Executive Advisory Program

Do-it-yourself SaaS and the application portfolio

Posted by Mike Rollings

In Richard Watson's blog post "Do-It-yourself SaaS, a first step into the cloud", Richard discusses this article on Bechtel’s strategy for reinventing its IT as an internal SaaS provider. The article describes how Bechtel reduced its costs by examining its application portfolio and the fundamentals of how it provides services to its workers.

Richard thinks that if enterprises feel they can fund such extensive portfolio management activities from OPEX that we’ll see lots of it going on. I think that we will see a thirst to cut the application portfolio like we have not seen before.  The economy and the already heightened interest in optimizing the data center will push application portfolio awareness.  If you are looking for ways to reduce operating costs and you realize that you really don’t know what applications need to live or die, then the sinking feeling hits you... "Why run what does not need to run at all?"

I think I could fund that in any organization and any economy!

But I think Bechtel’s best realization was that the majority of workers only wanted information about project status and the like. I don’t know if I missed their answer to this problem, but it seems that they removed these applications from the user’s environment and put up a portal that uses services to provide the information to a huge number of people.  This would eliminate the need for the applications for a bunch of people and the associated software licenses.  What is unclear is the quantity of application licenses that they stopped using versus identifying applications for elimination, consolidation, or replacement. It would be interesting to find out.

Tightening the Corset

Posted by Chris Howard

My original title for this post was "Tightening the Belt", but we've already done that. 2009 will be positively Victorian if recent spending surveys are correct. The most recent Goldman Sachs IT Spending Survey, for example, predicts a 1% decline in Global IT spending and presents these highlights (or lowlights, if you prefer):

• The typical Q4 flush — where we suddenly find funds that need to be spent — is likely to be capped. No rushed purchases in "use it or lose it" mode: It's already gone.
• Organizations cut back on outsourced services and in-house consulting. This is especially true when those services are related to discretionary projects. Discretionary projects? What are those?
• Software purchases weaken, although dollars spent with Microsoft are not as affected. 
• Networking is softer, with the exception of Cisco.

Clearly, our mantra of "Doing Less with Less" is playing out. There are some hidden patterns within the Goldman  Sachs study that bear close attention:

• Many of the statistics are the worst ever recorded in the history of the Goldman Sachs IT Spending Survey. (You have my permission to stop reading now and go enjoy a beverage of your choice, Lehman Bros. style)
• Large software vendors that offer complete stacks of enterprise functionality (what Burton Group calls superplatforms) will be able to provide deeper discounts for their customers. Smaller vendors, not so much. As a result, expect purchasing decisions to favor the superplatform vendors for cost containment reasons. This will lead to better control of the bottom line, but often not optimal architectural choices.
• Organizations seem to have squeezed considerable savings out of virtualization and data center consolidations already. This shifts the focus more aggressively to other parts of the organization. (Projected) virtualization-related purchases remain strong, however, with notable interest in Windows Server 2008 and Hyper-V from Microsoft. 
• Microsoft's relative strength is due to anticipated spending on SQL Server, Windows 2008 Server (with Hyper-V virtualization), and Sharepoint. As mentioned, the first two have significant play in data center consolidation and data management efforts where cost savings can be realized quickly.
• After the last bubble burst, there was widespread jettisoning of excess technology. As a result, the operational environment/enterprise application portfolio is quite lean. OK, so maybe not lean, but certainly the body mass index (BMI) is lower than it was in 1999-2000. This will force organizations to look for savings in other places.
• Reduction of FTE staff ranks behind reduction of in-house consultants, 3rd party external services, and staff augmentation resources. The wholesale and swift removal of non-FTE resources will leave many discretionary projects in limbo: many will be cancelled, others will be delayed until the economic horizon is clearer. Internal FTE staff will have to pick up loose ends and fill in responsibilities, so project and program managers must ensure effective knowledge transfer before the day of reckoning arrives. Too many of us have experienced the Monday morning purge in the past and found ourselves holding the bag.
• There is evidence that CIOs are not jumping quickly offshore to cut costs. Perhaps they are applying the lessons of the past when offshoring returns did not match expectations. There is no appetite for risk right now, and it is better to wait and not spend than to spend incorrectly even on something that appears to offer savings.
• Expect experimental or nice-to-have projects to disappear. Anything that is not intimately connected to core business value will be held off. No-one wants to have to explain the equivalent of highly paid workers rearranging deck chairs on the Titanic. My concern is that this fact will further delay critical strategic work for which immediate benefits are difficult to prove.
• Adjusted for inflation, that Sears Roebuck Catalog corset — note that it comes in either "white" or "drab", just like old CPU towers— would cost $10.72.  Now that's a bargain!

