The Future of IT Personnel in the Enterprise

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McKinsey’s Business Technology Office published it’s latest global survey on IT trends today. It is an interesting read and I suggest checking it out if you have a few minutes to spare. The summary of the results are as follows:

  • Firms are recognizing the importance of strategic value that IT brings to making the overall organization more efficient.
  • Most organizations do not feel that their IT current staff is capable of capturing that value. This thought is driven primarily by the IT executives in the organization, followed by the business leaders.
  • Organizations envision shifting their IT spending away from infrastructure and more toward analytics and innovation.

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I found these points contradictory. Although I believe there is a sentiment that there is a strategic purpose in IT, IT departments are still looked at as a cost center, and rampant cost cutting in IT departments continues on a yearly basis. This cost cutting isn’t necessarily due to the movement to the cloud as the survey suggests – in fact it’s quite the opposite. Moving data into the cloud still requires heavy infrastructure. As a firm consolidates their hardware, they are just buying more complex and thus more expensive hardware to support it. Furthermore, the data explosion that continues to happen as firms keep most of their data electronic, coupled with the compliance laws such as Sarbanes-Oxley which require data to be kept for a certain number of years is only increasing infrastructure costs.

Yet, businesses still aim to cut IT as much as possible. Most of the large financial institutions are cutting their annual IT spending budget anywhere between 10%-15%. Unfortunately, when these firm’s can’t cut out the infrastructure, they instead cut their personnel. It is quite easy to cut IT personnel. There hasn’t been a major disruption in IT since the introduction of virtualization technology, and instead, the technologies that are used heavily have become mature to the point where they are very simplistic to implement. Couple that with the proliferation of knowledge on the internet, where one can just Google for any issue they are trying to solve, and it has made supporting IT infrastructure very easy. It’s essentially commoditized IT.

This commoditization of IT has naturally led to downward pressure on salary. Companies are also not investing in their IT personnel by giving them training, even though the survey alludes to the fact that organizations believe they should. Even if the company does invest in them, they only send those employees to courses/seminars which teach administrative tasks. As these employees gain seniority, their salaries increase, but their skill sets didn’t match the salary. That’s when the companies realize their IT budgets are too large and look to outsource. This is especially true in the operational roles within the IT department (e.g. server admins, database admins, helpdesk, etc.). These roles are then being increasingly outsourced to India where firms like Wipro and Genpact have been the main beneficiaries. The downside to the outsourcing is that roles will never bring added value to the organization – they are there to perform the operational tasks and that is it.

So in short, firms see the value of IT, yet are not investing in it, are outsourcing their staff, and then complaining that IT is not brining strategic value to the enterprise.

This actually leaves the IT personnel in today’s global businesses in dire straits. With those employees now out of a job, they are stuck in a very difficult position – they don’t have the skill set that current IT firms are looking for, and they are too expensive. This, unfortunately is the ugly side of “growing up” within IT – at some point, you become too old and too expensive and don’t have a specialized trait. There will always be someone younger, and willing to work much harder for a cheaper salary. Companies know this, even if they don’t publicly speak about it.

How do we solve this problem? Well, we already know that operational roles will no longer be necessary in the future. Either technology will evolve to automate those tasks, or they will just be outsourced to the lowest bidder. Instead, what can’t be outsourced is the design of these infrastructures, along with the architecting of solutions. McKinsey’s survey alludes to this also, as demonstrated in the following chart:

 

image

*Exhibit 6 from McKinsey’s Global IT survey

 All of the roles mentioned in the chart above point to the same thing – creating solutions that help the business become more profitable. Of particular interest is the the “Joint business and IT expertise” category. Companies will need IT executives with MBA’s or other strong business experience. Sending IT personnel to business oriented classes, instead of the pure technical classes is one way to address this. If the firm won’t do it, then I suggest that IT employees take the initiative to start learning basic business principles and applying them to their work.

You can easily move away from being a “cost” to a business to becoming a valued asset, once you can show the business how you can help it improve, and thus make more money.

Key Takeaways:

  • Companies are beginning to understand the strategic value of IT, but have not found a way to capture this strategic value.
  • Even so, IT is still looked at as a cost center. Firms are not cutting cost on infrastructure and instead cutting cost on personnel.
  • The IT employee has become commoditized; operational roles will continue to diminish to the point of obsolescence.
  • IT personnel must begin understanding business principles and applying it to their jobs to become an asset instead of a liability.

The Lean Startup Methodology will change how Enterprises build products

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In this hyper-competitive age, enterprises are not only dealing with stiff competition from their peer enterprises, but also dealing with competition from startups that are trying to disrupt the market that those enterprises dominate.   It is for this reason that Enterprises need to get better at building products. And they need to be able to build them faster, and at the same time, fail faster in the event that a product doesn’t work out.  This is especially critical as most startups are very nimble and can pivot quickly to build a better product.  Enterprises have difficulty doing anything quickly.  In fact, it is so difficult that this according to this Harvard Business Review article, 75% of consumer packaged goods and retail products fail to earn $7.5 million in their first year!

