Supplier collaboration in ICT a poor shadow of its brick & mortar cousin!

One school of thought recommends that when advice comes free (the connotation of free advice here and through the rest of this write-up is advice volunteered and not explicitly called for, not a monetary view of free), think twice before you take it. Well, that’s what all of us were taught and that’s what most of us do. Now here is something to chew on - taking free advice is obviously not the same as implementing it blindfolded. Then what is the cost of taking free advice? It is the time you take to understand it and the time you take to evaluate it. If someone finds that far too expensive, it might be prudent to ask what they think they ought to be doing with their time.

None of us can think of an occasion when we had some funds to put aside in our personal lives and did not agree to meet up with someone who had an idea or two on where we should invest those funds to find the best returns. The more ideas, views and options, the merrier. Inexplicably, we do not wear the investor hat when carrying out business.

Just ask the people who invest on ideas if they would find the time spent listening to, digesting and evaluating an idea, worth its while. In this era of carrying out business collaboratively across multiple partner ecosystems, ideation and innovation cannot be carried out in silos. There is nothing new about that thought given that stuff like CPFR (supply chain collaboration) has been in existence for eternity and supplier (read partner) collaboration is fast catching on, right?

Yes and no! The very folks that have made collaboration a reality within business ecosystems by providing the platform and tools to make it work, and I mean the IT community, is where you would find the least partnership in ideation. I know there are a few organizations that have used their partner ecosystems in information and communication technology effectively to maximize ideation and manage their techno-commercial investments towards realization of their business goals, but these are few and far between.

In fact, there are few planned, systematic, voluntary and periodic interactions in the ICT supply chain, where ideas are sought from ICT partners on the basis of business data, challenges, issues and problems that are shared with them. Even where it exists, more often than not, this isn’t initiated where it ought to be. Even where it is, the focus is on the TCO theme and very little, if at all, focuses on the CVC (Contribution to Value Creation) theme. The appetite and intent to ideate, contribute and make a difference is there. And on either side of the stream. It’s time 'the partners' crossed the stream. It’s time they collaborated.

The cost of ideation, to the consumer of the idea, is inconsequentially disproportionate to the potential value to be derived from it! Partner collaboration provides a unique opportunity for the ICT community to drive business behavior and set examples, for a change, than just being the passive enabler. This could well be the long due impetus required in the business outcome alignment roadmap that is imperative for the next era of ICT growth.

You may also find some interesting perspectives on this theme in

http://www.pwc.com/en_GX/gx/operations-consulting-services/pdf/outsourcingcomesofage.pdf

http://isbm.smeal.psu.edu/library/articles/general-interest-articles/Supplier-Customer-Success-Stories.pdf

Note: The views expressed here and in any of my posts are my personal views and not to be construed as being shared by any organization or group that I am or have been associated with presently or in the past.

Back to Basics – the CIO rediscovered.

Those were the times! Majority of the CIO’s time and in turn, the behavior the CIOs drove within their IT organizations, was focused on the next big possibility for the business to expand. What was hitherto not possible was being made possible thanks to the advances in information and communications technology. From green-field automation for increased capacities and throughput of the business to enabling the globalization of economies and business operations, the CIO organization was a critical enabler to business growth and expansion. They did so with a never-seen-before speed to market that made mega-businesses nimble-footed and agile from strategy to execution. And in the entire scheme of things, the fact that they did so at increasingly lower costs was an added plus.

This was, arguably, the golden phase when the ICT spend of organizations leaped from the fractional existence of yore aligned to running data processing departments (some old dinosaurs would remember this) to the single-digit percentages that are the norm today.

Somewhere down the road, however, the original purpose, though not entirely lost, got sidetracked. The entire emphases started moving towards optimizing this spend. This was hardly surprising given that now the ICT spend was a meaningful percentage of the total costs of running the business and was being viewed exactly like all other business functions and processes that existed as an enabler or support function and not directly involved in the larger cause of doling out the service or product the business was meant for. Instead of being treated like a R&D, business innovation or value engineering function, the function was being likened to business enabling functions like the HCM, F&A or the MRO. In fact, in many businesses, the CIO function was being rolled up or aligned into the CFO agenda.

The CIOs and their organizations, ever so imperceptibly, started optimizing their resource supply chains to source globally, focus on TCO optimization projects that cut down cost of operations and sustenance (run the business, keep the lights on, whatever you want to call it!) and even the little bit of money that was indeed being spent on a new initiative started being in areas like governance, security, risk, compliance et al. Nothing wrong with that unless that is the only thing on your agenda! In the midst of all this, the cost of storage, processing power and communication dipped exponentially making it an extended comfort zone for optimization initiatives.

