The C-suite Challenges IT: New Expectations for Business Value

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Executive summary The advent of cloud computing, the ubiquity of smart mobile devices and the flood of data available for analysis are creating new ways for businesses to serve their markets and enhance their operations. To capitalise on these opportunities, companies are changing the way they use and organise technology, bringing unprecedented change to corporate IT functions, as Economist Intelligence Unit research, sponsored by Dell, demonstrates.

Key findings, based on a worldwide survey of 536 C-suite executives in late 2011 and interviews with corporate leaders and industry experts, include the following.

• Almost six in ten (57%) of the executives surveyed for this report expect their IT function to change significantly over the next three years; 12% predict a “complete overhaul”. As part of this change, 43% say their company will increasingly use IT as a commodity service to be bought as and when needed. To put this in context, consider accounting, human resources or any other business function: could any of these reasonably imagine such radical change in the next few years?

• Conventional trade-offs between using IT to grow one’s business or to cut its costs need no longer apply. Respondents from companies that are focused on using their IT to grow revenue see their companies more effectively cutting costs than those from organisations that prioritise cost cutting. New opportunities in IT can offer effectiveness and cost efficiency, not merely one or the other.

• One in six CIOs are only “consulted” or have no role at all when IT strategy is formulated. This means that they are implementing an IT strategy that they had scant influence developing. The marginalisation of the CIO is a choice, exacerbated by disconnects between CIOs and their C-suite peers about the value and priorities of the IT function. The situation is aggravated by a lack of confidence in CIOs: fewer than one-half of C-suite executives rate their own CIO positively in terms of understanding the business (46%) and the technical risks (44%) involved in new ways of using IT.

• CIO involvement in setting business strategy appears to go hand in hand with superior financial performance. Of the 37% of respondents who say their CIO is actively involved, nearly one-half (47%) describe their company’s financial performance as superior to that of their industry peers. Of the 20% who say their CIO has no role in business strategy, only 28% say they are performing better than their peers.

• Most firms want to use IT to cut their costs (38%) or improve business efficiency (42%), but there is also a clear demand for IT to add value in new ways, such as developing new products and services (22%). These endeavours may not be mutually exclusive: many companies are making improvements that not only improve efficiency but also offer new products and reduce costs.

• Cloud computing, a key development facilitating these shifts, is already widely adopted. Nearly one-half of companies (47%) are using private cloud services, and even more (54%) are using cloud models to access business applications as a service. A substantial minority of companies are even using the cloud for business-critical functions (34%).

• Security (51%) is executives’ primary concern with regard to cloud computing, and many firms are holding back to avoid the potential risks. Fully 43% of respondents are concerned about their reliance on a third party for their IT, and 38% are explicitly apprehensive about the reliability of available solutions. These downsides are real, but to take advantage of these opportunities, many companies are now managing to treat such hazards as just another of their many enterprise risks: something to be assessed, measured and mitigated.

About the survey In late 2011 the Economist Intelligence Unit conducted a survey of 536 C-suite executives. More than one-third (36%) of respondents were CEOs and 20% were CIOs with the balance spread across other C-suite titles. This survey was global in scope, with 29% of respondents based in western Europe, 29% in North America, 28% in the Asia-Pacific region and 14% in the rest of the world. Nearly one-half (47%) of respondents came from organisations with more than US$500m in global annual revenue. Respondents were drawn from a range of industries, including more than 50 respondents from each of the following sectors: financial services, IT, healthcare, education and professional services. This paper is based on the results of the survey and the insights from the in-depth interviews.

IntroductionInformation technology (IT) never stands still. The range of technical and strategic options available to large organisations has evolved rapidly since the arrival of the first corporate mainframe systems in the early 1960s. But amid that change one factor has remained relatively constant: big firms have had a central IT function that controls the technology infrastructure and makes services available to business units and employees.

Although the trend to outsource IT services has eroded the dominance of this structure, it still persists. But for how much longer? A confluence of new technology trends – notably cloud computing, the inclusion of mobile consumer devices into the business environment and the ability to process vast data flows – may transform the way companies use IT.

The impact of these technology trends will not be limited to the IT function. They create opportunities for companies to develop innovative products and services, to connect with customers in new ways, and to rethink traditional business processes. Some firms have been quicker than others to spot the potential value in these shifts. But regardless of how they position IT in their business model, fewer than one-half of respondents say their use of IT drives competitive advantage for them. This suggests there is plenty of scope for firms to employ IT in ways that really make a difference to their business, whether by helping to develop products or services, improve business processes, cut IT infrastructure costs or some combination thereof.