Election’s over. So?

Damon Winter/The New York Times

Posted by: Jack Santos

Yes, it’s historic. 

So what happens now? And what’s the impact to IT, IT decision-making, and the economy in general?

This we know:

• We are involved in two wars at a horrendous cost of money and lives.
• We are in the middle of an economic meltdown not seen since the 1930s.
• We just elected an unknown quantity. No real track record in the US Senate, and minimal insight into his state legislative experience, or even his community organizing background.

What kind of vision can we expect from our new president, and where would he get the biggest bang for the buck for IT investment?

One way to look forward is to look back, and look at efforts that were proposed by the current (Bush) administration. One of those was the need for a broadband policy, and the administration’s inability to move forward on that effort.

The US has long lost its leadership on high speed broadband deployments, and the argument can be made on many fronts that this is a significant issue that needs federal government leadership. An increased emphasis on our national broadband strategy can mean gains in e-government for constituent access to services. Recently a friend of mine in a management position at Social Security was lamenting about the lack of internet usage by claimants; not only is this a demographic issue that plays into a technology comfort factor, but it also reflects lack of broadband access.

On any competitive front (green issues, energy issues, employment issues), broadband is an enabling technology. Increased broadband can enable more remote work/work at home, reducing carbon-based transportation reliance. Broadband increases access for employers to workers, and access to employment by workers. Broadband is at the crux of any new "smart grid" development for our energy infrastructure – exchanging information between energy suppliers and users about optimal energy usage and more flexible billing mechanisms; some energy companies have long explored broadband deployment through their grid, for that reason alone.

What’s really exciting about a renewed emphasis on broadband policy is that in an uncanny way,our foot dragging on wired broadband may in fact leave us in a position to leap forward to new options in wireless broadband deployment in a much more cost-effective manner – such as new wireless broadband options like WiMax, LTE (Log Term Evolution) , and UMB (Ultra Mobile Broadband); all are 4th generation broadband options on the drawing boards or being piloted. The Apple IPhone is a perfect example of how the consumer market is rapidly evolving from wired desktop/laptop to untethered handheld connectivity – with tremendous success.

So whether it’s for more efficient government, increased flexibility for consumers, or increased options for business – in the current economic climate a renewed focus on moving the US up the broadband food chain may be one catalyst for a turnaround in our economy, and part of the foundation for future growth.

I am sure there are other IT related efforts that we need to keep an eye on, given the new blood in Washington. We’ll continue to explore them in this blog.

Psycho Markets and Politics

Posted by Chris "Vlad" Howard

A few days from now, the US Election will (mercifully) be over. Regardless of who wins, it will be interesting to see the reaction in markets worldwide. Right now, the psyche of consumers and investors is darker than ever as evidenced in consumer spending statistics and the schizophrenic swings of market percentages. Surely it can't get any worse. Or...maybe it won't last much longer. Or...we ain't seen nothin' yet?

A change in  US leadership (or, dare I say, the reconstitution of US leadership?) should be an important economic catalyst. Of course, it will take significant time to turn the ship around, but good leadership can build confidence even in early days.

