There is an interesting new twist these days on how organizations initiate, fund, and make IT spend decisions. It’s sparked by two major trends: Nicholas Carr’s 2003 Harvard Business Review article claiming that “IT doesn’t matter” and the consumerization of IT. As a result, some organizations no longer view their CIOs as responsible for generating business value through IT decisions.
Instead, increasingly the CIO’s mandate today is to take tactical steps to reduce the cost of IT. Make it run anytime, anywhere, available when and where needed. Make sure it’s compliant and highly reliable — and cheap. The cost of IT on the balance sheet or the operating statement has been creeping up past one percent to two or three and sometimes six percent of total corporate revenues. Now the mandate is to take that down by several points, and even below one percent.
More automation, increased use of private clouds and increased role of labor arbitrage combine to lower the cost. Simplification and standardization also play a prominent role in achieving cost objectives. The mass commoditized world is overwhelming the bespoke world or customized environment, and the focus is on eliminating variations and getting to one kind of server, one kind of data center, one kind of virtualization and operating system. In addition, processes are more ITIL-based, which leads to a cheaper, more reliable, more flexible environment. And it makes it easier to interact with third-party providers.
The power of the purse
This CIO mandate is growing in importance and increasingly is more prominent in CIOs’ agendas. But it comes at the expense of their desire to drive innovation and value into the business. With the consumerization of IT, the business stakeholders are taking over decisions about IT functionality and benefits, as well as how to use IT to drive value in the organization.
They grew up with technology and don’t feel they need to collaborate and partner with IT, certainly not up front. They feel very self-confident and build their own vision of how things could change.
And IT funding has shifted to the business stakeholders along with envisioning and initiating technology decisions that drive innovation and business value. The CIO’s budget is constrained or cut, whereas the business stakeholders’ budgets are now flush; they have the power of the purse.
Traditionally, organizations (through CFOs and CIOs) controlled the introduction and allocation of technology by constraining or managing costs; the point of control was through CAPEX. But in the new world with business stakeholders driving decisions, capital isn’t needed. Business users can leverage ready-made tools that are available in the cloud and through SaaS that don’t require CAPEX and also don’t need as much, or any, IT team participation to launch — making experimentation easy.
Two completely opposite markets
These shifts in influence on delivering value and control over funding create two markets within organizations, and they behave very differently from each other. Their contrasting behaviors and mindsets pose fundamental issues and create a lot of confusion for the enterprise and for the IT vendors and service providers trying to sell into the organization.
This dramatic change from the traditional ways of governing technology and IT spend are like a curveball in baseball. Depending on the grip and hand movement, a pitcher can throw a baseball with a spin so that it swerves downward and deviates to the right or left, surprising the batter and making it difficult to hit the ball. Similarly, the two differing IT markets in today’s organizations throw a curveball at senior leadership and sales/marketing teams, necessitating developing new approaches, concepts and communication about IT initiation, allocation and spend.
For example, a central IT team used to manage through traditional IT governance “gates” such as capital allocations and compliance, which facilitated the ability to look across the organization. But a world where everyone does what’s best in their own eyes poses challenges to managing IT.
There is an upside. To the business stakeholders’ credit, it is more effective to stand up a technology, see how to use it, and then understand how to change it, rather than building an elaborate requirements document up front. It facilitates understanding the nuances, consequences and organizational challenges in a much deeper, more realistic way than can happen by developing a requirements document that is, at best, an abstract vehicle.
It also plays into the idea of agile development but also goes beyond that concept by stringing together fully formed components that already exist in the marketplace. Business stakeholders can see how the components relate and see how to benefit from them; and they can easily add to them or discard them quickly. So it turns the risks of a big planning exercise into a much more measured incremental march that facilitates fully understanding the technology before fully rolling it out.
On the downside, in a world where everyone makes decisions on what is best for their own needs, it can be challenging to scale it across an entire organization at a later point. Potentially it also can create complications for the CIO’s mandated agenda to create a low-cost, highly resilient, highly compliant factory.
