Wednesday, June 26, 2013

The New Path to Success

For decades vendors selling technology products and services have focused on IT leadership as their target.  When the CIO title came into being the leader of IT became the quick sales target.  Relationships were established, decisions made, and increasingly the sales discussions slid down the executive ladder until Directors were driving technology decisions.  Then wheels came off the cart.  CEO's began to notice how much money was being spent in IT and how little demonstrable value was being attained.  New CIO's came in to end the practice of implementing technology for its own sake instead focusing on business needs.  Conversations ascended to the top of the ladder but still focused on the needs of IT.  After some time passed, conversations pushed down the stack, when CEO's noticed again how much money was being spent in IT without demonstrable value.  New CIO's came in to end the days of order taking and start taking a strategic approach to meeting the needs of the business.  Again the conversations started at the top of the ladder, and again after new directions were established conversations descended down the ladder.  Over the past five years CEO's again are questioning the cost of IT versus the value delivered realizing IT was too focused on what the company was doing and not enough on what the company should be doing.  CIO's had succeeded in aligning with business operations, but missed out on business innovation because it's rare a company has a systemic approach to evolving their business model.  As a result many CIO's struggle with the redefinition of their role where they are in the odd position of both leading and following their customer.  Those making progress appear to have had the same epiphany: it's all about the money!  The new focus is revenue realization: how technology can drive new business models creating new revenue opportunities.

A course correction by the CIO toward innovation is manifesting itself in multiple ways.  Now the conversations are strategic, they are focused on business results, and they sound a lot more like talking with the COO, CFO or CEO than a technology leader.  CIO's are refocusing on strategic partners, identifying those companies of greatest value to them as seen through the lens of the future.  No longer are CIO's identifying strategic partners on spend alone.  In fact some are turning their backs on those with big wallet share if they can't earn a seat at the new table and talk business strategy.  No vendor or service provider willingly sits back and watches their revenue erode.  The winners are those who can, or already are, talking business strategy at the CIO level, technology strategy at the CTO level, architecture at the VP level, and tactics at the Director levels and below.  Most paint the acquisition of PwC Consulting by IBM in 2002 as marking a shift in IBM to a "services led" company.  However IBM already had IBM Global Services, a consulting arm with tens of thousands of employees.  It wasn't "services led" that made the difference leading to a $200+ stock price, it was strategic relevance.

PwC Consulting had entre to the C-suite at most Fortune 1000 organizations.  How?  PwC was, and continues to be, an audit firm.  As an auditor they get direct access to the most senior executives and typically the audit committee of the board of directors.  Often there is a burden of knowledge; knowing the most intimate secrets of a company.  Trust is earned over years of dedication to a client, and this trust fostered opportunities when clients needed operational and later technological assistance.  Each of the audit firms established large consulting practices to serve the needs of their captive clients.  Of course regulators became suspicious of such a close relationship, and through Sarbanes-Oxley and the dogged but erroneous pursuit of Arthur Andersen pushed auditors to divest their consulting arms.  Ernst & Young sold theirs to Cap Gemini, KMPG spun theirs off as BearingPoint, Deloitte created some separation but maintained the relationship, and PwC prepared to take PwC Consulting public as Monday (ugh).  IBM jumped the curve through the acquisition of PwC Consulting and gained immediate relevancy in the C-suite.  The entire company pivoted.  Gone were the commercials about technology and in came the famous IBM'er commercials talking about how they were focused on solving business problems.

Today the new path to success for vendors and service providers is business relevance.  In many cases this means creating relationships with the business leaders, sometimes without the endorsement of IT.  CIO's are learning that business leaders are technology savvy enough to carry on high level discussions with their beloved partners, when those partners have demonstrated an understanding of the business.  A new perspective leads to new conversations, new insights, and expands the opportunities for innovation.  And no partner worth partnering with will willingly throw IT under the bus.

As IT shifts from a service provider to business platform provider; operating as a broker responsible for finding solutions whether bought, rented, leased, or built; the onus is on IT to be strategically relevant to the business.  The days of business-IT alignment are over; it's not enough.  The two need to become one operating in unison instead of at arms length.  The new rising term for this relationship: immersion.  Product and service providers who can immerse themselves in the business will reap the rewards.  Those who don't will backslide into oblivion, regardless of how much money is spent.