If companies are to benefit fully from these trends, chief information officers (CIOs) will need to play a new role or IT will change around them. The ability to change depends on IT addressing the C-suite’s core needs and doing so through a language that clearly expresses the business value of technology investments. The divergence between CIO and C-suite thinking on the future of IT must be resolved for companies to take advantage of emerging opportunities.

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There is plenty of scope for firms to employ IT in ways that really make a difference to the business, whether by helping to develop products or services, improve business processes, cut IT infrastructure costs or some combination thereof.

• Thedivergencebetween CIO and C-suite thinking on the future of IT must be resolved for companies to take advantage of emerging opportunities.

• Moreeffectivecommunication within the C-suite is a key aspect of bridging this divide.

Great expectations of IT A wave of new technologies has the potential to transform the way companies function and how they generate business value. But because every firm is different, each should have its own IT strategy. Some companies have made technological innovation an integral part of their business model. For others, the IT function is more of an enabler, providing the infrastructure resources that other departments need to create business value. Today, new technologies are creating an opportunity for businesses to rethink these traditional models, to look again at what kind of IT function they want and to understand the connection between technology and value generation.

The ubiquity of mobile consumer devices such as smartphones and tablets is eroding the walls surrounding the corporate IT environment and making it possible for companies to engage with staff and customers in new ways. Increasing computing power makes it possible for companies to glean valuable business insights from a flood of data. The volume and range of numerical and textual data susceptible to analysis have grown exponentially. The advent of social media has created new ways in which firms can engage, listen to and learn from consumers. And the availability of “on demand” computing infrastructure via the cloud is making IT resources more flexible and lowering the cost of computing-intensive business applications.

Many of the executives surveyed for this report have spotted the potential for these technologies to help their companies achieve their business goals. One-half say they want to improve customer service by investing in mobile innovation, for example. Three-quarters feel they would make better decisions if they invested in data analysis tools that distilled meaningful insights from the mass of information that flows around their business. To profit from these opportunities, the C-suite has to assess such investments in a meaningful manner. CIOs will need to communicate their business value, if they are to take on a wider role.

Rethinking IT valueHow companies respond to new IT opportunities is influenced by whether their business is driven by the need to grow revenue or to cut costs. Most firms invest in IT because they want to improve business efficiency; that is the priority for two-thirds of survey respondents. The sluggish global economy will dictate IT plans for many of them: one-third say they need to shore up their finances, but nearly two-thirds (63%) have a more positive outlook. They are targeting increased revenue and see IT investment as an important way to achieve that goal.

Global Blue, a business which helps international shoppers to reclaim sales tax on their purchases, is using technology innovation to achieve its revenue growth aspirations. The company is developing mobile applications to give consumers location-based information about shopping opportunities, possible savings and advice on how to reclaim taxes. Some of this could be location-specific: one idea is to use mobile mapping to guide customers straight to the airport desk where they can submit a sales tax claim before leaving a country.

To better seize the business potential of new information technologies, Waleed Hanafi, the CIO of Global Blue, has restructured the company’s IT function. For example, the budgeting process now pushes IT costs further down into the business, so that the people who pay for an IT service are – as much as possible – the people who benefit from it. This helps to minimise costs, because business managers are reluctant to pay for services they do not need, according to Mr Hanafi. But it also means that IT investment is more likely to provide new services that business managers actually want. “Anyone in the business can propose an IT investment project now if they can show how it will benefit what they are doing,” he says.

There is a “cultural expectation” within Global Blue that IT staff will play an active role in growing the business. Their role is not limited to facilitating the efforts of others. One reason for fostering this change of attitude is that today there are significantly more opportunities to use IT in ways that enable business innovation than two years ago, according to Mr Hanafi.

Tactics from a CIO:

• Push budgeting further down into the business so the people who pay for an IT service are those who benefit from it. This can help minimise costs and better align IT with the business.

• Encourage the “cultural expectation” that IT staff should play an active role in growing the business. Do not confine this to facilitating the efforts of other employees.

•Acombinationofcloudcomputing,mobilityandbigdataischangingwhatIToffersbusiness.

•TheC-suiteismakingachoiceaboutthesetrends,evenifitdoesnotrealiseit.