Interestingly, only one candidate has spoken directly about the need to invest in Information Technology as part of that turn-around. He sees it as the springboard of innovation that will take the country forward, instead of trying to rebuild the structures of the past. I'm afraid to say that many of the IT and other jobs that have gone offshore are not likely to return. At least not in their prior form. This creates a decision point: do we chase after commodity work or retool ourselves toward innovative and higher level strategic work? In the clients I serve, the early signs of what I call post-modern IT are clear. Commodity IT is being separated out where possible (using cloud and SaaS, for example), leaving strategic IT within the organization. The danger, however, is that the majority of IT in large enterprises is centered on commodity work, not innovation. We need to refocus our efforts on becoming a strategic partner with the business so that as commodity IT work is outsourced, a new IT emerges onshore.

Now, my intention is not endorsement in the US Presidential race: I am Canadian after all ;-). I just want it to be done. But, there are significant implications of the result for American IT workers. We need to focus on future opportunities and get away from scarcity thinking. We need to let go of outdated concepts that keep us trapped in the cellar. The promise of new leadership and (hopefully) the elimination of the pervasive anti-scientific mindset should help us regain confidence in our potential.

The Beginning of the End

Posted by: Mike Rollings

No, this is not a post about the economy – but it is related. It is about managing IT budgets and business cases. Today’s Big Issue from IT Business Edge highlights an article by Ann All titled “Engage Users with CRM Training”. The article discusses  how organizations considering Software As A Service (SaaS) should not forget to include training costs as part of the implementation.

It seems that every year we rehash the need to budget for training as part of software implementations.  It seems fundamental, but many still need to be reminded to include it as part of implementation cost and the initial business case. However, training costs are not the only end of the road costs many forget to include in a business case.  Many forget to include the ongoing operations and maintenance (O&M) costs, and the cost to remove existing solutions displaced by the new software. Ongoing costs are often overlooked or assumed by many to be absorbed by the O&M budget. The reality is that the O&M budget will most likely increase, especially if nothing is done to eliminate displaced systems.

This is why the cost associated with removing existing systems must be accounted for in the initial business case for any new software implementation – including SaaS. This allows for the possibility that O&M costs will not increase by offsetting any ongoing costs with the cost savings from eliminating legacy. It also guarantees that the legacy software is removed.

Organizations in the coming year will certainly be under great pressure to manage cost aggressively. So as you budget for any new software implementations – including SaaS – use care to create a holistic portrait of the costs.  If not, like the recurring training discussion, we may have this conversation again next year.

Achieving Global Financial Reforms

Posted by Chris Howard

On September 24, 2008, (the week following the Lehman brothers collapse and the takeover of HBOS by Lloyds TSB) UK Prime Minister Gordon Brown addressed the Labour Party Conference:

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It falls to this party and to this government, with its commitment both to fairness and to business, to propose and deliver what after recent events everyone should now be willing to accept - that we do all it takes to stabilise the still turbulent financial markets and then in the months ahead we rebuild the world financial system around clear principles. And friends the work begins tomorrow.

I ... will meet financial and government leaders in New York to make these proposals:

First, transparency - all transactions need to be transparent and not hidden.

Second, sound banking, a requirement to demonstrate that risks can be managed and priced for bad times as well as good.

Third, responsibility - no member of a bank's board should be able to say they did not understand the risks they were running and walk away from them.

Fourth, integrity - removing conflicts of interest so that bonuses should not be based on short term speculative deals but on hard work, effort and enterprise.

And fifth, global standards and supervision because the flows of capital are global, then supervision can no longer just be national but has to be global.

And if we make these changes I believe London will retain its rightful place as the financial centre of the world.

---

A month later, the markets are still in a state of turmoil (although fortunately up — at least yesterday). I was in London that prior week, speaking at a conference and meeting with our financial services clients. Despite the Nero-esque festivities that broke out among ex-Lehmanites on Canary Wharf, the mood was grim overall. The larger party is over. Brown's comments are similar to those made in the US and by leaders of the other G8 nations: promises of increased regulatory oversight, transparency of transactions and operations, limits on executive pay, and increased safety for the average citizen who is a homeowner, not a professional investor.