Life, proverbially as well as in reality, goes a full circle. Any bit of optimization today based on the overarching themes of the previous paragraph, and indeed the past decade and a half, would ring in infinitesimally small incremental benefits that would not sustain the interest of businesses to pump in investments with the same enthusiasm and vigor as in the past. There are some exceptional applications of those themes that still do carry the whack, especially where the order of magnitude of the requirement of those dimensions is humongous. These are in a minority in the larger context of this discussion and, well, prove the rule anyway.

This has necessitated a revisit of the objectives and the larger purpose of the CIO organization, perhaps even to the extent of a need to rechristen the function and the roles thereof. Like any change of this nature and magnitude, this will be evolutionary and may play out over a good part of this decade. But, it is inevitable. An inward focus on ICT optimization would be a self-centered and self-defeating strategy. The urgent need is to realign to the business expansion and growth agenda and what better time to embark upon it than now, when businesses and the larger world economy are at their lowest in decades.

It is a welcome ‘back to basics’ for the CIOs and my take is that the vast majority of them and their larger teams are resilient and fully capable of rediscovering their true roles. It is only their acknowledgement of this situation and urgency to act on it that will separate the boys from the men.

You may also find some interesting perspectives on this theme in

http://www.cioupdate.com/careers-and-staffing/the-cios-role-morphs-yet-again.html

http://www.techrepublic.com/blog/tech-manager/the-cio-is-dead-long-live-the-cio/1416

http://www.cio.com/article/603965/The_New_New_CIO_Role_Big_Changes_Ahead

   

Note: The views expressed here and in any of my posts are my personal views and not to be construed as being shared by any organization or group that I am or have been associated with presently or in the past.

Innovation directed at business expansion key to IT survival and growth

Current estimates of support spend as a percentage of total applications spend hover around the two-thirds or 67% mark. General opinion is that this is what the entire industry should focus on since that is where the whack is!

Much as everyone would like to spend more and more time and effort on the support space because it offers the comfort of the known paradigm, this is counter-productive in the longer term given that logically this would end up shrinking the total IT spend and consequently the industry.

Here are some interesting points to ponder…

The average application lifecycle in the era of legacy systems, by popular opinion and analyst research was in the 10 year ballpark. Contrast that with the current era of mobility applications being dumped every 3 months (admittedly a rather extreme example), the average web application being retired in the 5 year ballpark and enterprise applications going through a 7 year revamp cycle. Also taking into account the share of each of these category of applications in the overall pie, and we could realistically run with an average application lifecycle of 6 years. The next variable in this equation is the cost of development compared to the cost of maintenance of an application in its lifecycle and there is a plethora of data gathering and analysis that has happened on this with development to support cost ratios ranging from 1:1 to 1:2, the latter being for longer lifecycles and the former for the shorter ones. The current ratio of support and development spend, as reported by multiple analysts having polled more than a representative sample of buyers each, seems to be in the 2:1 range. If this ratio has to be maintained over two and a half average life-cycles (15 years down the line), all the development effort and costs would only be redirected towards rewriting what already exists!

It is a comfortable state of equilibrium, but one that folks in this business must dread. One can contest any of the numbers above (below, and everywhere in between), have their own take on what the numbers should be, but the trend and consequence does not change with the math.

This also lends itself pretty smoothly to the TCO vs CVC discussion from my previous post. The development spend has to be towards expanding the total pie and not just rearranging spends within the pie. This can happen only when most of the IT discretionary or development spend is focused towards top-line growth and not bottom-line optimization for the business. The former has non-linear and structurally far-higher returns compared to the latter and hence the overall risk is proportionately higher. At the risk of digression, I wanted to touch upon the topic of the hyperbolic reactions of stakeholders when cost optimization projects get delayed. Since these projects do not have a take-to-market element, the primary impact is in the cost reduction being delayed by the same amount of time as the project delay. This should not adversely impact the overall return on investment outlook if the returns were pegged appropriately above the hurdle rate. Anyway, this is a topic I will touch upon at a later date, but for now, suffices to understand that this category of development projects focusing on bottom-line improvement through cost optimization are at relatively lower risk levels and lower returns. In the context of the current discussion, these are spends that have fallen or will soon fall directly into the scope of the ‘law of diminishing returns’.

