The Evolution of Enterprise IT

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How Systems of Engagement will enable Collaborative IT to trump Shadow IT

One doesn’t have to look very far or very hard to see overwhelming evidence that key support functions ( eg: Marketing, Finance & HR ) and line of business users in major companies are bypassing the corporate IT group and going directly to outside technology vendors to purchase hardware and software resources.

  • Gartner predicts that in less than 3 years, 35% of all enterprise IT expenditures will happen outside the corporate IT budget
  • PricewaterhouseCoopers’ recent Digital IQ Survey results showed that at the 100 companies PwC ranks as “top performers,” IT controls less than 50% of the corporate technology expenditures

This rise of what is called “Shadow IT” is driven by the age old lament that “corporate IT takes too long, costs too much and never gives me what I really want.” It has received a recent boost by the emergence of software-as-a-service that allows for easy to deploy and configure applications to be installed virtually overnight.

Another forcing function to this more “direct approach” is the BYOD movement, which includes devices and collaboration tools that employees are using to enable faster and more effective communication, coordination and collaboration both within the organization and with customers, supply chain partners and other key constituents.

So some of you reading this may be saying “so what” this just seems like a better way for companies to leverage these new resources and tools to their competitive benefit. While there is a case to be made for that point of view, I think there’s a more compelling case to be made as to why this go it alone approach can result in serious consequences for the companies that allow it to spread throughout their organization.

  • The unsupervised growth of new apps and technology tools can significantly increase IT costs, infrastructure complexity and governance issues
  • CIOs are now confronted with how to incorporate these disparate resources into the company’s enterprise IT systems and platforms to enable secure and stable interfaces between systems of engagement and systems of record
  • Thus far, there is no comprehensive IT architecture model around which to plan how to design and deploy these new technology resources and tools
  • There is a lack of repeatable decision making processes and vocabulary to enable companies to make thoughtful cost/value IT expenditure trade off decisions

The Challenge for the IT Team

Enterprise IT teams are now challenged with how to build a stable and secure bridge between systems of engagement operating at the edge of the company with systems of record operating the core of the company. Allowing unfettered growth of multiple new SOES without figuring out how they can interact with SORS, will suboptimize their value in creating a strong and enduring customer engagement experience.

Bridge pictureIntroducing the Era of Collaborative IT

Instead of trying to stop or mitigate Shadow IT, I think there is an opportunity for CIOs and their senior leadership teams to introduce a new era of collaborative IT that involves the following:

Mindset change picture

This collaborative approach is designed to get all the key stakeholders at the table to talk about how to better align technology investment priorities with the critical business outcomes.

  1. How to use moments of customer engagement as a means of prioritizing future investments in systems of engagement
  2. How technology enabled innovation and tools can play a more direct role in generating new revenue and profits for the business
  3. How to work through a thoughtful cost/value set of trade offs
  4. How to ensure that the new SOEs can gain access to data and information stored in SORs in a secure and stable manner

By starting together and building a joint technology development roadmap, corporate IT and their business partners/users can collaborate to expedite solutions that maximize the ROI and competitive benefits of these critical investments.

A recent finding from IBM’s Institute for Business Value study with CIO’s and CMO’s re-enforces the scope and value of the collaborative IT model:

Key Study Finding:

“While Marketing has always been responsible for knowing the customer, now they are required to understand and respond to customers as individuals. Marketing can only do this if they can manage vast amounts of unstructured data, make sense of it with analytics, and generate insights that are predictive, not just historical – all on a massive scale.

To connect with individual customers at every touch point effectively, they need a system of engagement that maximizes value with each interaction. And they need each touch point to marry the culture of the organization with the brand to create authentic experiences that consistently deliver the brand promise. The way to achieve this unprecedented transformation is through technology.”

While many companies are putting an increased emphasis on using technology to help deliver increased competitive advantage, if this process is not carried out in a thoughtful and collaborative way I think it can cause more problems than benefits.

What do you think?

The Evolution of Enterprise IT

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How Systems of Engagement Will Transform Enterprise IT
From a Support Function to a Strategic Business Partner

 For the past 30 years, major corporations have spent trillions of dollars to fund a series of transaction systems that supported the build out of their domestic and global business model. These Systems of Record are used to carry out a series of critical business functions including:

  • Order Processing, Inventory, Supply Chain Management, Human Resources, CRM and the company’s financials

The emergence of consumer-driven, social collaboration networks is now forcing companies to understand how they can evolve their enterprise IT infrastructure and platforms to layer in Systems of Engagement to support a new business model.

