I just read an interesting article in CIO decisions that talks about how IT's costs are continually rising, profitability of companies is becoming razor thin, and that IT (if it continues at this rate) will eventually put business out of business. There are several points to this article, and I applaud gentlemen like Greg Hackett for stepping out and stating things that most of us (including me) don't often see. It's like taking time to stop and smell the roses, you know you should do it, but when you have a split second decision to make, do you really stop?
The article: "How IT is putting you out of Business", is written by Christopher Koch, and is a bold interview with Greg Hackett. It get's down to brass tacks. There are a couple of points that I really like about the article, and then there's a few things I'd like to think about differently.
One of the major points is that IT's costs are rising, faster than profit margins, and in fact, profit margins are shrinking, even though quality is improved, delivery time is improved, and over-all satisfaction (on a customer basis) is improved. He mentions that some of this is due to the lack of attention to external information, external competitive analysis. Some of this is attributed to the cost of infrastructure that IT is bringing to bear on the company for managing internal information systems only. He also talks about IT as a cost center, from a basis of always being over-head - which in my opinion is true, until you can turn IT from a cost center into a profit center.
I found it fascinating that he suggested an increase in the profitability actually can drive stock price down, due to a variety of factors. This has a negative connotation on managing the market place from a pricing perspective. He lists some sobering numbers about the number of companies that have crashed, been eaten up (and subsequently gutted), or completely wiped out by competition.
So what are we facing here? What's going on in the market place? and Why are you writing about this in a BI blog?
Well, I'm writing about it here, because IT has been "my life" for a long time. I've been around the block with Business Users, and understand how to communicate with the business sides of the house. In fact, my minor is Business Administration, and now I'm involved in entrepreneurial activities. All that aside, I've gotten to the point where I can work with business users, and work with IT to turn IT into a profit center (away from the cost center). However, this requires standards, procedures, and common business practices. IT must be managed like a business, because it IS a business. I blogged about turning IT from a cost center into a profit center a while back, and in the future I'll add more to this type of discussion. I do however believe that IT is raising costs, and cutting into the already razor thin profit margins available, this needs to stop!
One of the problems is the sheer size of Infrastructure and architecture that IT sets up for enterprise operations, another problem is that IT has become so focused on maintaining the tasks at hand that they may have lost site, lost budget, lost people (or all of the above) and can't put forward new projects. Another of the problems is the lack of mature Infrastructure Management Tools, lack of mature architecture management tools, and lack of automation at these high levels. The next "big technology swing" will meld low-level infrastructure tools together through metadata, through process, through execution, and have a pluggable front-end GUI that is easy to use, and allows management over all of these under-lying infrastructure tools/devices.
IT needs to charge back to internal and external customers for disk space, project hours, estimations, and so on. IT needs to get good enough to center their employees on standardization, and automation of tasks.
But more than that, a great point that Hackett made at the end of the article is the fact that IT is so focused on internal data management, that they are no longer enabling the business for competitive intelligence and advancement. Unstructured Information and Text mining is out there, IT needs to shift it's focus (and fast) to including external data sources, and figuring out how to contextualize that data so it makes sense to the business. In other words, IT needs to enable infrastructure that can assist / automate in the gathering of outside information that may have relevance or bearing on what decisions the executive offices should be making.
Think about it - let's take two examples: Google is literally "one-big-IT business", and quite possibly, Yahoo is the same. In the search engine world, they each try to out-do the other. How? by internalizing as much external information as possible, and then putting it together so it makes "more sense" to their customers than the other search engines (competition using external data). The one thing these companies cannot count on is "customer loyalty." Most web-users these days will use any search engine that will find interesting items that fit their needs, and they'll switch search engines without thinking twice, just to get a different look at results.
These companies SURVIVE by internalizing external information; it is their way of business. We could learn a few lessons from this in the IT departments of the world, and hopefully begin to understand that a) 80% of our data is unstructured b) IT has been focused on 20% of the data set for the past decade or more, c) of the unstructured data, I would argue that at least 60% of that is external - and would have relevance, bearing, and direct impact on our corporate bottom lines (profitability), probably more relevance than the internal data mountain (to some degree).
As was pointed out in the article: the CIO who drills down to slush machines in Texas isn't doing their job. The CIO who is mining and integrating EXTERNAL information with the INTERNAL information (as checks and balances), has the superior dash-board, or superior content from which to make accurate decisions (possibly avoiding disaster).
Do you have any thoughts on this? I'd love to hear them.
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Posted March 7, 2007 10:48 PM
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