What are the key roles and capabilities within end user IT organizations going forward? Here are my thoughts.
Lets start from the top: the ultimate mission of an IT organization is to increase the business value of the enterprise. This value is determined by maximizing the ratio of revenues to costs leading to 4 core goals for the IT-department:
- Run the Business of IT most efficiently and effectively.
- Quickly implement solutions to run the business most efficiently and effectively.
- Quickly implement solutions to grow the business.
- Offer innovations that transform the business.
These four goals are at the top level of the CIO’s generic score card, aka requirements of the business users on its supporting IT division. The picture below summarizes these requirements and some strategies to tackle the challanges in the core areas of the IT department.
Lets discuss the areas briefly.
The Applications and Technology Portfolio
Many organizations run the core of their business on systems that are very old and one usually finds 2-3 decades of technology generations all bolted together in a so called “IT-hairball”. Some common numbers of the technology and application portfolio are: tens of different databases and hardware architectures, hundreds of applications, thousands of interfaces and millions of individual dependencies in the various source codes.
Maintaining such a complex environment usually is in the area of 70-80% of the total IT-budget; and the costs are climbing as the systems get older and consume more efforts to be maintained. Thus, the remaining portion of the IT budget that is used for optimizing and transforming the business through deploying innovations is diminishing. Furthermore, the systems are too rigid to quickly implement those projects. This affects negatively all 4 goals stated at the top!
“To rationalize and modernize the application and technology portfolio to a consolidated process platform is the main strategy going forward.”
IT-architecture is a major tool to plan the transformation from the current state towards a less complex and more agile future state for the technology and application portfolio with Service Oriented Architectures as a key enabler to evolutionary replace legacy portfolios. My blog About SOA at SAP provides an overview of SAP’s capabilities in this area and in Kartik Iyengar explains how to use “Reverse Engineered xApps” or “RExApps” as a tool to retire portions of the legacy portfolio on the way to Enterprise SOA in his blog “The Architect’s World – Episode 52“.
Bottom line: There is a clear trend to source as much as possible components from vendors like SAP to establish their future architectures (see also tha last section below). Furthermore, customers will increasingly seek to reduce their technology and application vendors. SAP and Oracle are currently the only two vendors to provide both a technology platform as well as a application platform that are increasingly ready to run the context processes of many industries (I use Goeffrey Moore’s Core / Context model to distinguish between core and context). However, no single vendor will be able to provide all the necessary parts and enable all core processes, and only very few customers will lay their eggs in a single basket. Thus, the key for success for both SAP and Oracle will be to provide the context processes on a platform that attracts many other independent software vendors to innovate additional processes on top of it. Hence, customers can source from one big vendor that provides the context and other vendors that aid to fill the void of core processes.
The new perspective for IT Organizations is to manage IT like a business, or, as the IT Governance Institute constitutes in its ValIT framework: “IT investment is no longer about implementing IT solutions. It is about implementing IT-enabled change. Business value is generated by what organisations do with IT rather than by the technology itself“. ValIT is an extension to COBIT and both together address best practices in the life cycle of an IT-investment:
- Are we doing the right things – is the investment in line with our strategy?
- Are we doing them the right way – does the investment fit to our architecture?
- Are we getting them done well – do we deliver the investment most effectively and efficiently?
- Are we getting the benefits – is the value from the investment in line with our expectations?
Both the 1st and the 4th point share a business case as a main deliverable. Seagate Technology LLC’s CIO adapts a product innovation framework to help business partners visualize project lifecycle costs and make project investment decisions that optimize ROI and speed to market. The cash curve below is an example of this framework and serves as an excellent graph for the remaining discussion.
With skyrocketing oil, gas and food prices, we are facing a downturn in consumer spending and a first warning signal is a series of filed bankruptcies of retailers in the last weeks in Germany. We will face another stark IT spend control probably across many industries. Using the words of the Corporate Executive Board: “With a slowdown in economic growth…and increasing efforts to cut costs across the enterprise…CIOs are experiencing budgetary pressures…and expectations to maximize the ROI on IT spending“. The duration of the idea generation, time to market, time to volume will need to be compressed in order to get the value / volume generation as quick as possible. Usually, this leads to more “tactical projects”and a clear focus on maintaining cost structures…
Bottom line: parlez vous ROI? Our old friend spend control is visiting us again, so we better take some lessons quickly. Huge and long investments to transform legacy portfolios will be very rare. Some clients may try to borrow the cost to scale a modernization program on the back of outsourcing deals. The huge majority will probably deploy only tactical projects in the near future. Clients that have established a kernel of an Enterprise SOA, e.g. with SAP, are in a good position: they can implement tactical “Reverse Engineered xApps” or “RExApps” in line with their architecture and strategy…
The IT Organization
Lets turn to the IT Organization itself. A main trend for IT departments these days is IT-Sourcing in order to accomplish the departments strategic workforce plan and drive the organizational change. Below you see a sanitized user organization example of a strategic workforce plan (EGM = emerging and growth markets).
The plan is based on three intentions: (1) focus the internal staff on “innovating the business”, (2) increase off-shore outsourcing to run the business, and (3) increase off-shore outsourcing of existing external capacity to innovate the business.This trend is pervasive and common amongst service providers, independent software vendors and user organizations. Obviously, this is a major organizational change management task and a first step is to develop a sourcing strategy and to establish the capabilities that are necessary to source IT services and to expand on the core competencies. A very good best practice framework to accomplish this task is the the eSourcing Capability Model (eSCM) that provides standards for Client and Service Provider Organizations for IT-, Task-, and Business Process- Sourcing. Hence, the role of many internal IT Organizations is changing, and the strategy is to:
“Leverage Global Delivery, expand CORE competency and integrate Partners.”
Bottom line: The effect of this change is, that IT-Organizations within user organizations will increase their capabilities in sourcing and governing external services and Commercial off the Shelf (COTS) products like SAP, and ultimately concentrate on bridging the gap between their business units and technology providers. Thus, architects, vendor managers, service managers, project managers, and – last but not least – the business process experts, are core to such an strategy. What about developers? Writing applications from scratch is going to be a dying discipline in many client organizations, whereas Enterprise Mashups and Composite Applications will become very important to address core process white spots in the process platforms. If the developer role remains on-site, or is retained in the client organization, depends on many factors. However, it is a fact that offshore outsourcing is a fast growing market.
IT Organizations at clients are changing: architects, vendor managers, service managers, and – last but not least – the business process experts, are key roles going forward; IT-sourcing to extend internal capabilities with the global market, IT-Architecture to plan the modernization of legacy portfolios, and IT-Governance to manage IT investments are core capabilities that must be mastered.