We have many examples of failed products right in front of us (see: Microsoft Vista or Blackberry Playbook).  So, how can enterprises become better at this?

Enter the Lean Startup Methodology.   Although this methodology was primarily created for helping startups build a product quickly, it is beginning to be adapted to work in different industries. .  As such, enterprise are beginning to adopt the Lean Method to help them build successful products faster.

James Donnelan has an excellent blog post which explains what the Lean Startup Model is all about.  He writes:

…the lean startup model, when you boil it down, simply says that when you launch any new business or product you do so based on validated learning, experimentation and frequent releases which allow you to measure and gain valuable customer feedback. In other words – build fast, release often, measure, learn and repeat.

The ability to “build fast, release often, measure, learn and repeat” is the core principle to the Lean methodology, and is a critical element that many large corporations are missing today.   James goes on to list the principles of the Lean Startup Methodology:

    • “Use a continuous delivery model to release new features quickly with the least amount of friction.
    • A/B test different versions of the same feature on different user segments to identify which is more valuable.
    • Act on metrics – if you can’t measure it you can’t act on it to ensure that you are always improving the product.”

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We’ve already seen some companies adopt this methodology.  Facebook and their release of code 2x a day being a very popular example of how this methodology is working in the enterprise.   But companies like Facebook and Google are quite innovative and therefore not the best example of your common enterprise.  The typical company will need assistance in learning how to implement LSM and will need access to tools that will keep them committed to this methodology.

I strongly believe that most companies will have to adopt this methodology, in order to succeed in today’s competitive market, and that is why I’m thrilled to announce Clippership’s investment in a company that is at the forefront of this movement.   Along with Upfront Ventures and others, we are proud to be investing in  Lean Startup Machine.   Trevor Owens, the founder and CEO of Lean Startup Machine has been a thought leader in this area, and the company is already offering hundreds of Lean Startup workshops over the world.  Trevor and his co-founder/CTO Obie Fernandez have also written a book about how the LSM can be implemented in the enterprise.  It is a must read for all those that are looking to get a head start on learning this methodology.

Key Takeaways:

  • Enterprises are facing stiff competition not only from their peers, but also from startups that are trying to disrupt markets.
  • Enterprises will need to get better at creating/updating products quickly.
  • The Lean Startup Methodology will be the new de factor methodology that enterprises will use to create and deliver successful products.

Technology: Outsourcing vs. Keeping it“in house”

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Deciding between outsourcing your IT organization vs. keeping it in house is not as straightforward as deciding which method will save a company the most money.  It is a very unique decision to each organization that revolves around the the culture of the organization itself.   I recently performed a technology audit for a firm to help them determine whether they should outsource their IT organization (infrastructure and support personnel), or continue supporting it “in house”.     Here are some things to consider when deciding whether to outsource or insource:

  • Size of Firm – We always believe with starting with a hypothesis and then gathering data to either support or refute our hypothesis.  In this case, we looked at what our client’s peer firms of similar size were doing.  Some questions we asked to help us form our hypothesis:
    • Were this company’s peers outsourcing?
    • If so, were they successful? 
    • Did these companies outsource their entire technology organization or just a portion of it?

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Based on this data, we formed a hypothesis that our client should outsource their entire technology organization.

Next we moved to the data gathering stage of our engagement.  Our goal here was speak to various stakeholders of the organization to get their views on the business and the role IT plays within the enterprise.  We also reviewed the current state of the technology infrastructure to determine how proprietary the data and applications were, and how current the state of the technology infrastructure was:

  • Feedback from key stakeholders in the business  – We conducted interviews with both business executives, IT executives and end users.  These interviews focused on the following areas:
    • Business executives – our interviews focused on the current strategy of the business.  Some questions that were asked:
      • Is the firm planning to expand?    Is the expansion going to be national or international?  
      • Are there any major initiatives the firm is undertaking that will require heavy involved from the technology organization?
      • Is the firm trying to cut costs?  
    • IT executives  – The interview with the IT executives focused on how the business used technology.   Some questions that were asked:
      •   Is IT in the organization highly specialized? 
      • Are there many home grown apps that are critical to the organization that cannot be supported outside of the organization?  
      • How complex is the IT environment?  
      • How large is the IT budget and how efficiently is the budget used?  
    • End Users  – The interviews with the end users focused on how they leverage IT.  Some questions that were asked:
      • Are users very demanding and require personal attention?  
      • Are their IT systems stable?  
      • What are their opinions of the current state of IT and the support they receive?