It isn’t that the CIO market or the business stakeholder market is right and the other market is wrong. They’re just very different. Borrowing from the claim in the days of the Roman Empire, we’re not here to bury Caesar or to praise him; it’s just a fact that Caesar was very different from Augustus.
So, we must accommodate this new phenomenon of the two markets and celebrate the benefits this brings in terms of a deeper understanding of how to use technology and achieve faster speed to impact. It will necessitate building tools and new management structures that support the inevitability of the new divergent structure. And it will necessitate a new approach and communication strategy for selling IT. In our next blog post, we’ll provide some strategies and tips for how to succeed in hitting a home run despite facing a curveball.
Photo credit: Jason Alley
As a humorist, American author Mark Twain would undoubtedly have been amused by this variant of his famous quote. But the demise of enterprise CIOs’ traditional role is real, (unlike the misreports of Twain’s passing), and to understand this phenomenon, we need to understand the evolving market dynamics.
Three key trends are significantly altering the shape, structure, and operations of today’s CIO office:
Cloud services: Unlike infrastructure, IT governance, and IT security teams, which are generally shared throughout an enterprise, large numbers of applications developers are normally aligned to specific businesses. Due to the complex labyrinth of multiple teams and decision centers, applications developers face substantial difficulties in fulfilling their business-based project sponsors’/budget holders’ demand for quick time to market.
To overcome these challenges, applications developers are increasingly adopting cloud-based infrastructure/platform-as-a-service (PaaS). This allows them to bypass the other IT teams, (e.g., security and infrastructure). By leveraging cloud services, applications developers no longer solely rely on enterprise IT’s infrastructure and operations to develop and test their applications. They can develop, test, and even host their applications on a cloud-based platform. This is causing challenges for the CIO’s office in terms of reduced involvement with businesses, security issues, and audit risks.
Software-as-a-Service (SaaS): Although it is part of the cloud ecosystem and has been in the marketplace for more than a decade, SaaS is treated as a different segment. The challenges with deploying enterprise software in the traditional manner, (e.g., ownership of licenses, hardware, support, upgrades, etc.), coupled with the significant time to deploy and the high rate of failure, are driving business to push the CIO’s office toward a “cloud first policy.” For simpler applications that do not require organizational support, (e.g., infrastructure, data, integration), businesses are more than willing to leverage the SaaS model. And to avoid getting embroiled into the complex labyrinth of organizational IT, businesses are also hiring contractors to perform specific IT-related tasks. Additionally, as businesses’ appetite to wait for months, even years, without knowing the possible outcomes of an enterprise software deployment is depleting fast, they are increasingly viewing SaaS as the solution.
Digitization and business-IT budgets: Although cloud services and SaaS are disrupting enterprise IT, the biggest challenge facing CIOs is the shift of technology budgets to the business. This typically includes initiatives such as big data analytics, multi-channel customer engagement, social media, CRM, and enterprise mobility. While the CIO’s office plays a role in these initiatives, it is fast losing decision-making powers. CEOs and CFOs are now inclined to spend technology dollars on business initiatives that generate growth, e.g., digitization. Therefore, in a boardroom battle for technology budgets, CIOs are increasingly losing against the businesses (e.g., chief marketing officers and chief digitization officers). The growing perception that digitization is for growth and IT is for efficient operations also works against the CIO’s office.
Despite the fact that a CIO’s office will always exist, there will be an increasing debate around its utility in its existing form. While the misalignment of business and IT has been an age-old debate, the cloud age has finally provided businesses with the ammunition required to change the game. Cloud services, next generation technologies, techno-savvy business users, and the pivotal role of technology in an organization’s growth are creating pressure on enterprise CIOs. They need to act fast to prove that Mark Twain was indeed right and stem reports of their death.
If you are a CIO or an IT manager interested in sharing your story, please reach out to me at email@example.com, or directly add a comment below.
Seemingly out of nowhere, users hit enterprise IT spend on its blind side. Like a blitzing 265-pound football linebacker that the quarterback doesn’t see running up behind him to tackle him, business units and end users blitzed past the IT group and rapidly adopted cloud, mobile and other next-generation IT solutions wherever and whenever they could. Like the quarterback, enterprise management had a blind side and didn’t see or block the sudden force of the “consumerization of IT” coming to barrel through the sanctioned processes of purchasing IT. This blind side play changed the IT game in a profound way and has massive implications for all players.
