According to executive summary for the report by Forrester Research ‘How Big Is SaaS In IT Management Software?’, software-as-a-service (SaaS) is disrupting the IT management software market. Incumbent software vendors are setting up new business units and adding SaaS offerings to existing portfolios; managed service providers are repositioning their offerings to leverage the trend; and new pure-play SaaS operators are extending their success by taking advantage of product churn in various established vendors’ service and asset management customer bases.  The summary also suggests that Strategy professionals at IT management software vendors should therefore be planning now to compete in this segment in the medium term. Long term, the more general trend toward SaaS will reduce the total IT management software market by cutting the number of enterprise environments to be managed.

I think it’s not prudent to dismiss SaaS as a small-business play. According to Information Week’s Information Management Blog titled ‘Will IT Management Go SaaS?’ which quotes the Forrester’s study places SaaS squarely in the midsize range, with room to go upward. And there’s great appeal to the SaaS model. Traditional premises IT management software deployments are time-consuming and expensive, with significant capital costs. SaaS deployments are cheaper and faster. SaaS products also can get a toehold into the enterprise through departmental deployments.

Over the long run, I think SaaS is a viable disruptive software delivery model that will challenge traditional enterprise applications.

Quoting Paul J.H. Schoemaker, research director for the Mack Center for Technological Innovation, the article notes that there are 2 kinds of innovations incremental innovation and transformative innovation. Using Austrian economist Joseph Schumpeter’s term of Creative Destruction, Paul Schoemaker suggests that transformative innovation (which leads to creative destruction) is how entrepreneurs sustain the capitalist system.  So, largest gains in business come from more daring innovations that challenge the paradigm and the organization.  Incremental innovation is something the organizations continue to do during good times.  While many organizations are focused on being solvent in this current economic crisis, companies with strong balance sheet, I my opinion, should continue to focus their R&D effort on transformative innovation. Creating products or services that can dramatically alter the competitive landscape.

To institutionalize the process of Creative Destruction, everyone in the organization, especially top executives, should recognize that disruptive innovation is actually important.   But according to the article, in a company that’s already successful — or one with layers of bureaucracy that hinder new ideas — this can prove difficult. The firm also must commit itself to research.   Therefore disruptive research is absolutely critical, especially in the technology space.  The article notes that it is not enough to simply have brilliant engineers. Without competent management on the business side, the most elegant technology can wind up on the scrap heap of business history, or even worse, usurped by a competitor.

‘Disruptive Innovation’ should be one of the organizational ethos to be successful in this hyper competitive globalized environment.   Given the high failure rate companies should develop an array of possible situations and contingencies, rather than pin all their hopes on one plan.  And instead of being stuck in the ‘analysis paralysis’ the organization should reward individuals and department to move fast.  It’s OK to fail but learn from the failure should be the mantra.   This will empower individuals to take educated risks in creating new and compelling products that will leave the competitators in a defensive mode scrambling to respond to this new challenge.

Tags: Creative Destruction, IT Strategy, Disruptive Innovation

First, IT leaders should focus on projects that help their companies weather the downturn.
Second, CIOs need to ensure that IT emerges from this downturn as an integral, not marginalized, player in their companies’ business strategy.

The article states that in hard times, smaller projects with faster payback periods should dominate. As CIOs do their part to reduce costs, they should look for ways to support projects that are linked with their business’s strategy to ride out the recession.
I think that it is critical for the CIOs to continue to support projects that help organizations achieve its business strategy.  The usual knee jerk reaction in this extremely pessimistic external environment is to cancel or postpone all the IT projects.  But CIOs needs to identify those projects that can help their company create and sustain differentiation, build on their core competencies and continue to invest in those types of projects.  That mind set will enable the organization to come out stronger from a downturn.
Article states that Forrester believe that this recession will not be a repeat of the 2001 recession for IT, when technology was the bubble and the IT profession paid dearly when it burst.  One explanation for the relative immunity enjoyed by IT this time around, if it holds up, is that a lot more businesses “get technology” than in 2001. A majority of business leaders now view technology as a core component of their products and services (82%) and/or as a differentiator (72%) in addition to a vehicle for reducing the cost of business operations (66%). The article further states that as CIOs cull their IT portfolio going forward, linkage to business strategy is paramount.

