Richard Fung is currently enjoying what he calls the “post-retirement” stage of his career. An IT industry veteran with nearly 35 years of experience, Fung has witnessed many changes, including the incredible boom in the late 1990s – and the subsequent bust.
Recently, the contractor, who’s currently a manager of development and maintenance at the Ontario Ministry of Health and Long Term Care, has noticed a surge in the number of CEOs and CFOs who are becoming fed up with uncertain IT costs. As a result, they’re taking a more active interest in software buying decisions – in particular those that affect all areas of the enterprise. Some are even beginning to question why they ever took a back seat to their IT managers in the first place.
Fung, for one, says he doesn’t blame them. “The IT guys are technocrats,” he said. “They don’t have real business sense. Half the guys don’t even know how to read a balance sheet.”
What this means for the future of the IT department is clear, he added. “We are past the plateau. We are in the downstream now. (IT departments) are going to have to operate at 10 times the performance at one-tenth of the cost.”
He’s not the only one who’s noticing the changing landscape. One expert says the software vendor-IT department dynamic, as it’s known today, may not be around for much longer. “We’re in a prolonged period of fundamental change in the software market,” confirmed Bruce Richardson, analyst with AMR Research Inc. in Cambridge, Mass. And with those changes comes the potential for far-reaching changes.
The Ultimate Challenge?
That the IT department is a continually evolving entity isn’t news. In the early ’90s the mantra was “replace the mainframe,” which gave rise to client-server computing. That was followed by a rush to the Internet and Web-based computing. Next came Y2K, and the frenzied pace of buying it necessitated. But as experts note, in each case, IT faced a common and well-understood challenge, one that companies could literally spend their way out of.
But IT no longer faces such a challenge. True, many Western nations are grappling with more stringent financial reporting regulations in the wake of corporate accounting scandals, such as the Sarbanes-Oxley Act in the U.S., and an increased focus on security. But that doesn’t change the fact that, in the words of IBM Corp.’s Irving Wladawsky-Berger, general manager of e-business on demand, “in the heat of passion, (companies) bought a lot more technology than they knew what to do with.” Executives are also reacting against failed implementations of the past – something they’re determined to avoid in the future. That, combined with what PeopleSoft president and CEO Craig Conway recently called “the most challenging economy of our lifetimes,” increasing globalized competition and increasing savviness among business executives when it comes to IT – “they’re reading the right magazines,” joked Alison Wheeler, country manager for J.D. Edwards Canada – is leading to more business-side scrutiny of software procurement.
At the same time, companies now have a variety of IT cash saving options at their disposal – options they’re no longer afraid to exercise. The pros and cons of outsourcing are now clearly understood. And the number of development and maintenance jobs being exported to offshore centres, such as those in India or Eastern Europe, are increasing.
That’s not to say that IT executives don’t have a very big say in projects, and the domain of networks, servers and other infrastructure is still entirely theirs. But when it comes to enterprise software today, according to Wheeler, “business is in the driver’s seat.” The role of the IT manager in these projects is now one of consultation, support and recommendation – a major change from five years ago.
The bottom line is that companies will no longer gamble on big software projects with uncertain ROI. “The overall tone of the industry has just become so conservative,” Richardson said. “It’s going to be less about software and more about business processes and strategies.”
Conscious of the shifting fortunes, and watching as their pitches more often make their way to the CEO’s desk, software vendors are focusing their efforts on the boardroom executives, and telling them what they want to hear: that their software will be easier to roll out, integrate and maintain. Earlier this month, Pleasanton, Calif.-based PeopleSoft Inc. held its third annual Leadership Summit in Las Vegas, an invitation-only event aimed at senior business and public sector officials, where the emphasis is on running a business, not integrating software.
In his keynote address, Conway tried to relate to his audience by talking about how his company is responding to difficult economic conditions. Specifically, Conway outlined his total ownership experience initiative, designed to build business processes directly into the software, give it plug-and-play functionality out of the box and build it in such a way that upgrades don’t require system shutdowns. He admitted that enterprise software today “involves too many people” to roll out and maintain. That’s why he’s put his company on a course to build business processes directly into the software, add intelligent probes to monitor performance and build his products in such a way that they can be installed without having to shut systems down.
“That’s how PeopleSoft can drive down the cost of enterprise software,” Conway said.
