Markets are global, highly complex and dynamic. Large, well known companies can disappear or fall down quickly because they have lost touch with the markets, stopped innovating or just don’t react fast enough. Recent examples are Lehman Brothers, a generally well regarded investment bank, or AIG, the world’s largest insurer. Chrysler, GM and Ford seem to be in final decline. Chrysler consistently makes the top of the list of the worst performing cars. American and United Airlines barely keep afloat and Sun Microsystems just laid off 18% of its workforce.
Innovative companies, like Apple in Silicon Valley or Bharti in India, have highly flexible business models, nurturing ecosystems with supply chains and partnerships around the globe. They forge strong, transparent relationships with organizations and individuals outside the walls of the enterprise. Those companies understand that both their customers and suppliers expect real time information, interactions and transactions, 24 hours a day.
Being in touch with your clients. Closely monitoring competition. Strengthening links with your supply chain partners. Establishing a sense of belonging for your employees. Having real-time insight in your operations. Mining the knowledge that exists scattered around the organization. Fostering innovation. It seems that all of this is critical to run a 21st century company. Modern technology and, more importantly, modern technology management can play a key role in addressing these needs.
Actually that is not the way Information Technology is managed is at the majority of the companies. Around 80% of the IT budget is spent on just keeping the shop running. Only 20% is spent on the creation of new business functionality. Of this 20%, the majority goes to operational and administrative systems and very little is allocated to integration with clients and suppliers, knowledge management, collaboration and interaction. And these are the key success areas for a dynamic company.
IT is rapidly becoming a millstone, making adaptation to a changing environment difficult or sometimes impossible. The vast majority of the systems are gobbled together. Multiple applications support bits and pieces of the business processes. Whenever a new product needs to be introduced, the IT organization takes forever to implement the necessary changes. Let alone when a new market is entered or a company acquired. Projects are late, over budget and generally disappoint. Too many changes, too many dependencies and too much custom development are necessary for simple changes in a business process. The replacement of custom applications with large ERP packages such as SAP and Oracle hasn’t delivered any relief. These too are heavy and hard to change. As they say "implementing SAP is like pouring concrete in the foundation of your company".
Most IT organizations are poorly equipped to deal with the challenges of an agile, global company. Many CIOs still believe that they should execute everything in-house. The fact is that the majority of the IT organizations don’t have the business expertise to "design for agility". They lack the insight in major new technologies such as cloud computing, business process management and business intelligence. They are not equipped to run their systems efficiently in a secure way, 24x7 on a scalable, high bandwidth infrastructure.
IT organizations should separate operating existing systems from development of new ones. Running IT systems is an operations job with focus on flawless execution. Should you run your own IT infrastructure? Most companies don’t have the scale and expertise to do this effectively and are better off to outsource to companies like HP or IBM. Even new players like Amazon and Google are now offering low cost, high availability computing power in secure environments.
The design and implementation of new systems has to be based on deep understanding of the business processes. Expertise is required in assembly and integration rather than from scratch development. New solutions should leverage cloud computing, using services like Salesforce, Oracle-on Demand, Google Apps and Amazon AWS.
The IT organization should open up. Get close to the business. Step up collaboration with customers and partners. Invite the experts in. Establish strategic alliances to get access to deep industry and technology knowledge and tap into global delivery for flexible, low cost delivery.
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IT should get close to the business - a quote that also is applicable for HR, which as a discipline is struggling for decades now in order to find the connection with the business.
ReplyDeleteIT should be the bricks for building any new business concept - just like our kids are inventing new cars with Lego (or for the older ones: with Fisher Technic or Mecano).
The question is what kind of approach, view, methodology or technique offers the best solution to fill the gap?
Is it about the learning organization, including new ways of working together; creating knowledge exchange as an explicit task for teams; implement Japanese methods of continuous improvement; or is it just integration of HR/IT processes into the business (so: decentralize) and outsource the remaining parts?
What's the difference between the owner and workers which together form this "antiquated IT shop" and the people that - at a bigger distance from the business they serve - are operating in outsourcing provider teams?
The question is what kind of approach, view, methodology or technique offers the best solution to fill the gap?
ReplyDeleteThe Design of IT systems needs to be embedded in the business and closely related to design of business processes (incl. policies, rules etc.). For example the design of a process to enroll new customers for your services should be mapped to a technology solution. In this approach the Sales and Marketing organization has its own Business Process and Application Design Unit. The risk is of course that, if they are off on their own, Sales and Marketing's systems don't integrate with the production systems and book keeping and other systems that have product and client information. Therefore you will need a small team on the enterprise level that ensures consistent enterprise architecture, methodologies and tools. Architecture and Design should not be outsourced as this is proprietary and has a strong influence on the overall performance of the company. That doesn’t mean that you don’t support these activities with outside expertise, if this can give you new insights and benchmarks. Application testing, maintenance and infrastructure can be outsourced, if this gives the company more efficiency (lower cost, higher up time, faster response time, better security).
As to the difference between owners and workers (have you been reading Das Kapital??). At MphasiS we used to say: you don't work for the company, you are the company. Giving employees a stake in the company, but more importantly having the mechanisms, incentives and systems in place to solicit grass roots input on the company's products & services, business processes and innovation will help bridging the gap.
First three paragrapphs: excellent and intriguing. Then a paragraph that leaves me behind with questions. Why suddenly a restriction to how IT is managed? Maybe I don't follow you here. However if I leave that paragraph out, the article becomes interesting again. (The statement on SAP as concrete in your foundation I find very funny. Put in more jokes, as you do in daily life!)
ReplyDeleteFrom the next paragraph onwards, I lose track. When you end your article, that is where you seem to re-connect to your introduction: what makes a 21st century company strong and flexible. This is where I become interested again for further answers regarding the relation between modern, global organisational culture and IT strategy.
Very interesting the hyperlink to cloud computing!
ReplyDeleteI feel that your last paragraph should follow after the third one. Then after that the expolanation should follow. The first three paragraphs are concerned with how to be a modern enterprise and how to survive in the 21st century. Then IT is brought in. The connection isn't clear. The last part brings a few very short answers. Expand upon it, clarify, the questions are very intriguing, but the story isn't clear.
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