It’s heartening to see that many business executives see the role IT can play in creating and sustaining ‘economic moat’.

Tags: IT Strategy, Business Strategy

Well, a breath of fresh air, in the guise of a Sheffield Based concern, VeryPC, showed a glimmer of hope in the conflicting claims arena for EcoFriendly Pc’s. Here’s what I learned, from Peter Hopton, managing director of this forward thinking group.

VeryPC were displaying a number of high performance dual core desktops, starting from just 17W of electricity (to put this in perspective, this is about 1/6th of a normal PC, about the same as a thin client).

Specs:
Fulwood (17W!) £800+
2.53GHz Dual Core (C2D)
4GB RAM
250GB HDD
Mac Mini Size!

Treeton (27W) £399
2.5GHz Dual Core (AMD)
2GB RAM
80GB HDD (Ultra small form factor)

VeryPC were also demonstrating their energy efficient server technology, offering ‘Janus II’ a 1u 16 core unit that was demonstrated on a power meter taking only 147W. The unit is actually two 8 core Intel servers, split down the middle and offered RAID 5 on each (using small form factor or solid state disks). Even at full load the whole unit only drew 285W, and offered 146GFlops worth of processing (to put this in perspective an equivalent amount of processing from a normal big brand unit would be over twice this energy consumption).

Specs:
Two Servers, 1u box, each server:
2x Quad Core Intel Xeon 2.5GHz 12MB Cache
4GB RAM (max 48GB)
2×160GB (max 4HDDs)
2x 1Gb Ethernet

The Whole box (both servers running) 147W idle, 285W 100% load.

The more compelling issue, was the demonstration meter, that showed how the net power usage, and Power Factor Correction, was a direct result of the innovative chip level power management technique that makes these Very Pc’s so efficient.

On the other hand, after nearly 30 years of grey boxes, the sleek piano black look, attracted the eye, and drew many visitors into the booth. If this sort of engineering is possible, and the nearly 1.3 Billion Pc’s were to begin an orderly migration in this direction, then we would have a much more sustainable industry.

For more on Very Pc. www.very-pc.co.uk

Here is the list from the article
New Media: The Internet has become the new media. What some call Web 2.0 is all around us in RSS feeds, blog posts and wikis from MindTouch and Socialtext, among others.   All of these tools are inspiring new methods of corporate collaboration.

Social Software: Social networks such as Facebook and MySpace.com has shown us the way we can build a ‘virtual’ society.  Enterprises are capitalizing on the success of social media and utilizing secure social software suites such as IBM Lotus Connections and business-centered microblogs such as Yammer and SocialCast.

Augmented Reality: Virtual reality like “Second Life” will blend with physical reality giving rise to augmented reality. For example, TC2 makes the Intellifit body scanner, a walk-in booth that does a 360-degree body scan to help fit clothes to people.

Information Transparency: There will be sensors everywhere. People will be able to “see” all their assets through tailored services such as personalized medicine. Google Health, Microsoft’s HealthVault and Revolution Health all aim to give users greater control over their health records online.

New Wave of Waves: Wireless technology with location-aware Web services and commerce will make dynamic digital spectrum replete with open access.

Platform Makeover: Virtualization, with software scaling exponentially on one machine to let operating systems multiply, has been steadily evolving. Cloud computing, in which users pay for computing infrastructure and applications from vendors hosting customer data on their servers and storage arrays, is also changing computing models.

Smart(er) World: Semantic technologies will enable computing devices to interpret patterns as humans do, via text, speech or situational means. Computers will learn and make reasoned recommendations and predictions, such as telling the user to wear a raincoat after a forecast of inclement weather.

As internet become ubiquitous and more and more consumers become comfortable ordering online, direct to consumer sales using Internet will become mainstream sales channel.   In beauty products, P&G’s rivals L’Oréal and Estée Lauder have been selling on the web for some time. Other leading consumer brands, including Kellogg’s, have formed close partnerships with Amazon to drive bulk sales. This move brings P&G into direct brand competition with its retailers, underlining the extent to which e-commerce is contributing to changes in the way the two sides have traditionally worked with each other.   This is an interesting development.  How will P&G communicate to its retailers that this direct to consumer retailing is non- threatening to their relationship?  The article also notes that P&G’s largest retail customer, Wal-Mart, is hiring a strategy executive whose tasks include assessing the potential effect of direct-to-consumer sales by its own suppliers.  Retailers will also be pressured to evaluate their strategy of selling private label brands.   For consumer packaged goods companies, industry analysts argue that direct online sales are also a way to respond to lower prices from retailers’ private label brands.