In football, unblocked linebackers coming up on the blind side don’t just happen; several factors are necessary to create the right conditions for this disrupting phenomenon. The same is true for the recent blitz impacting enterprise IT spend.
Over the last few years, enterprises reacted to adverse and unpredictable economic conditions by reducing overhead wherever possible. This significantly constrained CIO budgets, forcing many IT departments to decrease their expenses year on year. The tactic reduced the IT group’s ability to drive change in the business and slowed the ability to respond to business needs.
Finally balance sheets improved and companies emerged from the belt-tightening period. Eager for growth, they now look favorably on business projects with strong ROI. However, IT is still slow to address new business needs, including the IT components of these initiatives. At the same time, business leaders and end users are exposed to, indeed inundated with, a new range of easy-to-access affordable, offerings that are readily available through channels other than their enterprise IT department. Voila — the right conditions for the blitz.
Let’s first consider the implications for the business stakeholders leading the blitz. Their new buying freedom combined with the easily accessible IT components creates refreshing and sorely needed agility and flexibility. Projects that, in the past, would have advanced slowly now race ahead at an ever-increasing pace.
Instead of detailed requirement documents and unending interdisciplinary team meetings, they can conceive, launch and evaluate pilots with minimal capital and time, allowing the business to experience the technology before making significant commitments. Business stakeholders’ perspective is that management’s forgiveness is easier than gaining up-front buying permission, and IT can work after deployment to address compliance issues.
Enterprise IT groups can’t deny the new reality and must lead, follow or get out of the way of the momentum and power of user-based IT buying. They cannot stand against the strong business cases for these business-driven initiatives. Many CIOs look the other way or add a team member to the program and claim victory.
Nevertheless, CIOs and top management eventually must address the complexity these solutions will add to the enterprise. We can only hope they start preparing for it more quickly than happened with the massive disruption caused by distributed computing, which took enterprise IT a decade to untangle.
The business users’ IT spending blitz also hit the blind side of IT providers, and the implications for providers are as significant as they are for consuming enterprises. Many traditional providers of IT and IT services are troubled by the fact that they are not reaping the significant growth opportunities resulting from the new spending on cloud, mobile and other next-gen IT products that other vendors are enjoying. Why not?
New game plan for IT providers
The enterprise IT market is obviously alive and well. But there are now two distinctly different markets for next-generation IT, so IT providers must change their marketing and sales tactics.
The first market segment accounts for 75 percent of the total spend and has all the traditional ROI buying characteristics. Value is tied to objectives such as as reducing enterprise cost.
To increase their share of the second segment (currently 25 percent of next-gen IT spend), enterprise IT providers must understand that the buyers’ perception of value has changed.
Although value is still wrapped in ROI, an important new criterion is whether the solution will meet the ROI objectives in a timely manner. In addition, the business stakeholder’s confidence in the solution’s success is more important than competitive pricing. These two characteristics drive business buyers to opt for pilots to learn more about the solution before they extend their commitment.
Clearly the ROI drivers differ for buyers in these two market segments. Therefore, IT providers seeking high growth must develop different marketing messages, pricing and delivery models for each segment.
Furthermore, as both segments often exist within an enterprise, it is unlikely that the same sales personnel can successfully sell to both markets.
IT providers that want to quickly move to capture the new opportunities in next-generation IT spend will be more successful if they fully understand buyers’ changed perception of value and approach the market in this fashion.
Migration to a cloud-based contact center model offers the potential to drive hard total cost of ownership (TCO) reduction and the flexibility to rework existing business models. And both cost savings and business agility are very timely for the contact center space, as more businesses continue to shift from a protectionist, recession-minded framework to actively looking to invest in customer relationships and growth strategies.