It’s a trend that one Leadership Summit attendee and PeopleSoft customer Steve Elioff, vice-president and CRM programme director at AGF Funds Inc. in Toronto, is well aware of. “(IT) doesn’t recognize how it relates to the business process. You have to find that everything is connected,” he said.
In fact, a mindset has evolved among corporate executives that IT is no different than any other capital expenditure – a change from the days when technology rollouts were a top priority, and weren’t questioned as harshly as other projects. “It has changed enormously,” said Paul Birch, CEO of Toronto-based Geac Software. “The willingness to write seven-figure cheques has definitely declined…. And the apps they’re looking for are cost- or process improvement-based.”
PeopleSoft’s message is being echoed by its competitors as well. “We need to build…products around end-to-end business flow,” agreed Mark Aboud, vice-president at Mississauga, Ont.-based Oracle Canada. “We’re really into selling process flows.”
But as for intra-vendor software tie-ins, others are less sure. “One has to be skeptical, but there is a change,” said Andrew Burns, the Ottawa-based director of business and application integration at systems integrator Fujitsu Consulting. “New releases have introduced new technology whereby it is much easier to integrate best of breed, where in the past that’s the last thing the (vendors) wanted.”
The future of IT
Richardson said few of his clients want to hear about new projects. For them, it’s all about learning how to make what they have now work better. “SAP could probably stop developing for a year, and customers would be none the wiser,” he joked. But he does expect many companies to “hollow out” their IT staff, both because of a general slowdown in the industry, and because of outsourcing alternatives.
The best strategy for senior IT executives is to buckle down and get better acquainted with the business issues their employer faces. Because IT budgets are often among the largest that a CFO faces, the burden of promoting or selling IT projects is also the toughest. That means proving the value of a software rollout, not only in terms of ROI, but why it should be ranked higher than all the other proposed investments facing the CEO. They should also be aware that a sign-off is only the start of the process – most companies have now set up procedures for regular project updates, and assessing just how many deliverables were made real once the project is completed.
Burns said his very role is evidence of this change – five years ago, when he joined Fujitsu Consulting, his business background stood out in a staff full of technology specialists. “I sort of pushed the business side of things, (and) it’s probably tripled in size (since),” he said. “The changing pace of technology…even I’m scared about it, and sometimes the IT folks can put forward all this technology and confusion…. IT needs to be able to express themselves in a way that they can be educated by the business.”
These changes are likely to have a big impact on the way corporate IT departments function. Fung said it won’t be long before corporate IT departments are overcome by what he calls the “gardener’s syndrome” – strictly support. “You’re like the kid who cuts the neighbour’s grass for $20, then comes back two weeks later. That is the kind of industry we’re going to be faced with.”
If IT fails to meet this challenge, the alternative (outsourcing or offshoring) may not be so attractive, according to Richardson. He said the traditional view of the highly paid, in-demand IT specialist may no longer hold water. “This has been…a pathway to making a lot of money,” he said. “I’m worried about the future of IT in Western Europe and North America.”
Wanted: business-savvy IT managers
Business executives from a group of financial services firms recently shared a basic idea about how CIOs can deliver returns on IT projects: For starters, they said, IT managers have to be able to read an income statement.
“Do you know where the revenue comes from? Do you know where expenses are generated? And do you understand you have to have more of the first and less of the second?” asked George Fisher, executive vice-president and chief administrative officer at New York-based Prudential Securities Inc.
Fisher and three other executives participated in a panel discussion about what they want to get from their IT departments, as part of the recent U.S. National Investment Company Service Association’s annual technology conference in Boston.
Most of the panelists said IT managers are expected to be an integral part of their business operations and, as such, should be as well versed in business plans as they are in technology.
“When you have your major technology folks . . . able to discuss in great detail and very accurately describe, define and discuss what the business challenges are to doing something, then you know you’re beginning to blend your organization,” said William Bridy, a senior director at New York-based Merrill Lynch Financial Data Services Inc.
Bridy and other participants also said they have bid farewell to the practice of funding long-term IT projects. Now they expect quarterly progress reports on projects and want to see tangible returns on investment in a maximum of 18 months.
On the other hand, Bridy said he has found that most IT problems or project failures can be traced back to business users not clearly defining their goals. But neither he nor the other panelists discussed that issue further.
Source: Computerworld (U.S.)