With the onset of global recession due to financial meltdown, the global consumers will be forced to evaluate the price premium they pay for the brand.    Value for price becomes an important criterion for the consumers forcing them to migrate to private labels (in the US and Europe) and local labels (in the Emerging Market).  Global Consumer Staples companies like P&G, Johnson and Johnson, Colgate etc. will be pressured to reduce price.   Direct selling to consumers using Internet (especially in the US and Europe that have good Internet infrastructure) is a smart strategy to lower cost to the consumers and thus reducing competitive threat by the private label companies in this tough economy.

It will be interesting to follow if and how the retailers will retaliate.

While the market grabbed attention past couple of months, the underlying concern is that a global economic slowdown, fueled by a credit crunch, could cut companies’ revenue.  And, given the potential for the economy to slow quickly, IT leaders must engage fellow execs and business-unit leaders directly. Otherwise, people assume a big-dollar project just has to get done.

What else should business technology leaders do amid economic uncertainty? Here are bits of advice from the above mentioned article:
• Have a playbook.
Develop a prioritized project by a variety of factors–cost, resources, technology, time frame, risk–so managers can see their choices as business conditions change.

• Not the same old drill.
Three to five years ago, options such as cloud computing and software as a service didn’t exist hence start evaluating new and disruptive technologies now, in case a tougher economic climate forces spending cuts and new approaches.

• Rogues are reality.
Because smaller IT team can’t respond fast, business units may start rogue projects outside IT.  Be cognizant and let the business go forward, at the same time don’t let them run rampant.

• Fine-tune.
Reprioritize by pushing new-project selection over the next few quarters, assigning high priority to lower-risk projects so the company can respond quickly to economic changes.

• Honestly assess the company’s attitude toward IT.
Is IT a competitive advantage, where spending can help with business problems related to tightening credit and cash flow? Since many companies see IT mostly as a cost to be contained in a slowdown, IT management needs to roll up their sleeves and highlight the ROI for software projects.

According to the article bottom line is UNCERTAINTY = DEMAND.  The uncertain economy only increases the demand on IT. Closer collaboration has been the megatrend of business technology this decade–embedding IT into the fabric of business processes, and forever erasing the line between “IT and the business.” Leaders can’t let this economic slowdown, whether it proves mild or fierce, set back that progress.

GE has taken advantage of Globalization trends and has penetrated into the emerging market aggressive.  It has successfully continued to improve the bottom line.  It has been the only original member of Dow component, but lately GE has been struggling with managing a number of its business unit’s profitability.  Has GE’s growth engine run out of steam now? Let’s look at its diversification strategy.  Management thinkers have developed a framework to address complexity due to lateral diversification.  According to Wikipedia “Lateral or Conglomerate Strategy is when the company markets new products or services that have no technological or commercial synergies with current products, but which may appeal to new groups of customers. The conglomerate diversification has very little relationship with the firm’s current business.”   So the underlying factor is that in lateral diversification the company enters new market even if they don’t have any ‘synergy’ with the existing business.  Companies like GE try to leverage economy of scope, their branding strength and sometimes their size (market capitalization) to penetrate new markets globally, manufacture and service new products.

Success in Lateral Diversification Strategy depends on capital allocation.  The process that allocates capital so as to maximize the return on that capital is an indicator that the company is successfully implementing the Lateral Diversification Strategy.
The GE- McKinseys’ nine-box matrix offers a systematic approach for the decentralized corporation to determine where best to invest its cash. Rather than rely on each business unit’s projections of its future prospects, the company can judge a unit by two factors that will determine whether it’s going to do well in the future: the attractiveness of the relevant industry and the unit’s competitive strength within that industry.  The matrix is shown below

According to McKinsey article on Enduring Ideas, placement of business units within the matrix provides an analytic map for managing them. With units above the diagonal, a company may pursue strategies of investment and growth; those along the diagonal may be candidates for selective investment; those below the diagonal might be best sold, liquidated, or run purely for cash. Sorting units into these three categories is an essential starting point for the analysis, but judgment is required to weigh the trade-offs involved. For example, a strong unit in a weak industry is in a very different situation than a weak unit in a highly attractive industry.