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Innovation or cost cutting?The companies most excited by the potential of these technologies to aid business innovation are those – like Global Blue – that are focused on using IT to drive new revenue opportunities. They are more likely than those focused primarily on minimising costs to want their IT function to help develop new products and services, for example. However, respondents who say their company is focused on growing revenue not only expect more from IT, they actually say their IT functions are delivering more effectively across a range of key business objectives.

Understandably, companies focused on driving new revenue tend to be more effective than their peers at using IT to create new products and to find new customers. They also outperform when it comes to improving the reliability of IT infrastructure and aligning IT with the rest of the business. Far more surprising is that respondents from these revenue-focused companies have a more positive view of their organisations’ ability to reduce costs than those respondents that primarily prioritise cost cutting.

Chart 1: Percentage of respondents who say their organisation is “effective,” or “very effective” in its use of IT across various business objectives.

This suggests that traditional assumptions about the trade-off between cost and innovation in IT investments have become outdated. As the C-suite integrates these technology trends into its strategies, there are opportunities to drive down costs while increasing innovation, growth and reliability. Chris Kimm, who has global responsibility for the customer-facing network operations centres of Verizon, a telecommunications company, says it is important to strike the right balance between cost, experimentation and innovation. He wants to discover better ways of using IT that will make his business more efficient, but he also wants to invest in IT innovations that could one day revolutionise what his company does. “We’re looking to do both things at once, and that’s sometimes hard,” says Mr Kimm.

An IT investment aimed at making the business more efficient can end up being innovative as well, he says. Verizon’s experience in developing its intranet is an example. The initial motivation was to cut internal communication costs, but over time the intranet has evolved into an entirely new way for staff to collaborate, says Mr Kimm. Other technologies can follow the same trajectory, he believes.

Chris Nielsen, the CFO of the online retailer Zappos, says he is willing to incur higher short-term technology costs if that helps the firm to build knowledge or skills that will pay off later: “We want to be able to try things out. We don’t believe we’re at the point of just functioning on the cost side of the equation.” Trying something new is a learning process: some companies are deciding that the chance to develop their talent has a value that can keep paying dividends.

Chris Kimm, responsible for Verizon’s networks outside the US, wants to discover better ways of using IT that will make his business more efficient, but he also wants to invest in IT innovations that could one day revolutionise what the telecommunications company does. “We’re looking to do both things at once, and that’s sometimes hard.”

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Traditionalassumptionsaboutthetrade-offbetweencostandinnovationhavebecomeoutdated.ITinvestmentsaimedatmakingthebusinessmoreefficientcanendupbeinginnovativeaswell.

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Costs still matterFor other companies, the focus on cost remains paramount. Whenever Dan Morgan, the former CIO at a leading British business which runs hospitals and clinics, spoke to his finance chief about a new way of using technology, the conversation always began in the same way. “His first question is: ‘Will this cost me anything?’” jokes Mr Morgan. “If I can start off by saying we’ll save money, it’s a lot easier.”

Their business needs an effective, secure and reliable IT infrastructure, Mr Morgan explained. Finding innovative new ways of using technology in the wider business is not the company’s objective. But their focus on lowering costs does not result from a lack of cash. Rather, it is a reflection of the company’s core business strategy, which is to provide the highest levels of clinical care while keeping their operating costs as low as possible. This determines the way they approach IT investments.

Their IT team is working on projects across the mobile, cloud and data spectrum. It is replacing a 25-year-old patient record system, developing ways of making records available on mobile devices, building a private cloud infrastructure and crunching data to improve the utilisation rates of its operating theatres. It is also opening up its IT systems to mobile access, so that the thousands of freelance medical specialists who use it can access patient records, lab tests and appointment schedules whenever they want to. While the focus is not IT innovation, the push for business value drives change.

Case study: Balfour BeattyLeaders in business units alert to the potential uses of new technology

The advent of cloud computing, big data analysis and mobile connectivity is changing the way the construction and engineering company Balfour Beatty organises its business, says its chief operating officer, Andrew McNaughton. The company is investing in IT solutions that will turn the related tasks of designing, building and operating large-scale facilities into a connected, iterative process, Mr McNaughton says.

When building a hospital, for example, Balfour Beatty considers it a complex system. The company gathers and analyses as many data as possible about how that system operates. This process has helped Balfour Beatty find more efficient ways of running contracts and gaining knowledge that will enable it to design better buildings in the future.