Jack and I had a bit of a back and forth in this blog a few weeks ago concerning the role of IT in the financial crisis. Let's start to think about IT's role in a reformed financial system. To achieve the goals outlined by Mr. Brown and others, IT must be engaged, although the primary solutions are in the realm of corporate governance and fiduciary responsibility.

transparency
Transparency of transactions and operations requires the ability to inspect and report on the state of a system on demand. At a minimum, this requires effective reporting mechanisms, but those mechanisms must be tuned to find the correct information without disrupting runtime operations. Inspecting static data (e.g., in a warehouse) is not sufficient.That will simply tell you what has happened, and not what is happening. Processes and state must be examined in realtime. Furthermore, good data management is required to ensure that data is correct and meaningful within a business context. Data management will also tackle issues of disparate data sources and discoverability.The inability to get to the right data quickly will inhibit transparency.

sound banking and responsibility
Sound banking implies risk management in both the product and technical domains. As Jack and I discussed, a core problem leading to the crisis was the complexity of financial instruments (especially collateralized debt obligations or CDOs). That complexity was facilitated by the underlying technology that allowed sophisticated decomposition and recombination of product components. Very Enron-like, as I told my audience in London. Sound risk management ensures that design of products provides maximum return with minimized volatility. In other words, abstraction is OK, but at some point the highly virtual product offerings must be tied to the real world and well-understood. Technology will always be able to support whatever concoctions are conjured by crafty minds. The trick is to govern that process from within the line of business and make the CEO ultimately responsible.

integrity
The solution is to embed chips in executives to track their movements. Not. Clearly, technology cannot solve every problem that led to the financial crisis. Technology can serve to mechanize greed and obfuscate transactions (perhaps unintentionally), but it cannot necessarily stop fast and loose business practices. To the extent that transparency can be achieved, then lack of integrity should be traceable.

global standards and supervision
If we've learned anything from the past several months, it is that Friedman was right. The World is Flat. Watching the markets consists of shifting focus from the closing bell in NYC to the opening markets in Asia. No longer mostly isolated entities, world economies are joined in a chain or whip, with aggressive movements in one direction or the other being amplified in waves (like Winslow Homer's painting "Snap the Whip"). Perhaps we've just watched Iceland lose grip and fall on it's face.The markets are just one indicator of significant root causes. I remember sitting at a cafe outside Liverpool Street Station a year ago pondering the Gherkin with a senior architect from a bank in The City. That was the week that North Fork imploded, suffering from exposure to bad mortgage debt. Before that, and for a few months afterward, many European leaders reassured their citizens that they were protected from the sliding US economy and not to worry. Boy were they wrong. Acknowledging global interconnectedness (not limited to financial services) requires us to solve transparency, reporting, risk management, and traceability across political and technical boundaries. Design of products, supporting technologies and integration dependencies must be a holistic effort. This requires greater standardization and overarching governance.

These recommendations are easy enough to make in front of a friendly audience, as was the case with Mr. Brown. The enactment and global institution of these ideas will take years and careful negotiation. SOX was just a warm-up exercise. Increased regulatory pressure will likely dominate enterprise system design and refactoring for the next decade. Hopefully we can still get other things done ;-)

London and New York are in a wrestling match to become the center of the global financial universe. As they are wrestling, the rest of the world is watching in stunned disbelief because they are both off the mat and still fighting. Dubai and Hong Kong are featured in the next round.

Post-modern IT: Question #4

Posted by Mike Rollings

back to Question #1

back to Question #2

back to Question #3

Question #4: What service, applications and management are key to success?

