook; marketing new ideas or distributing video instruction manuals through content-sharing sites such as YouTube; encouraging employees to blog directly to customers (as a softer form of advertising); and creating communities of customers to help one another.
To be sure, all this is new and immature, and business cases can be difficult to create or justify. But given how these technologies have empowered individuals, companies need to experiment in order to figure out how they can derive value from these technologies. Unless they do so, the mismatch between the value that individuals are getting from IT and the value (or lack thereof) that companies are seeing in IT will continue or, worse, be bridged by someone else.
Exploiting the power of data
Much has been said about the massive growth of enterprise databases, data warehouses and business intelligence technologies to exploit it all. So what’s new?
Quite a bit, as it turns out. First, a major impediment to accessing data from big complex enterprise systems is being solved by not one but—get ready for this—two standards: Web services and REST.1 Second, every major technology platform vendor has acquired an analytics/business intelligence company, suggesting a much tighter integration between the data held by the platform vendor and the analytics or intelligence needed to analyze it.
Third, the dramatic increase in the amount of public information that your current employees, potential future employees, customers, customers of your competitors, competitors, employees of your competitors and so on are putting out on the Web through blogging, social networking and content-sharing sites (surely in violation of company policies—yours and your competitors’) is waiting to be mined.
And fourth, light systems and mashups will give your employees unprecedented ability to access live information and—in combination with the integration of analytics into your back-end systems—ask questions like “What’s my team’s productivity metric for today?” or “What’s the consumer sentiment about my brand this week?”
In other words, all these developments suggest that the ability to exploit both internal and external data in new ways is likely to be a reality and a significant IT-based business differentiator in the next year or two.
As I see it, there’s a growing gap between how individuals and large companies perceive, use and derive value from information technology. There may be historic reasons—Y2K, recession, Sarbanes-Oxley—to explain how the role of information technology has come to be defined in large companies. But both business executives and IT departments have to recognize that such a mismatch is not sustainable in the long run, especially when new companies in a globalizing world don’t have the same historic scars or the notion of IT as a means of standardization and risk management.
Gradually eliminating commodity technologies through cloud computing, empowering users through light systems and Web 2.0 technologies, and preparing to exploit the power of information are some obvious strategies for reclaiming what IT can do for companies. After all, the power of IT is a terrible thing to waste.
Kishore S. Swaminathan is based in Chicago.
Footnote:
1 Web services standards cater to more stringent needs such as security, revocability and long-running transactions—in other words, full-fledged SOA. REST—reducing effort in script-based testing—is a much simpler way of publishing and integrating data across multiple systems.
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