Cloud and mobile technologies play an important part in the process, aiding the capture and dissemination of data and the insights the business derives from them. “The volume of data we can gather about the performance of an asset is growing rapidly,” says Mr McNaughton. “We are working out ways to turn that into knowledge, to manipulate it, to make it interesting.”

This complex systems approach applies to other projects, such as mass transit networks, Mr McNaughton says. The company is exploring ways of using data about mobile phone-call volumes to predict changes in traffic flows. A spike in calls, for example, might be an indicator of a traffic snarl-up. The company can use that knowledge to change traffic-light sequencing to reduce congestion.

Balfour Beatty has developed its own Building Information Management system to capture and crunch performance data. Notably, the application was created inside an operational business unit, not in the central IT function. “The people in the IT department are focused on delivering infrastructure, not generating business solutions,” says Mr McNaughton. “They are not there to lead innovation.”

This is an important organisational change for Balfour Beatty, which has been pushing IT expertise out into the business. Operating units now employ people in leadership roles who are “smart folks, thinkers and deliverers”, according to Mr McNaughton. “What’s different now is that we have leaders in the business units who are more alert to the potential uses of new technology. And these technologies are absolutely changing the way we operate. It’s all about our ability to capture and use knowledge. The change that we’ve seen is the work we do at both ends of the spectrum. We can close the loop between operations and maintenance back into design.”

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Willthiscostmeanything?ForITinvestments,thisquestionisnotgoingaway,buttheanswersmaybechangingascompanieslearntodelivergreaterbusinessvalue.

“These technologies are absolutely changing the way we operate. It’s all about our ability to capture and use knowledge. The change that we’ve seen is the work we do at both ends of the spectrum. We can close the loop between operations and maintenance back into design.”

–AndrewMcNaughtonChiefOperatingOfficer

BalfourBeatty

Overcoming C-suite disconnects Transformations in IT also open up the possibility of a more strategic role for CIOs. Adopting this role, they will be able to concentrate more on what makes a real difference to the business, and less on keeping basic services up and running. One example is Chris Cook, the former CIO of a company that provides diagnostic images for doctors. He was examining how sourcing commodity IT infrastructure could help him to focus more effort on innovations that would help the business to grow. For example, the high-resolution patient scans that the company generates have traditionally been captured on photographic film. This is expensive and limits how the scans can be stored and shared.

The company is moving to digital image capture, which raises new technology challenges. Some of these are specific to digital imaging, such as controlling the precise calibration of the screens used to view images; others are generic IT issues such as how to store data securely. Mr Cook looked at ways of sourcing the latter on demand, so that he could focus on making sure the business excels at the former. “We want to be the best in the business at medical imaging, so we need to be the best in medical imaging IT.” Any other IT capability is secondary, he explained.

For some CIOs it may be difficult to refocus their efforts on the projects for which their input really makes a difference, even if they agree it is necessary to do so. The survey shows that both CIOs and C-suite executives at many organisations believe their IT function needs to change significantly. But they do not always agree about what the new priorities should be. For 40% of the C-suite, streamlining the business process is the big issue; only 28% of CIOs agree. One-third of CIOs, meanwhile, want IT to make product and service development a priority, but only 20% of the C-suite feel this is important.

In a period of such significant transition, organisations must work harder at keeping their senior technology staff connected to business leadership. One way of achieving this is to build formal management structures that bring IT leaders and senior business executives together. Since 1999 the logistics services company FedEx has had a board-level IT Oversight Committee, comprising heavy hitters from the technology world. Its role is to appraise major IT projects and technology architecture decisions and ensure that the company’s IT investments support FedEx’s business objectives and strategies. FedEx CIO Rob Carter reports to this group at every board meeting. “We use a lot of horsepower to provide a broad understanding of technology trends and innovation opportunities in the marketplace because of the integral role that IT plays in our overall operations and in value creation for our business,” he says.

Few companies can boast such a formal connection between IT and board-level executives. But most respondents (81%) say their company has found a way to give the CIO a central role in the formulation of IT strategy. Just over one-half (51%) say the CIO leads the process.

