Tight Purse Strings Force IT to Grow Up Fast
Financial pressures are forcing an array of new adjustments on IT leaders. CIOs are gaining new perspectives and developing more mature strategies for giving IT a more central role in how a business innovates productively. It all comes down to operating like a business within a business.
A number of major trends are changing the finance game for IT leaders, especially in terms of how they operate like a business within the business. There's a heightened emphasis on measuring cost, service management, hybrid computing and outsourcing that leverage Software as a Service (SaaS) and cloud models.
There's also a recognition that collaboration and coordinated business processes need to expand far outside the four walls of the company. IT needs then to increasingly support ecosystems and better apply extended enterprise process governance, while striving to save money.
So how can IT adjust to these financial pressures? What must they do differently? BriefingsDirect recently interviewed an executive from Ariba to learn how CIOs specifically are seeing the world anew financially, and how they can develop mature strategies for making IT more central to helping businesses innovate productively.
Jason Kurtz, vice president of network and financial solutions at Ariba, is interview by Dana Gardner, principal analyst at Interarbor Solutions.
Listen to the podcast (26:48 minutes).
Here are some excerpts:
Jason Kurtz: We've certainly seen several big changes. One is in the resource-constrained world. There are bandwidth constraints to support business innovations.
When I talk to CIOs, one of the biggest issues on their minds is, how do I make sure I am allocating more of my time and efforts in technology that supports business growth and innovation, versus the maintenance of existing systems? That's very different than the focus that you would have had in years past in terms of driving internal automation. That's one big change we've seen.
Two is clearly the adoption of SaaS technologies and the impact that's having on IT organizations. We see it completely changing the way companies think about IT investment, not just capital expenditures versus operating expenditures, but the roles and responsibilities that an IT organization has and how it interacts with its internal customers within the functional parts of the organization.
Three, I think you referenced it a little bit earlier, is not just a maniacal focus on managing costs, but also the adoption and return on investment (ROI) that is generated from IT investments. There's always been a focus on getting a good ROI, but I think it's a much more significant focus across the organization on doing that, and particularly from an IT organization in terms of making sure that they have the ability to measure that.
Four was just a focus on inter-enterprise collaboration. Rather than focusing on the internal process efficiency and effectiveness within the four walls of a company, CIOs are starting to realize that the next wave of productivity will be outside their four walls, what some refer to as "inter-enterprise collaboration," meaning how an enterprise automates the processes and the way it collaborates with its customers and suppliers throughout the supply chain. ...
About 50-60 percent of companies who are moving to a SaaS environment or the cloud are doing it because of the cost reduction opportunities inherent in not having to deploy, manage, and support applications.
Not only do they get the cost benefits of that, but they typically have time-to-deployment benefits and less time-to-realize-value and flexibility benefits that they didn't have due to resource constraints within an organization. That's a very common trend in the market, and specifically within Ariba's customers, and we expect to see that trend continue.
Dana Gardner: I'm really interested about this notion about how IT needs to operate more like a business. What is it that IT needs to do in terms of becoming more like some of the other business units or functions?
Kurtz: It starts with a really well-defined set of goals and objectives. Why are we going to undertake something, what are we hoping to accomplish with that, and how are we going to measure that? What are the key performance indicators (KPIs) that we'll be able to track success with?
To your point, there were certainly times in the past when everyone was buying into the latest and greatest technology, or something that was new and cutting-edge, and wanted to try and experiment with it. Given the economic times over the last several years, the willingness of companies to just experiment and see what happens is dramatically less, and you see IT organizations taking on a much more ROI-driven approach.
So it's having a very well-defined business case for investments or initiatives that they're taking on, and making sure not only they understand what that business case is, but their internal stakeholders understand what that business case is and are committed to signing off on delivering those resources.
And it's not just an IT approval, but it's a CFO approval in many cases, and they're really holding their internal customers and stakeholders' feet to the fire and measuring on a regular basis what the ROI is for that specific initiative. We've seen a dramatic shift in the governance around that kind of ROI and adoption process with all of the initiatives that we see our customers undertaking, much more so than we would have seen two, three, or five years ago.
Gardner: I've seen where the way that IT is able to cut cost, but also actually increase their influence and impact within the organization, is to identify core-versus-context types of IT activities, and for those non-core ones, look to increasingly outsource or partner.
Kurtz: Again, a trend that fits exactly in line with that is that we see customers taking advantage of the cloud or SaaS, particularly for non-core activities.
Take, for example, integration. Integration is required in today's world, whether you're integrating within your four walls or outside your four walls, but is that really a core competence that you want to have as an organization. Or, do you want to rely on third-party integration as the service solution providers who can usually do the integration work faster, cheaper and more flexibly? We're seeing that's just one example of ways customers are taking advantage of that.
Also, of course, the solutions that Ariba provides in the spend management space, we're seeing where customers want to focus on the core enterprise resource planning (ERP) capabilities around finance and operations and leverage tools like Ariba's Spend Management Suite to help their organizations buy better and connect with their ERP, but do it in a cloud-type of way.
Gardner: One of the things that I keep coming up against when I talk to folks in IT is that there's still the manual paperwork at the spreadsheet level, when it comes to managing contracts and licenses and keeping track of use-pattern licensing, and how to charge back for that. It's a nightmare for them.
Kurtz: We have many customers who use our spend management solutions to manage their IT spend, whether that's the sourcing and negotiating of hardware or infrastructure or contract labor or software licenses, managing the contracting process and the ongoing contracting lifecycle of that, all the way through the procurement of it and then the relationship management aspects of it. We absolutely support those processes that IT organizations need to manage their cost within their organization.
Gardner: Is IT really a laggard when it comes to automation at this level?
Kurtz: You would be really surprised how much we see in terms of the world continuing to be a very manual set of processes and capabilities. If you look at it not just within IT, but if you take a step back and look at it on a broader basis, across the market, we see 80 percent of business-to-business transactions still completed completely manually. We see 85-plus percent of invoices and payments still being paper based or people cutting checks.
We see the vast majority of early payment discounts are completely missed. Some estimates indicate that 70-plus percent of all early payment discount opportunities, which procurement and other organizations work so hard to negotiate, get missed. The estimate on what this cost companies around the world is (US)$650 billion in economic impact annually.
The very core of this problem is how an IT organization connects their internal systems, most likely ERP, within an organization to the systems and ERPs of their customers and suppliers to automate that supply chain. That's where the big automation opportunity, efficiency, and effective gains are, or will be, next is just because the proliferation of all the combinations of systems within your organization, your suppliers, your customers.
Just think about the number of combinations that can be and how it can be very, very challenging and difficult to connect those systems into the optimal or most efficient supply chain.