Using this matrix, GE has been successful in allocating its resource in an attractive industry where it can leverage its business unit’s competitive strength.  It has divested and continues to divest from industries that are less attractive and where it does not have any competitive advantages (Example:  GE has divested from manufacturing TVs and currently looking to get out of consumer lending business).

Although this matrix enables the company to correctly allocate capital it does not prevent GE or any other company is from failing to understand the ‘real’ attractiveness of the industry.  Past few years, GE has been wrong (along with all banking and finance companies) in categorizing finance as an attractive industry and GE capital has been responsible for more than 50% of revenue and income growth.  The nine-box matrix does not prevent a company from differentiating a bubble from a real growth story.  That has been the problem with GE share price decline lately.  Although GE is in the middle of this new global turmoil, I think they will emerge out successfully in the long run.  They can continue to successfully use nine-box matrix to allocate resource, but personally I believe that they will also need to invest in a new process (or processes) to identify the real ‘attractiveness’ of a sector and not get carried away by hype like in the past.

Tags: GE Strategy, Business Strategy, Lateral Diversification Strategy

Yet in some instances, IT investments deliver more value to a company’s top and bottom lines—by creating new efficiencies and increasing revenues—than any savings gained from traditional IT cost cutting.  This according to McKinsey Article titled Managing IT in a downturn: Beyond cost cutting

McKinsey Survey has identified number ways technology investments that can have a substantial impact
•    Manage sales and pricing. Develop insights into customer segments and improve pricing discipline to increase revenues without increasing prices.
•    Optimize sourcing and production. Rethink supply chains and logistics to improve the scheduling of deliveries and inventory management.
•    Enhance support processes. Improve the management and use of field forces (such as installers and field technicians) and of customer support centers.
•    Optimize overhead and performance management. Sharpen awareness of risk exposure and improve decision-making and performance-management processes.

The article further says, to extract value from these opportunities, companies must make managerial improvements in two areas.
Developing new insights : Few companies have successfully capitalized on the explosion of data in recent years. Often this information, residing in separate IT systems or spread across different business units, has never been mined for insights that could add value. When such teams use the data to compare best practices across regions or to identify under- and overserved customers, for example, they can identify hotspots of revenue leakage.
Optimizing processes : As IT becomes tightly integrated with processes, breaks in workflows often get built into systems and diminish productivity. Shining a light on these areas with an integrated view of operations and technology may well surface problems, which often involve outdated processes, manual steps, redundancies, and bottlenecks. An 80/20 approach can highlight a modest number of activities that, when corrected, deliver a disproportionate amount of value. Companies can usually apply these fixes in short order. Adjustments to workflow processes may also promote greater adherence to corporate sales-discounting and bidding policies.

These findings by McKinsey, highlights the need for companies to have an IT strategy.  Without well thought out IT strategy, any macroeconomic changes (as seen in the past few days) has a tendency to derail IT investment (be it in infrastructure like virtualization or software implementation like SAP).  Companies that refuse to lose focus due to these short term distractions, and continue to invest in their IT, will in my opinion emerge much stronger at the end of this proverbial dark tunnel.

Tags: IT Strategy, McKinsey, Managing IT

According to the article good IT leaders need to hone in on how the technology affects their customers, rather than focusing on the technology.  Customers’ decisions are colored by their past emotional experiences, triggered by circumstances and driven by subconscious beliefs. Therefore, CIOs must know their audience and communicate and address those hidden emotional issues.  Article also notes that CIOs also need to understand that the art of persuasion, unlike logical ability and awareness, is “downright irrational.” IT people often have no idea that what they are saying provokes anxiety in the people they’re trying to persuade. IT managers should be striving for a brand that evokes positive feelings.  So, CIO needs to rebrand themselves as ‘transformational leader’.

As it turns out IT managers and CIOs might be under the impression that they are dealing with the IT hardware and software and communicate the technology status to the stake holders (non technical managers and customers). In reality, those stake holders are interested in understanding the impact of that technology on the business.  Not only that IT has continues to be disruptive by challenging the existing business process.  But it becomes the job of CIO and IT Managers to ‘sell’ those technology solutions to the larger audience.

Tags: CIO, IT Strategy, Branding CIO