We then performed the technical audit of their current technology infrastructure.  Some key areas we focused on were:

  • IT infrastructure 
    • Is the technology infrastructure up to date?   
    • How well documented are the processes surrounding  mission critical applications?  How often are they updated and by whom?
    • When are hardware warranties expiring?  
    • How often are software upgrades performed?

 

Summary of Results – Here is a summary of our findings from this audit:

  • Our client was not planning on expanding – in fact they had a strong directive to cut costs as much as possible.
  • Although there were some applications that were home grown, the vast majority of their infrastructure was running on well known systems (i.e. Microsoft, Oracle, etc.)
  • The end user was pretty self sufficient when it came to their IT needs and most were able to work without the assistance from the technology organization.
  • The technology infrastructure was a bit outdated.  The firm typically does not upgrade their infrastructure unless the hardware is out of warranty or of software has reached end of support and/or end of life.

Based on those findings, we recommended that the firm outsource their entire technology organization (infrastructure and personnel).

The information that I’ve listed here is just a small subset of the data gathering and analysis we performed.   My point for providing this information is to discourage companies from making this type of decision based solely on financials.  In fact, a common  misconception of outsourcing is that it ultimately saves the firm money.   We have found this to not be completely accurate.   Instead, we have found that firms who only outsource to save money, ultimately bring their IT support back in house. This is because they did not consider other factors that we mentioned above, which led to the transition being quite disastrous.    So, while the firm may have saved money in the interim the cost of transitioning to an outsourced environment and transitioning back to in-house usually wipe out those cost savings.  In these scenarios, the saying “you get what you pay for” holds very true.

 

Key Takeaways:

  • IT outsourcing is a decision that is unique to every firm.
  • Areas besides cost should be considered when determining if a firm should outsource.
  • Firms that outsource solely because of cost savings usually wind up bringing IT back in house.

Hybrid Computing and it’s impact on Enterprises

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I believe the most impactful technology for all industries is cloud computing – specifically hybrid computing. There has been a general trend to hosting data and infrastructure in Co-Location facilities for quite some time. This trend began out of concern of separating a business’s two most critical assets – its data and its people. Today, cloud computing, along with Software as a Service (SaaS) and Platform as a Service (PaaS) will ultimately drive business growth.

Cloud computing is a bit of a misnomer – the Internet can be considered one gigantic cloud of computers. For the purposes of businesses however, I define cloud computing in the private sense – the ability of businesses to store their IT systems and their data in a 3rd party location that is still managed by firm personnel. These systems, for the most part are still under the control of the IT departments, notwithstanding any issues that may occur in the Co-Location facility itself. There is also the public cloud where data is being stored in a 3rd party location, and the business does not own or directly manage the infrastructure. An example of a public cloud application would be Google Mail for Business, or Office 365. A hybrid cloud is a system in which a business utilizes both a private and a public cloud and shares data between the two. Software as a Service and Platform as a Service are service delivery models that allow businesses to scale up (or down) certain software or platforms on a demand basis.

The major industry issue this will solve is that it will allow businesses to grow quickly. Today, companies have to predict growth rates of their firm, and usage rates of their mission critical applications. Poor planning of these rates can lead to either underestimating the amount IT resources need to support this growth, in which case the business either has to scramble to catch up, or it leads to wasted resources if the business overestimates its growth and usage rates. By introducing SaaS/PaaS into their existing infrastructure, the firm can scale up or down, on demand, and also share their data within the hybrid cloud. This will allow for greater efficiency for the business and ultimately drive growth for the business as they will no longer have to worry about having too much or too little IT resources available to them.

It’s not all positive when it comes to cloud computing, especially with the public cloud.   Once you outsource some part of your infrastructure to a 3rd party, you essentially lose control over how those services are managed.  For example, you cannot control when Microsoft or Google performs maintenance on their systems.  Your firm may have a major proposal due via email at a certain time, and you cannot ask to have that time changed.  With that said. these companies do give plenty of warning when they are performing maintenance and do tell you which services will be unavailable during that downtime.

Of bigger concern are security breaches that may occur on these systems.  Since these services are more public, they is a greater likelihood they they will suffer from a cyber attach, which may either cause downtime, or worse stolen data.   There have been plenty of stories recently of data breaches and downtime due to DoS attacks.   These firms do take great measures to protect their clients data, but it always seems that hackers are one step ahead of them.

Overall, I think the benefit and cost efficiency of using cloud computing systems far outweigh the cons.  We will see firms shift more to cloud based systems, and I expect there to be greater innovation in this area.

 

Key Takeaways:

  • There are two types of “clouds” – the public cloud and the private cloud.
  • Cloud computing allows businesses to scale quickly.
  • Cloud computing systems are more prone to security attacks and stolen data.
  • The pros of cloud computing outweighs the cons.

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