Recent Everest Group client work has demonstrated that TCO savings enabled by migration to next generation contact centers can be in the 20-30 percent range for some organizations. These cost savings are realized through several structures. Approaching a contact center as software-as-a-service (SaaS) provides optimal call center capacity in a pay-as-you-drink model wherein there is a dynamic and continuous balance of capacity and utilization. Converting the physical capacity of call centers and server space to a paid service in the cloud allows enterprises to shift expense from capital to operational. The digital nature of cloud contact centers can also reduce telecommunications costs, transforming expensive long-distance routing into the more cost effective Voice over Internet Protocol (VoIP) solution. Additionally, cloud contact centers shift the weight of software maintenance and feature development to the vendor.
Call centers have long taken the spotlight for their cost savings potential. The last decade has seen the popularization of outsourcing call centers to lower-cost geographies that offer savings in wages and capital expenditures. More recently, the technology landscape has sufficiently evolved for the next iteration of call centers – the contact center – to emerge. The contact center is driven by next generation technology that, through data enablement, allows for the retention and improvement of traditional voice service while embracing popular emerging communications such as email, chat, and text. While companies such as Liveops, Echopass, and inContact are on the forefront of the technology change, a wide range of legacy players such as Genesys, AT&T, and Avaya are also offering mixed solutions that embrace the move to cloud.
Data enablement provides a platform for several of the key features that define next generation contact centers. The data-enabled platform offers managers new levels of transparency of their contact centers, from high-level aggregations down to real-time, item-by-item granularity. The enabling tools include recording, quality monitoring, workforce management, talent management, surveys, and analytics. For example, a recent Everest Group provider client used cloud-based tools to more accurately forecast call volume and better manage utilization rates for its customers, and consequently improved its SLAs.
The benefits to the contact center workforce are no less substantial: increased automation, workflow scripting, security, and compliance management all contribute to a reduction in errors, reduction in cost, and, ultimately, an increase in customer satisfaction. No small part of next generation contact centers is the enhanced integration of today’s multi-channel communication environment. The fragmentation of communication through voice, text, chat, emails, etc., are all captured by cloud-based contact centers and refocused into simple, manageable, and transparent modes of communication for the workforce. For example, a buy-side Everest Group client was highly incentivized to move to a next generation IT platform for its call centers because the new technology in a digital environment allowed for future development of several services previously unattainable.
Many of the cost savings associated with next generation contact centers are rooted in virtualization and the ascension to the cloud. Converting physical call centers into virtual enterprises allows for decentralization of the workforce, which in turn provides access to pools of employees previously unavailable. The same phenomenon even allows for workforce sourcing to swing back domestically while maintaining cost savings. A key benefit of the cloud model is scalability; erratic call volumes, seasonal spikes, and disaster recovery can all be handled dynamically without down-time or volume-ceilings, and the pay-per-use element allows costs to reflect actual usage.
There are, however, several caveats that should be taken into account before certain cost savings can be realized. The cost of data-enabling a workforce must be balanced against the cost savings of closing physical locations, as well as against the increased revenue realized only through data enablement. For example, Everest Group recently conducted research for an enterprise in which the cost of maintaining call centers in other countries was less expensive than data-enabling the entire workforce. As a result, the firm recommend a phased approach wherein select call center workers were data-enabled, allowing them full use of the company’s new cloud platform to capture a new revenue source.
So, how can you tell which enterprises should shift to a cloud contact center model? Those that meet the following general criteria may be able to reap substantial savings:
- Possess numerous or expensive physical call centers
- Seek potential revenue from digital-based services
- Have a highly centralized workforce
- Desire to convert capital expenses to operational expenses
It’s not all roses and sunshine in the cloud. There’s cloudwashing. Vendors don’t always deliver what the customer thought they were promised. Deployment fail. People get fired. Randy Bias, cloud iconoclast and Co-Founder & CTO of Cloudscaling, moderated the True Stories from the Cloud session at Cloud Connect Silicon Valley in April 2013. Neal Sample, CIO, Enterprise Growth at American Express, and Thomas Barton, Global Enterprise Architect at Novartis Pharmaceuticals shared with the audience their experiences with moving their organizations toward transformation through cloud technologies. In this video, Randy talks to Everest Group’s Scott Bils about challenges and value creation in the cloud.