Yet some firms are marginalising their CIOs. A significant minority (16%) say the CIO is only “consulted” when IT strategy is formulated or that the CIO has no involvement in the process. That means one in six CIOs are implementing IT strategies that they did not determine. Even where CIOs are involved, their focus is often on “back-office” efficiency rather than revenue generation. Two-thirds (63%) of survey respondents say the CIO plays a key or leading role in developing efficient business processes, with a similar percentage (67%) focused on providing reliable business information. But at present only about one-third (37%) have a key or leading role in finding new ways of engaging with potential customers or in product and service development.

This points to substantive disconnects between the CIO and the C-suite. Ideally, business executives should be able to rely on their CIO for a briefing on the technical and business risks involved in new ways of using IT. But fewer than one-half of C-suite respondents say their CIO has a good understanding of these risks; up to one-quarter say it is poor. There are also gaps between the CIOs and their C-suite colleagues about how and where IT investment could best add value. Moreover, CIOs and C-suite executives have very different views about whether their IT function is aligned with business needs. Two-thirds of CIOs feel their function is well aligned; fewer than one-half of the C-suite executives feel the same way. This is a challenge to the CIO: if you do not recognise an alignment problem frustrating the majority of the C-suite, how can you begin to address it?

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CantheC-suiteempowertheCIO?Therearerisksandopportunities.

•To merit this, the CIO needs to communicate and deliver business value.

•One tactic is to bring IT leaders and senior business executives together: at the board level.

“We want to be the best in the business at medical imaging, so we need to be the best in medical imaging IT.”

– Chris Cook former CIO

Given the intense IT changes and economic challenges, it may not be surprising if some executives are unsure about the way forward, and what kind of IT function they will need. But resolving these uncertainties has positive results: organisations that fully involve their CIO in the process of determining strategy perform better than those that push the CIO to the sidelines. Nearly one-half (47%) of respondents who say their CIO plays a leading or key role in business strategy formulation (37% of the total) also highlight that their business significantly outperforms its competitors. Among the one-fifth who say their CIO has no role in business strategy, only 28% are performing better than their peers.

Chart 2: Financial performance sorted by CIO role in business strategy formulation.

From infrastructure provision to value creationThere is scope for the CIO to become a strategic player, but also uncertainty about what the priorities should be. Some CIOs have been sidelined and others empowered. If IT staff must better address business needs and more firms (43%) are going to buy IT as a commodity on demand, CIOs should change their focus. Mr Kimm of Verizon suggests this could be a liberating experience for many IT leaders. They will be able to concentrate more on what makes a real difference to the business, and less on keeping basic services up and running.

Another approach to better align IT and derive the benefits of these technologies is to bring IT directly into lines of business. Marketing communications agency DDB, part of the Omnicom Group, illustrates this transition. Its IT function used to focus simply on “keeping the lights on”, says Nick Fox, its Chief Client Officer. The head of IT reported to the chief financial officer. This reflected the unit’s main priority: to provide the IT services the business needed, at the lowest cost.

The proliferation of new ways in which its clients can pump out advertising and marketing messages has changed the way DDB operates. The process of making a print, radio or TV advertisement used to revolve around two key people: the art director and the copywriter. But now that DDB creates work for such a wide range of digital outlets, such as Facebook pages, Twitter updates and YouTube clips, technological know-how has become an essential element of the creative process.

“Digital work involves people who specialise in user experience, building sites – it’s just a much bigger team,” says Mr Fox. “You’ve got to have ‘the creatives’ working cheek by jowl with the people who, operationally, deal with the technology. The creativity comes from the collision between what can be done, what has been done and the idea. So unless you’ve got the IT people and digital technologists around you, it won’t happen.” At the start of this year, to reflect the changed significance of the IT staff, the senior technology executive began reporting not to the CFO but to the chief operational officer. “IT has become an integral part of what we do,” says Mr Fox.

“The creativity comes from the collision between what can be done, what has been done and the idea. So unless you’ve got the IT people around you, it won’t happen.”

– Nick Fox Chief Client Officer

DDB

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DevolveITdirectlyintothelinesofthebusiness?Thisstrategicdecisioncarriesconsequences:

• In a range of companies this is driving new business value, offering room for experimentation and controlling costs more effectively.

•There can be issues of coherence that need to be considered before decentralising IT. The C-suite should weigh the risks and benefits carefully.

DDB’s move reflects a wider trend. Over the next three years the pace of transformation in corporate IT functions is set to accelerate. Over one-half of respondents (57%) predict a “significant overhaul” of their company’s IT function, with one in eight expecting a “complete transformation”. Moving IT staff closer to the business can help to better align technology with business objectives; this is a goal for one-quarter of survey respondents.