At the heart of this Evolution of Enterprise IT, is the fundamental shift from the old vertically integrated, hierarchically structured business model to a new horizontally structured business network model. This shift is being driven by an increased demand for:

  • Communication, coordination and collaboration both within the organization and with customers, supply chain partners and other key stakeholders and constituents.

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A Case For Action:

The emerging reality is that every dollar invested in SOR supported systems and software produces a diluted return to the company in terms of competitive differentiation. The reason being is that 95% of the lifetime value of these investments has already been received and as such no longer deliver competitive differentiation.

By contrast, every dollar invested in SOE supported software and systems offer a much higher future revenue and profit stream because they will be the primary source of future competitive differentiation. Simply put, the sooner your company can begin to create and deliver SOE’s the sooner you can deliver both significantly greater ROI on your IT investments, as well as, competitively differentiated B2B and B2C products and services.

The BYO movement, which includes devices and collaboration tools, has crossed the chasm in most companies and CIOs are now confronted with how to incorporate them into their enterprise IT systems and platforms. Thus far, there is no comprehensive architecture model around which to plan how to design and deploy these new solutions. Currently, there is a limited talent pool to draw on for user experience design which is the cornerstone of all SOEs. Lastly, to date no enterprise vendor has stepped up to fill this void, so CIO’s and their colleagues are trying to ferret out on their own what few best practices are starting to emerge.

The Evolution of Enterprise IT:

What is ultimately at stake for CIOs is who will take the lead in defining and implementing the future enterprise IT agenda for their company. Over the last several years, there has been a significant increase in cases where support functions like Marketing and HR along with individual business units have bypassed the company’s development process and gone directly to outside technology vendors to find what they need. This has resulted in the emergence of a Shadow IT movement that has resulted in cases where enterprise IT budgets have been dramatically decreased over the past 3 -5 years while the company’s overall  technology budget has  significantly increased. This movement has not only dramatically increased the complexity and cost of integrating these new tools into the company but has also created significant governance issues over how to maintain the stability and security of the information and data contained on them.

To address this issue head on and regain leadership control of your company’s enterprise IT agenda, CIO’s and their senior leadership teams have to take the necessary steps to evolve from a cost center/support function role to becoming a full strategic business partner as the chart below illustrates. As part of this transition, the enterprise IT function needs to demonstrate how IT enabled innovation can directly drive new revenue and profits for the company. In future blogs, I will propose some specific actions to achieve that outcome.

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How Systems of Engagement Will Change the Role of Big Data From a Validation Tool to a Discovery Tool

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Many companies today have already jumped on the “Big Data Bandwagon” and have allocated substantial budgets and multiple teams to figure out how they can better utilize the data they have to improve their customer relationships and increase their competitive advantage in the markets they serve. At the heart of these efforts, is the utilization of data analytics to lower the costs, improve the efficiency and gain increased value from the company’s existing systems of record.

Systems of Record: The center point for an SOR is a data base that supports a core asset of the company such as a Supply Chain, HR, Financial or CRM system. It must be accurate, up to date and secure. As such, from a corporate governance point of view, both ingress and egress must be tightly controlled by the company.

Most companies have assigned their IT group to lead this effort and have funded new investments in IT tools and hired an army of “data scientists” to search for and document critical and relevant customer insights. The problem is that all major IT projects have historically taken a very conventional approach to data analysis that utilizes large installed systems eg: CRM to mine these mountains of data and more often than not validate pre-existing assumptions or beliefs about customer needs and behaviors. This inside out use of data analytics re-enforces a culture of validation rather than a culture of discovery.

By contrast, if a company starts with an outside in approach to data analytics then it opens up a vast new potential to use Big Data as a discovery tool that facilitates the creation and implementation of new systems of engagement. Rather than starting with the data they have, it enables employees to re-think how they use data analytics to identify and address the emerging needs and issues their customers are trying to resolve at their key moments of engagement with the company.

Systems of Engagement: The center point for an SOE is a moment of engagement with an end user or a customer where the goal is to enable and enhance a value adding experience. Such systems must be friction free, immediately accessible and emotionally as well as intellectually dimensional. Ingress and egress are basically unrestricted and controlled by the end user.

Part of what is driving the Big Data Bandwagon is that organizations have come to the realization that learning faster than their competition is the only sustainable competitive advantage they have left. As such, this now puts a premium on how they use data analytics to get that learning advantage. To date, most of the evidence suggests that companies are utilizing their current systems of record to more cost efficiently mine their existing storehouses of data to gain validation of the changing needs of their customers and the marketplace.

