Only a few years ago, I visited one of the SAP SAPPHIRE shows. Wandering through the show floor, I arrived at the Accenture booth, where I was kindly offered a giveaway pen. When I tried to use it, I could not make it write. One of the booth attendants came to my rescue and half-jokingly said: “With SAP, even to operate a pen, you need a consultant.”
In those days, only a large company could afford sophisticated back-office and front-office automation. Whether it was SAP, Siebel, PeopleSoft or Oracle, a company needed to invest millions of dollars in order to buy the software, hire hordes of expensive consultants, buy expensive hardware to run it and maintain a large staff to support it. But that’s not all. It was taking years to implement and IT often missed deadlines and ran over budget in the process. If you were a small company — just forget about it. You simply could not afford a good ERP or CRM system.
Today, however, it is an entirely different ball game. Companies of any size now have the ability to run all or almost all of their IT operations from the cloud, through outside providers such as Salesforce, NetSuite, Gmail and many others. This is delivering untold flexibility, scale and speed to organizations — not to mention in many cases, cost savings. But it’s true: IT is going through major changes today and the CIO is smack in the middle of it.
With a services-based infrastructure, the CIO and team are increasingly moving from building and integrating technology to managing a vast supply chain of technology partners. IT is now in the business of inspecting, reviewing, and monitoring technology and vendor contracts, ensuring security across all these partners, overseeing integration strategies and above all, managing costs. The jobs of the in-house IT software developer, Big 5 ERP consultants and system administrator are dying on the vine.
CIOs need to prepare for this coming shift by learning the tactics of advanced supply chain management — perfected by large retailers and major auto companies over the past 100 years. This entails not just managing and overseeing vendor relationships, but ensuring tight control over every facet of the supply chain when it comes to product quality, security, service, content, reliability, performance and a number of other parameters. CIOs and their staff members will need to create business-aligned supply chain processes and metrics, as their infrastructure is increasingly managed and delivered by vendors and partners.
The Perfect Storm
So, how is the advent of cloud computing different from managing outsourcers and hosting firms of the past? One day soon, you may not own or manage a single piece of hardware or software. Companies and people in far-flung places will be storing, managing and maintaining your data and applications. There may be dozens of these partners working for you and many of them will depend on each other. Who’s going to make sure all the parts are working well, and working together? The CIO, aka Supply Chain Director.
Take for example a simple e-commerce site that has one provider hosting its DNS services, a second provider hosting the site content and product catalog, a third provider handling the checkout and payment process, and a fourth serving up ads. When suddenly the Website slows down or a process stops working, which of these providers is at fault? Perhaps the problem is related to an unexpected surge in traffic, maybe it’s the fault of the Web hosting company that isn’t meeting its service-level agreements, or there could be a capacity limit that does not allow for spikes in demand.
The Supply-Chain Process
It doesn’t matter who is to blame. The CIO must have a system, processes and the right team to stay on top of pending issues and investigate and resolve them swiftly before they affect customers. The ad hoc monitoring systems and tools of the past, when everything was managed internally, won’t likely do in today’s world. Now, with so many moving parts outside company walls, CIOs need to set strict parameters for service. This entails defining capacity and service levels, regular monitoring, and strong lines of communications with suppliers. If the supplier changes its infrastructure or its security policies, and you don’t know about it, that’s a problem. CIOs have to understand the inner workings of key suppliers at the same level as if they were managing the technology internally. Without that transparency, it will be harder and more expensive to troubleshoot and resolve performance or quality problems later.
A basic framework for managing services in your supply-chain could look like this:
1. Define services a.k.a. compute capacity, storage, network bandwidth, network infrastructure, content delivery network, DNS services, security, application platform, back-office system for orders, front-office apps, affiliate networks.
2. Track each of those services against a core set of metrics, such as performance, responsiveness, capacity, security, cost per unit and volume cost. An individual service, such as network could require additional sub-metrics, such as spike capacity and overage fees.
3. Score each supplier/partner and deliver them a monthly report that you can then use as a discussion tool and a negotiating platform for discounted fees or add-on services.
But wait. Isn’t this supply chain model just a new name to good old outsourcing that IBM, Accenture, and others have been doing all these years? No: this is a new game. The old IT outsourcing school relied on massive financial engineering deals that focused on capping operational costs for customers, while the outsourcers ran operations using, guess what, their own equipment and consulting services and placed the customer’s IT staff on their own payroll. The outsourcer and customer both had to handle a lot of infrastructure building, system integration and portfolio management. But this world is over. Thanks to cloud platforms and standard Web services, the need for the middleman is diminishing. Large deployments that used to take years, millions of dollars, and hundreds of people can be done today in weeks, thousands of dollars, and a few data analysts.
The Bean-Counter Mentality
CIOs will have less of the technology burden on their shoulders. Instead, they will have to act like a CFO and quality control manager combined. Consider a large retailer like Macy’s. A manufacturer needs to go through a strict process before it is allowed to put a single pair of pants on the shelves. The process includes rigid review and approvals from the design phase through supplier review and quality control tests for each component and the final product. Moreover, even a replacement of a single button supplier requires the manufacturer to go through quality control lab again, before they can make the change to their own supply chain. Retailers have sophisticated information systems to analyze and report on sales, profits, returns, customer service, supply chain processes, product quality, vendors and so on. IT departments will need something similar. Fortunately, cloud providers make IT costs highly transparent so that organizations can see the unit cost of every single IT service consumed.
What’s not so transparent is what levers IT can use to change cost/capacity parameters within the application platform. CIOs should understand and track exactly what the business is spending daily or weekly on each activity — such as e-mail — and keep a tight rein on those costs. IT managers can help by ensuring that vendors are maintaining contractual commitments for quality, security, performance and functionality. Hiring staff with accounting and analytics backgrounds will become a top priority. IT employees with excellent communications and negotiations skills will also be valued, since so much of the work will be interfacing with vendors.
What About Innovation?
In this metrics-driven, buttoned-up world of IT, does the CIO have much of a role in business innovation any longer? On the one hand, CIOs have to maintain operational discipline. Like a building inspector, they must intrinsically understand the building codes, regulations and constraints of contractors working on the site.
Yet they now have a crystal-clear view of where IT dollars are going, presumably, and can make faster decisions about new technologies. Since IT knows exactly how much it’ll cost to roll-out a new app on the cloud and can test it in a few hours, they can respond exponentially faster to a new, urgent business opportunity. The advent of the cloud could make the CIO’s job that much more meaningful to the business. Adopting a supply-chain IT approach will be imperative for any midsize to large company on the planet and CIOs will be the ones to make it work.