Wednesday, June 19, 2013

Economics Always Wins

Much of what we learned early in school proves to be only partially correct.  Thomas Edison invented a light bulb, not the light bulb.  Nikola Tesla didn't discover alternating current, he invented the AC multi-phase induction motor.  And Henry Ford didn't invent the assembly line, he was the first to apply it to mass production.  So the question is why were the considerable accomplishments of these men, and many others, embellished?  Of course it's because they changed the world, but the way they changed the world is simple economics.

Successful inventors tend to have one thing in common; they made their inventions a must have.  In other words they created a compelling economic argument in which the benefits of the invention far outweighed the cost.  Edison made the first long lasting light bulb, one with a life measured in months, not days.  Tesla's motor was the key to unlocking the power of AC which delivers power over a greater distance at a much lower cost than the competing DC system (of Edison).  And Ford continuously worked to make his vehicles less and less expensive through optimization and automation continually expanding his potential market.  Economics drove the success of the McCormick reaper, Otis elevator, Carnegie steel, and even the Singer sewing machine (which Singer built by infringing on the patent of another inventor, but Singer made the sewing machine affordable so many give him the undeserved credit).

The reality is that by definition, economics always wins.  More properly said, a compelling economic opportunity always wins in the market.  When one doesn't win we find out that, in fact, there was another more economically compelling option.  Public cloud will win over Private cloud for one simple reason: economics.

The foundation of the compelling economic argument of Public cloud is simple: it enables companies to leverage the assets of others for their benefit on a pay-as-you-go basis.  There are numerous examples of cloud in the real world, but my favorite is shorting stocks.  When an investor wants to short a stock, make a bet against the future value of a stock, they have to find someone who has a 'long' position, someone who owns the stock and intends to keep it.  The 'shorter' buys the rights to the 'long's' stock for a fee, sells that stock to lock in the profit, waits for the stock to drop (and that's the risk), then buys back the stock at the lower price.  The 'long' is given back stock equivalent to what was borrowed plus the fee and the shorter books the profit.  The only way this transaction can work is because someone owns the underlying asset, the stock, and it doesn't have to be the beneficiary of the transaction.  Conventional thinking says own the asset so there is a redeemable value; money spent as an expense has no residual value.  This argument is true when assets have the opportunity to grow in value or the cost of capital is low enough to justify the investment.  Nobody has ever argued technology is a wise asset investment, but it is a necessary one.  So its no surprise that company after company is getting over their fear, uncertainty, and doubt and moving in the direction of Public cloud where they can leverage the assets of others.

Companies, in particular banks, make quite a bit of money by leveraging the assets of others.  With no assets to buy, capital is preserved which can be used for other investments (the Capital Preservation argument).  Instead, the company pays for the computing and storage power as an expense enabling them to book the cost against the earnings generated from the expense.  The net result is a more accurate reflection of the financial health of the company (the Cap-Ex to Op-Ex argument).  By not acquiring assets there is no need to service them in the form of people, power, facilities, management, and overhead (the Cost Savings argument).  Best of all, because the underlying asset is owned by someone else, making a decision to change assets is easier and less costly (the Time to Market argument and my Asset Gravity and Friction argument).

What about Private cloud?  It's capital intensive and asset heavy weighing down both a company's cash flow and balance sheet unnecessarily while restraining innovation by piling up assets that must be re-used.  Private cloud is an on-ramp to cloud, and like the on-ramp to a highway it's best left in the rear view mirror if the driver wants to progress.  What Private cloud gives a company is a security blanket as they learn the ins and outs of cloud.  How?  Private cloud, as it largely exists toady, embraces traditional views of security, control and reliability.  However as the business responds to the consumerization of technology, the business needs new capabilities.  And those capabilities are largely incompatible with traditional security, control, and reliability approaches.  This creates a quandary: either continuing doing what we've always done and surf the downward wave of our demise, or reinvent ourselves and ride the crest of change.  Successful companies in their markets will make the transition.  They'll question convention and build new approaches compatible with new needs.

To those who don't agree, all I can say is feel free to fight economics.  You'll be in great company with names like Studebaker, Sun Microsystems, Blockbuster, and Hostess.