That the landscape of business across the world has changed drastically since the financial meltdown and the worldwide recession hardly seems worth mentioning. In this article, we take a close look at what the new landscape may look like in the coming months and years to a typical CIO running the IT systems of a large enterprise.
The CIO’s world today looks like this: the IT infrastructure, including all databases and applications, reside inside the premises of the CIO’s company. Multiple vendors provide hardware, software and services to the typical business organization, with the CIO playing a key role as negotiator and arbiter between competing influences. The prized asset belongs to the CIO and is safely in the CIO’s custody: the company’s data and applications.
Pushes and pulls from several directions
When we speak of influences, we do not mean only the many competing vendors, each jostling for space in the mindshare of the CIO. The CIO also has to negotiate between his own business units, each of whom demands support and impatiently awaits new applications they consider critical to their business. At the same time, the CIO must interface with the CEO and chief financial officer to balance the company’s overall goals and stay within its financial constraints.
With the CIO’s own business units, the CIO’s negotiation takes the form of attempting to provide applications based on business justification. Applications designed to support business processes that are unique to the company will receive special attention because they have the potential to confer competitive advantage to the company. The CIO will strive to ensure that any new applications do not disrupt the company’s IT platforms or, if they do, the CIO will need to provide workarounds to manage the situation.
A Typical CIOs Business Process
A typical CIO’s business process
A typical end-to-end business process for a CIO might take the form of the following five steps:
Step No. 1: Negotiate overall IT budgets with the CEO and CFO.
Step No. 2: Decide how much of the budget to allocate to existing applications and infrastructure (much of it would have been previously committed anyway).
Step No. 3: Negotiate with business units to decide which of their business needs will get supported by new applications. In this step, there may even be a high-powered IT strategy council to deal with.
Step No. 4: Search for new vendors, vet any new vendors the business units may recommend, and issue contracts and statements of work (SOW) to selected vendors.
Step No. 5: Put in place strong project management to manage the vendors and their development and integration efforts, while ensuring minimum disruption to the existing infrastructure, the company’s governance processes and other business units’ applications.
All the time, keep interfacing with the business units to understand their changing needs and ensure they get the support they need. Until the next budget cycle, this happy state of affairs, we believe, is about to end.
What has changed?
For a start, there is no annual budget to spend. CEOs have authorized their CFOs to cut all budgets by 40 percent and make them flexible as well (that is, manage them on a monthly, not annual basis). “Do More with Less” is the watchword. It must be noted that is not pure cost cutting in the conventional sense that we are seeing now; there is also a much higher aversion to risk and much greater unwillingness to forecast too far out into an unknown future. What should the CIO do? The solution:
1. Line up all your vendors and offer them a new contract: monthly billing, pay-for-use only and 40 percent reduction overall. Will they bite?
2. One or two large vendors will be interested if the entire IT pie is made available and if they are given flexibility regarding how they will offer the IT service.
The New Order
The new order
Vendors will no longer have the license to roam the corridors of the company and interact directly with business units. The CIO will be the “gatekeeper” and no interactions will be allowed directly between the vendors and the business units. Additionally, the CIO will scrutinize each and every business application for its alleged “uniqueness”-only a few will survive the scrutiny. The rest will have to accept whatever the vendor provides and, if necessary, change the business process to adapt to the vendor’s offering.
How will the vendor respond to this requirement? In the past, the vendor’s business process would have looked like the following five steps:
Step No. 1: Work with the business units to understand their needs.
Step No. 2: Work simultaneously with the CIO to understand the CIO’s standards and safeguards (to which the vendor must always conform), testing constantly how far out the envelope can be pushed.
Step No. 3: Understand other applications that need to be connected and interfaced with.
Step No. 4: Work with the CIO to coordinate with other vendors, get access to protocols and connectors and perhaps even future road maps.
Step No. 5: Manage the deliveries as well as possible, while maintaining links with the business units to keep an eye on changing business needs and, more importantly, on further business opportunities.
Much of this will now change
Now that the vendor has license to do whatever is necessary to bring down the total cost to the CIO and come up with flexible, pay-for-use models, the vendor will transform himself into a cloud operator. The vendor will no longer have to treat each and every application vendor and database provider with the exaggerated respect due to a colleague of unknown influence with the boss.
The vendor will swiftly move as much of the data and applications onto his own cloud, the better to control it, and the better to achieve the kinds of scales he will need to cut costs the required 40 percent.
Standardization will be ruthlessly enforced. Applications will be pressed into service for more than one client organization-only the company’s data will continue to get the respect it deserves. Applications will be ruthlessly switched in and out of the cloud, entirely on cost and performance grounds. The new “cloud” vendor will work exclusively with the CIO and all other vendors will have to go through him.
The CIO Function Transformed
The CIO function transformed
With no more daily management of multiple vendors, no more watching the budget anxiously and with the IT budgets predetermined, it is now for the major vendor to figure out how to achieve a balance, not for the CIO. The CIO will operate a daily dashboard, monitor service-level agreements (SLAs) and performance of applications, and share this entirely with the vendor.
The CIO will receive a single consolidated bill at the end of the month, incorporating usage of IT applications and infrastructure that month, penalties and rewards determined by SLAs. The CIO’s focus will then shift to ensure that the internal customers use IT optimally, driving down the waste relentlessly.
At the same time, the CIO will work with them to “make do with less” while keeping eyes open to any new applications which genuinely confer competitive advantage or cost savings by reconfiguring business processes. In this new world, the CIO will end up working more closely with business units, with much better understanding of the interface between IT, operations and sources of competitive advantage in the business.
And service provider too
This is not the end of the world for application software companies-they will just need to sell to the cloud providers and not the CIO. Software service companies, who today build applications (sometimes offshore) for these application software companies, will end up providing a different set of services now-optimizing software products for the cloud, engineering them for performance, building them as quickly as older applications are jettisoned by the cloud provider, certifying them to be cloud-ready, building usage meters and dashboards, and so on. The world will not end-just change rather drastically.
Dr. Anand Deshpande is founder and CEO at Persistent Systems. Anand is responsible for overall leadership and management, and drives the sales and technology efforts. As an active member of the database community, Anand was responsible for hosting VLDB 1996 in Mumbai and ICDE 2003 in Bangalore. Anand has actively participated in program committees of various international conferences. Anand is also a member of the IEEE, IE (India), CSI and YPO. Anand is currently the co-convener for the Association of Computing Machinery (ACM) India Council, serves on the Executive Committee of MCCIA, and is the Chairman of CII, Pune zonal council. Anand has a B.Tech with honors in Computer Science and Engineering from IIT Kharagpur. Anand has a Masters in Computer Science and a Doctorate in Computer Science from Indiana University at Bloomington (USA). He can be reached at [email protected].
Dr. Ashok Korwar is a management consultant focused on helping small-to-medium companies grow to the next level. Since 2000, Ashok has been advising several companies in Chennai, most prominently Polaris Software Lab where he has been strategic advisor to the Chairman. Ashok now works with several companies in this scale in Bangalore, Pune and Delhi. Before coming to Chennai, Ashok was a Professor for ten years at IIMA (Indian Institute of Management Ahmedabad). Ashok has coordinated several management development programs, including the MEP, and served as Chairman of the MBA (PGP) program. Ashok’s book “Creating Markets Across the Globe” won the Escorts/DMA award for best management book in 1997. Ashok was a member of the Strategic Management (Business Policy), Finance, and International Management areas at IIM, Ahmedabad. Ashok is based in Pune, and holds a Ph.D. in management from UCLA and a B.Tech from IIT Mumbai. He can be reached at [email protected].