Sea Changes, Tsunamis & Wake-Up Calls

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We love to think big. We love to pay attention to macro trends, to pretend that we’re in the midst of “significance.” So where are we now? Is the business/technology relationship changing? Are really big things about to happen? Yes. Let’s look at some of them — and how you should respond.

Operational Versus Strategic

All of the discussions about the commoditization of technology are accurate to a point. There’s no question that PCs, laptops and routers are commodities; even some services — like legacy systems maintenance and data center management — have become commoditized.

But the real story here is not the commoditization per se but the bifurcation of business technology into operation and strategic layers. Operational technology is what’s becoming commoditized; strategic technology is alive and well — and still a competitive differentiator, in spite of what some recent articles have been arguing. ( Perhaps the most famous of these misguided treatises was Nickolas G. Carr’s IT Doesn’t Matter, published in the Harvard Business Review, May 1, 2003.)

What’s the difference? Operational technology supports current and emerging business models and processes in well-defined ways with equipment and services whose costs have become stable and predictable and have generally declined significantly over the past decade. Hardware price/performance ratios are perhaps the most obvious example of this trend, but there are others as well, including what we’re willing to pay for programming.

Strategic technology, on the other hand, is the result of creative business technology convergence where, for example, a Wal-Mart streamlines its supply chain, a Starbucks offers wireless access to the Web, and a Vanguard leverages its Web site to dramatically reduce its costs. There’s no limit to how creative business technology convergence can become; there’s no limit to how strategic the business technology relationship can be.

Kinder, Gentler Technology

The technology industry is consolidating, not in absolute numbers, but in terms of the number of companies from which companies buy most of their technology. There’s much more of a tendency to buy from those with the largest market share than from smaller vendors, even if these vendors are spectacularly hungry for business (and therefore more willing to deal).

Some of this is because of risk aversion, and some because we’re now comfortable with a relatively small number of vendors as suppliers of our computing and communications technology and services. RFPs that used to be sent to 10 PC/laptop manufacturers or VARs are now sent to three or four; requests for data base management platforms now only go to two or three DB vendors.

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There’s also a general increase in discipline used to acquire, deploy and support technology. Our survey data suggests that we’re getting much more disciplined about use of business cases, total cost of ownership models, return on investment calculations, and project management best practices than we were a decade ago.

Some of this is attributable to the general bear market, but some from our discovery of key relationships, like technology variation and support costs or formal versus “informal” project management and project success. We’re just better at making technology investment decisions.

But the real kinder, gentler trend is our increasing ability to make disparate stuff — data bases, hardware systems, applications — work with one another. We’ve seen the field move from application programming interfaces (APIs) to data extraction, translation and loading (ETL) to enterprise application integration (EAI) to Web Services — all in about a decade. Good progress to an even better end game: ubiquitous transaction processing through seamless technology integration. Integration is now a core competency in many companies and the industry has responded with a barrage of new tools to make things cooperate. This trend will continue and threatens to dramatically alter software architectures and technology infrastructures.

Who You Gonna Call?

The final major trend is our willingness to optimize sourcing. As more and more technology gets commoditized, we’ll see more and more hybrid sourcing models. Some companies outsource lots of processes while others have adopted a co-sourcing model where their own people work closely with the outsourcer. The trend, however, is clear: companies are re-evaluating their sourcing strategies and have lengthened the list of potential candidates for full or partial outsourcing. Some of these include help desk support, production programming and application maintenance. If we extend this trend it’s likely that we’ll see a lot more hosting of large applications that companies will increasingly rent instead of wrestling with implementation and support challenges.

Do these changes constitute a sea change, a tsunami or just a wake-up call? Yes. All of the above — and then some. Does this mean that we’ll soon be plugging into utilities to get what operational support we need? Does it mean that we’ll be managing our operational technology much like a general contractor does when building a house? Does it mean that a premium will exist for new architectures and creative uses of new business technology? Yes.

Steve Andriole is the Thomas G. Labrecque Professor of Business at Villanova University where he conducts applied research in business/technology convergence. He is also the founder and CTO of TechVestCo, a new-economy consortium that focuses on optimizing investments in information technology. He can be reached at stephen.andriole@villanova.edu.