The world has grown at approximately 6.1% and 5.4% in the past 10 and 5 years respectively, while non-communication IT spending has grown at 5.8% and 4.8%. Gartner’s view of categorizing the spend into what is done to ‘Run’, ‘Grow’ and ‘Transform’ the business reiterates the same fact and the percentage spend in each category, 19-20% and constant for ‘Grow’, ~66% and down a couple of percentage points over the past 5 years for ‘Run’, 14-15% and up a couple of percentage points over the past 5 years for ‘Transform’, reflects an awareness, albeit slow in the IT community that the game will soon need to be changed towards innovating in the business expansion space and embarking on aggressive application development initiatives to fuel growth rather than focusing on TCO and a support optimization and consolidation model that is currently in vogue. There is a temporary blip (at least that is the way I would like to see it!) in the 2010 Capex to Opex ratio, which has come down from 3:7 (steady over 4 years) to 1:4, but I would like to see this as exactly what I called it, a temporary blip, given this was the year immediately post the worst year for the economy in recent times.

In conclusion, the IT community, now more than any other time in the past, needs to focus its energy towards finding ways and means through which business expansion happens on the back of information technology innovation and not the other way round. There are avenues to explore, both charted and uncharted. What is required is organizational resolve to invest and do so in a structured way. There is a lot to learn from the other industries which have seen many such cycles in their lifetimes. The organizations that have survived, in fact thrived, are the ones that spent their time, effort and money investing in innovation to define the future rather than fall in line with changes brought about by someone else.

   

Note: The views expressed here and in any of my posts are my personal views and not to be construed as being shared by any organization or group that I am or have been associated with presently or in the past.

Time for burial – the TCO play has run its life – enter CVC

The dominant theme of the past two decades in IT and operations services spend has been to bring down the Total Cost of Ownership. The businesses were riddled by a plethora of operational inefficiencies ranging from sub-optimal business processes and automation to an ineffective and localized human capital supply chain. While the early adopters spotted and fixed this, largely within the last decade of the 20^th century itself, the bulk of the folks got onto the bandwagon between the mid-90s to the middle of the last decade.

While there were a range of new products, services and solutions that came into the market, few focused beyond the TCO and cost optimization themes. Almost every large enterprise had their time, effort and money spent in implementation of ERP products, embarking on collaborative B2B and B2C commerce, et al. And all the while, as an aside, the cost of implementation was also being driven down through optimal sourcing leveraging the benefits of cost and labor arbitrage. Every conceivable component of ‘cost of ownership’ from people to infrastructure to application underlying the business process was optimized to achieve maximum TCO reduction. Make no mistake, this yielded some fantastic business results with actual annual budgets for many of these enterprise cost elements coming down anywhere between 10-30% and the cost of implementation anywhere between 20-50% depending on where each company was on the operational efficiency curve. Even the latest technology or service management trends being adopted like the cloud and shared services et al, merely redistribute the pie within the service providers and optimize the TCO for the buyers. Check the services spend numbers as a percentage of sales for organizations and as a percentage of GDP for the larger economy and you would know where this play is headed.

The TCO play, stark as it sounds, has run its life. It is, in fact, on life-support! The incremental benefits of this play and the effort and costs required to realize them, soon shall make no economic sense.

So what is in store? I deliberately used the preposition ‘few’ instead of ‘none’ when I referred to where, buyers and sellers alike, were focusing in the recent past. There are quite a few areas, for that matter, where technology or process investments have pushed boundaries for the business to be able to expand beyond its current boundaries. The ability to service a global consumer base 24x7 on voice or data is an example. The advent of the web as an alternative channel to take products and service to market is another. The ability to slice and dice enterprise-wide data and carry out data analysis and analytics hitherto not possible, is yet another. These are the areas where technology and operations spend has effectively ‘Contributed to Value Creation (CVC)’ for an enterprise, organization, and at a different magnitude of generalization, the world.

Again, be warned that this is a much tougher route to take. Not just because it is not a much trodden path, but also because the number of experiments and ideas that would actually translate into a viable business proposition would be dramatically lesser than the TCO play that everyone has been used to. Also, measuring CVC is not likely to be straightforward. This would mean, exactly determining the contribution of IT or process driven initiatives, to the business benefits and realized returns-on-investment by broadening the business horizon, will be much tougher than the TCO regime.

Yet, this is inevitable. This is what, in the next decade or more that unfolds, will deliver quantum benefits to the business, revive/sustain/grow business interest and investment mindshare in technology and process services. But most importantly, this will take the CIO and COO agenda of enterprises beyond budget and TCO management to the realm of driving business direction and creating business value, and the outsourcing players back to the heady days of hefty double-digit percentage growth.

Note: The views expressed here and in any of my posts are my personal views and not to be construed as being shared by any organization or group that I am or have been associated with presently or in the past.