<mike>

As post-modern IT emerges and IT moves to being a broker of services for the business that facilitates the orchestration required between them, the IT environment that supports this orchestration transforms. This changes our assumptions about the structure of applications and the associated infrastructure. Applications become virtual sets of policy-governed services instead of pure internal or external solution patterns. Business demands to combine internal and external services into applications transforms fundamental architectural principles that influence design. As a result, a different IT environment emerges to support a different meaning for “application” and the composition of virtual sets of policy-governed services.

</mike>

Post-modern IT: Question #3

Posted by Chris Howard and Mike Rollings

back to Question #1

back to Question #2

Question #3: If you go the services route, what will your IT be doing instead?

<chris>

Most architecture functions must remain in-house, regardless of which external and internal services are implemented. That's the link to business capabilities. Organization-specific architecture, and especially enterprise architecture, is too valuable to be outsourced. It describes the relationship between what the organization must do as (as a business), and how those capabilities must be instantiated in the IT environment. Architecture is agnostic about where things get built, but it must remain in the domain of control of the organization and not the service providers. (Now, of course, architecture is a nested thing, there will be aspects of architecture defined and controlled by the service providers, but for the purposes of this discussion, that architecture is "below the interface". That is, it is necessary to provide the functionality defined at the contract between consumer and provider, but the details are unimportant to the consumer as long as the contract is fulfilled.)   

</chris>

<mike>

IT will be identifying and provisioning business capabilities. A business capability is identified by focusing on what the business does (and why) as opposed to how the business does it (e.g., create order, ship product). Higher-level capabilities employ workflows, services, and applications for their implementation. Identifying capabilities is related to functional modeling with the exception that many organization’s functional models reflect more of the organizations structure than is helpful. For example, you may have a department that is called “order management” that creates orders and ships products, but those capabilities could just as well be performed by a third party, or their execution realigned to another group in a reorganization—but the required capability still remains. Therefore, capability modeling captures the core functional model for an organization without the bias imposed by the organization’s structure.

IT will play a key role in the provisioning of these capabilities and the integration of them.

</mike>

Question #4: What service, applications and management are key to success? (stay tuned)

Post-modern IT: Question #2

Posted by Chris Howard and Mike Rollings

back to Question #1

Question #2: How much can you realistically do without internal IT at enterprise grade and when do you really need on-premise IT and in-house IT?

<chris>

Right now, not as much as people might think. The cloud is still adolescent at best, and suitable only for some classes of use. True enterprise computing (with all its security, risk, and performance requirements) will always require an in-house footprint for certain classes, tiers, or components of applications.

</chris>

<mike>

To illustrate the "enterprise grade" point I'll discuss Software as a Service (SaaS). SaaS is seductive—it offers pay-as-you-go, try-before-you-buy, rapid time to value, and expense versus capital expenditure. But the benefits must be balanced by a thorough risk examination. SaaS applications can usually be configured, but rarely customized. However, if you accept the limitations on your business processes, the information and integration challenges may still be hard to ignore. Information within SaaS applications tends to become land-locked at the SaaS site, making it difficult to integrate data with other IT applications. The business must determine if processes, workflows, and other uses of land-locked information can work with data copies or increased latency imposed by direct data access.

</mike>

Question #3: If you go the services route, what will your IT be doing instead? (stay tuned)

Considering your options with scenario planning

Posted by Mike Rollings

Scenario planning can be a useful planning approach to consider the impact of economic conditions, mergers, acquisitions and other forces on your business. Scenario planning is a disciplined method for imagining possible futures by examining trends, uncertainties, and using a structured approach to create and analyze different scenario themes.

Since this is budget season for many of our clients, this approach may be helpful to you.  It may help you reflect on the uncertainties created by current economic challenges and how they may impact your budgets. Having a couple of plays in your playbook may be a handy thing moving into the next fiscal year.

To learn about this planning approach, refer to the article published by Paul J. H Shoemaker in the Sloan Management Review "Scenario Planning: a Tool for Strategic Thinking".