IBM’s Institute for Business Value Study – IBM recently conducted a study that looked at the potential for collaborative relationships between CIOs and CMOs and presented the following key finding from its research:

“While Marketing has always been responsible for knowing the customer, now they are required to understand and respond to customers as individuals. Marketing can only do this if they can manage vast amounts of unstructured data, make sense of it with analytics, and generate insights that are predictive, not just historical – all on a massive scale.

To connect with individual customers at every touch point effectively, they need a system of engagement that maximizes value with each interaction. And they need each touch point to marry the culture of the organization with the brand to create authentic experiences that consistently deliver the brand promise. The way to achieve this unprecedented transformation is through technology.”

This key finding from their study not only validates the core tenets of the evolution of enterprise IT from systems of record to systems of engagement framework but it also highlights the need for Big Data to move from a validation tool to a discovery tool.

There is some early evidence of forward thinking companies that are starting to use data analytics to create new hypotheses and discover new ways of engaging their customers.

Ford Focus Electric Car

Ford Focus Electric Car

The Ford Focus Electric Car – Their new electric car produces large quantities of data while it’s being driven and also when it’s parked. When it’s being driven, it provides the driver with information on the car’s acceleration, braking, battery charge and current location. While this is useful to the driver, the data is also sent back to Ford engineers who can learn about the owner’s driving and re-charging habits. This real time information enables Ford engineers to better understand what their electric car customers need and want so they can develop and deliver product improvements based on analyzing this real time data. Additionally, third-party vendors can use this cumulative driver data to figure out where to put additional charging stations.

Pharmaceutical companies – Many pharmaceutical companies are in the early stages of using patient information monitoring techniques to lower the cost and improve the quality of their drug trials. In the past, doctors monitored trial participants by seeing them periodically in their offices. Today, a patient can have a sensor placed on their body which captures round-the-clock real time data about their adherence to the treatment regime and the positive or negative effects of the drug. With the advent of “outcome based medicine” where insurance companies only want to pay for drugs that deliver the results they are supposed to, it is critical that drug companies have a more timely way to assess the actual impact of the drug versus its desired impact.

While the overall debate on the value and contribution Big Data can make to organizations continues to escalate, I think there is a different and more powerful discussion to be had. How can companies use data analytics as a discovery tool that will allow them to learn faster than their competition? For IT leaders to put this question on the table, they have to change their mindset away from using data analytics to improve the efficiency of their systems of record and transform it into helping them create and deliver new systems of engagement.

Are the Sands Beginning to Shift in the Software Business?

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Just before Christmas, Oracle announced its second quarter earnings which showed that revenue rose 2% against an internal forecast of between 5% and 9%. The company attributed the results to their customers delaying both software and hardware purchases. As one analyst said, “we haven’t seen a miss like this out of these guys in years.” The company’s stock price fell 9% and caused a selloff in other enterprise technology vendors such as SAP and IBM. Many speculated that this was the beginning of a category wide downturn.

Ah but wait, SAP announced their fourth quarter earnings last Friday the 13th which showed a 12% increase in revenues from software and related services. Not only did they outperform their traditional rival but their results clearly challenged the assumptions of a category wide downturn. So what’s up?

While it’s true that one quarter’s results do not make a long term trend, are we perhaps beginning to see the initial impact of what my brother, Geoffrey Moore, calls the evolution of enterprise IT from systems of record (SOR) to systems of engagement (SOE).   Here is a link [ http://technology-alliance.blip.tv/ ] to a talk he gave last year on this subject.  Some have called this the consumerization of enterprise IT but he likes to call it the “enterprization of consumer IT.” By the way, SAP has adopted this framework as its core go forward technology and product development strategy.

At the heart of this evolution is the fundamental shift from the old vertically integrated, hierarchically organized business model to the new horizontally structured, business network model driven by an increased demand for communication, coordination and collaboration. Systems of record, SOR,  were well suited to support the old vertically integrated model, but now must incorporate systems of engagement, SOE, to support the new horizontal business network model.  As this transition is still in its early stages, companies like Oracle are still almost exclusively focused on delivering software and hardware solutions that support SOR’s not SOE’s.

The emerging reality is that every dollar invested in SOR supported software produces a diluted return to a company in terms of competitive differentiation as the life time value of these investments are in the latter stages of the product life cycle adoption curve. By contrast, every dollar invested in SOE supported software offer a much higher future revenue and profit stream potential because it is in the early stage of the product adoption life cycle curve.

We are still in the very early stages of this evolution and upcoming earnings results may rebound but it just might be possible that we are seeing the start of the shifting sands in the software business. Stay tuned.

What are your observations?  Can large companies quickly embrace this shift in the market?

Peter Moore