Thumbing through the current issue of Wired, I came upon a multi-page ad spread from Microsoft, and I saw what looks like an interesting juxtaposition, though there was nothing in the ad itself that made the connection. I have also been interviewing some of the industry’s best and brightest recently on the subject of revenue performance management, or RPM, and the combination provided the source of my fascination.
The Microsoft ad is about the “Cloudcycle, a Hybrid Model,” which discusses both private clouds — an oxymoron as far as I am concerned — and public clouds, private clouds’ counterpart. The purpose of this piece is not to discuss whether clouds should be free, or if it’s even logical to privatize a cloud. I’ve written on this before. My interest in the ad is in the middle by the fold — it’s the 70/30 shift in which Microsoft says, “… 70 percent of the IT budget is spent on sustaining and running basic IT operations and 30 percent for increasing business value through IT innovation.”
Seventy-thirty is about right, and it’s a ratio we’ve been familiar with for a long time. Microsoft is right in highlighting that with cloud computing — “… CIOs and IT leaders can spend less time keeping the lights on and devote more time to driving innovation to increase business value.”
Strategy vs. Tactics
What I find somewhat ironic and interesting is that where IT is becoming more strategic and creative, departments like marketing are becoming more tactical and quantitative (which can drive strategy!). In interviews with Phil Fernandez (CEO of Marketo), Bruce Cleveland (a VC with InterWest Partners and former Siebel executive) and Thor Johnson (the pioneering former CMO of Eloqua and leader of his own Team Thor Marketing), all three tell the same story about marketing.
It’s rather simple: Marketing and marketers need to learn to speak the language of the C-suite about revenue, ROI and investment in order to take a seat at the table with these executives. The language of clicks, impressions and booth space is still relevant, but it’s not something the C-suite ever got comfortable with. Marketing’s big job is to build bridges to the other side with talk about cost per lead, revenue per lead and revenue from specific programs.
As Phil Fernandez told me: “When a marketer appears in a CFO’s office and uses language like that, the CFO first thinks, ‘Who are you and what did you do with my head of marketing?!’ But the second thing the CFO thinks is, ‘Wow! This is incredible, let me open my mind to investing more and to how those investments are actually driving revenue.’ It’s transformative for the way an organization can work.”
Indeed it is.
In Violent Agreement
So the interesting point for me is that at this moment, IT and marketing (and other front-office departments too) appear to be going in opposite directions. Marketing is becoming more quantitative and IT is becoming more flexible, strategic and creative in its own way. But look a little deeper and the two are in violent agreement. Each is striving to think outside of the box and deliver something new that is more flexible and provides more business agility.
Even more interesting to me is that much of this is driven, at least to a degree, by tight resources. IT has learned that the budget is not as elastic as their applications need to be, and marketing is learning the same thing plus value of quantitative analysis. In the face of those necessities, if you can call them that, innovation is blooming.
I hope these shifts are permanent — better, faster and cheaper usually are — but they are just shifts, and they eventually lead to new equilibria. As a new IT equilibrium is reached, we can expect shrinking IT budgets (in inflation adjusted dollars), but for a long time there will still be a similar ratio of expenses going to support the existing infrastructure against expenses for innovation, at least because we’re comparing a high-cost on-premise regime to low-cost SaaS. In a so-called private cloud, all bets might be off if the cloud is owned by IT or its costs are equivalent to in-house systems. But what would the world look like if the ratio actually flipped, if IT spent more on strategy and innovation than on keeping the lights on?
The same is true for marketing. Marketing’s creative side isn’t going away; it can’t. As Fernandez said later in our interview: “I sometimes worry that all this talk about the quantitative side of marketing is losing sight of the creative dimension of marketing, which is important too … you still have to deliver content to the customer because that’s part of the equation of what marketing has to sell. Marketing doesn’t have widgets to sell; it has ideas.”
Much the same argument can be made for sales and service in the front office, and what we’re left with is IT in some ways catching up with the way we work in the front office while the denizens of sales, marketing and service learn to be better corporate citizens. It is ironic and wonderful that this invention is driven by basic necessity.