DHL, the parcels and logistics company which operates in 220 countries, has also organised its IT staff to get tech-savvy people closer to operational business managers and benefit from scale by consolidating all infrastructure internally. Since the arrival of a new CEO three years ago, DHL has been investing in IT to simplify its business processes. The aim is to make it easier for customers to work with the global logistics company, says Alex Pilar, IT leader in its supply chain business.

DHL used to have an IT function for each of its operating divisions. These have now been broken up. Infrastructure responsibilities, and the staff who specialised in that area, were moved to a central IT services function. Teams responsible for the development of business applications remained with one of its four operating business units, but were told to work more closely with management. Their job is to find new ways of using IT that will help DHL’s customers.

DHL runs its own delivery chains, but it also outsources its skills to large clients, offering full supply-chain management services. Facilitating these “customer-facing” business projects is an important part of Mr Pilar’s work. Using IT investment to streamline DHL’s own business processes enables it to offer better services to clients, he says. For example, DHL uses sensors and package tags to capture vast amounts of information about the items moving around its logistics network. Analysis of these data can aid efficiency improvements. But when applied to a client’s supply chain, it could become a significant source of business improvement, says Mr Pilar.

Companies selling electronics, for example, waste a lot of money on recovering faulty goods from customers, according to Mr Pilar. Some of these products will need to go back to the supplier for replacement or repair, but often they could be fixed quickly at a repair centre nearer the customer. In other cases, there is nothing wrong with the product; the problem results from user error and could be solved through better product documentation. Capturing and analysing data about product returns and integrating them with logistics data would enable a company to ship returned products far more efficiently, says Mr Pilar.

“This information is highly valuable for clients,” affirms Mr Pilar. “But it’s been very expensive to crunch it in the past, there is a risk of working with bad data, and the people with the skills needed to make sense of the analysis are in short supply. But I’ve got no doubt the opportunities are now there.”

DHL used to have an IT function for each of its operating divisions; they have now been broken up. Infrastructure responsibilities, and the staff who specialised in that area, were moved to a central IT services function. Other staff remained with one of its four operating business units, but were told to work more closely with management. Their job is to find new ways of using IT that will help DHL’s customers.

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“The analysis Essence performs has been theoretically possible for years. But for us to invest in the hardware and software just wouldn’t be feasible. We’d never do it.”

– Matt Isaacs Chief Executive Officer

Essence

Are these trends transformative?The adoption of cloud computing, the ubiquity of mobile devices and the ability to capture and extract insight from massive flows of data each offer companies significant benefits. But it is often where these technologies overlap that they can have the greatest impact.

Matt Isaacs, the chief executive of Essence, a digital marketing agency, is excited about the ways this is changing his business. He has been sourcing basic applications as a service for over two years; that has helped to keep IT costs down and made it easier for staff to access files away from the office. But over the last nine months Essence has started to source computer processing power to crunch data.

Essence is using cloud-based, pay-as-you-go computing power to analyse the performance of its clients’ online marketing. It gathers data from billions of website visits to work out how to make advertising more effective. “It’s the Nirvana of marketing,” says Mr Isaacs. “Everyone knows that half of their advertising is a waste of money, but they don’t know which half. The analysis Essence performs has been theoretically possible for years. But for us to invest in the hardware and software just wouldn’t be feasible. We’d never do it.” The confluence of these trends opens up new means of operating his business.

Our survey suggests that, for now, many companies are focused on the process aspects of cloud computing: they want it to lower costs (49%), improve efficiency (45%) and increase flexibility (40%). But as the cloud model matures, its impact may be more profound, says Jos White, a partner at Notion Capital, an Internet-focused venture-capital firm. “Cloud is the next megatrend,” according to Mr White. “It touches all areas of technology and moves everything onto the internet. That’s a major shift in the way business works.”

Stanley Young, the chief executive of NYSE Euronext’s technology arm, NYSE Technologies, says these technologies could transform the way the financial market company operates. NYSE Euronext is experimenting with a cloud built exclusively for financial firms. The idea is to give medium-sized institutions access to computing capacity and trading facilities that they could not afford to build themselves, while offering top-up computing facilities to bigger companies. “It can take a firm six months to get a server in place, due to audit and compliance rules,” says Mr Young. “That makes it hard for them to be agile and innovative.”

If it becomes popular, this service could redefine the role of the stock exchange in the 21st century, says Mr Young. “We will still run markets, but we will be the owner and operator of a market community. Our role as facilitator and manager will evolve,” he explains. “In some regards, it’s like going back to the traditional role a stock exchange had a couple of hundred years ago – creating a place or community where people came to trade.”

Like Mr Isaacs at Essence, some of the smaller financial firms within the NYSE community are trying out business activities which would previously have been beyond their budgets. For example, NYSE Euronext holds seven years of complete financial market data; firms are now accessing that data to test which of their experimental trading algorithms would have made money in the past.

Whereas Essence and the NYSE are finding opportunities to combine cloud with data, FedEx is exploring its connection with a different trend: mobile. In some of its FedEx Office print outlets customers can produce documents directly from their mobile phones. They can also have in-store access to files stored on retail cloud services, which they can download into Kinko’s specialist applications for formatting and customisation. Using these services, customers can then print the resulting document in a store elsewhere, if that is more convenient. This is changing the way FedEx engages with its customers and the kinds of services it can offer.

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•Why think of these trends in isolation? Their confluence can drive greater value.

•Question for the C-suite: How can IT create effectiveness, innovation and efficiency?

“We are using cloud services to manage content more broadly, offering things that would have been far more difficult,” says Mr Carter of FedEx. “Our newest data centres are built on a private cloud infrastructure. That gives us the ability to straddle between our own implementations and the public cloud services that we can tap into.”

FedEx is also investing in the overlap between mobile devices and data analysis. It already conducts detailed analysis of such things as the accuracy of package delivery and trends in customer shipping patterns. “We essentially know, day-to-day, the exact performance of the business. And we can look at that through almost every imaginable demographic,” says Mr Carter. The next step is to enable real-time data analysis.

“All of these package scans, all of the detail, all of the accumulation of traffic and volumes, there are new analytics technologies that can make those events available for enquiry on a real-time basis,” says Mr Carter. “As opposed to capturing that information in a database and running queries, we could have in-flight visibility of transactions so we can make routing changes and very fast adjustments in the heat of battle.” If better real-time analysis shows that part of the delivery network is suffering delays, for example, FedEx wants to be able to redirect planes that are already in the air.

“The combinations [of big data and mobile technologies] are very powerful,” says Mr Kimm from Verizon. “We use enormous data warehouses and advanced business intelligence tools in the work we do. We’re constantly slicing and dicing data, trying to understand how to get better at so much of what we do. My understanding of the business now versus what I had two years ago is just radically different. But now I’ve started putting those tools in the hands of people who are field-deployed, giving them the chance to access them remotely.”

The ubiquity of mobile devices can also enable new customer experiences. In tech-savvy South Korea, for example, retailer Tesco launched a trial “virtual store” in August 2011. It put photos of its products on the walls of a subway station, which customers could buy simply by photographing the relevant barcode with their phone; the products were then delivered to their homes. Since launching the virtual store, Tesco’s sales using mobile devices in South Korea have increased substantially, according to Richard Ballard from the company’s international corporate affairs department.

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“We are using cloud services to manage content more broadly, offering things that would have been far more difficult.”

– Rob Carter Chief Information Officer

FedEx

Case study: Roche - Finding out what the business needs from ITDealing with the “big data” challenge does not always involve crunching vast amounts of financial or transactional information. Increasingly, the data companies want to mine for insights are unstructured and textual. This is something that the pharmaceutical giant Roche is trying to tackle. To develop effective drugs, the company needs to keep pace with the published body of scientific work done in laboratories and universities around the world. It is developing new ways to capture this data and extract meaning from them.

The amount of information involved is vast, says Bryn Roberts, Head of Informatics for the company’s pharmaceutical research and early development business. “Our people working in disease biology need to understand everything that’s been published on biology,” he explains. “We draw data from a lot of different sources in different formats. We have well over 25 million scientific abstracts alone. We have to structure those data, harvest the assertions – some of which can appear to be contradictory – and integrate them in a way that makes semantic and scientific sense so that our researchers can ask complex questions.” This means the ability to search and query massive amounts of data in a way that is useful for researchers.

Roche also encounters big data challenges with its gene sequencing research. Its scientists will soon create so much data in this area that the company will need completely new technologies to capture and store them, Dr Roberts says. “We can see emerging technologies that will enable us to sequence DNA and read markers within the sequence faster than we can write the data to disc,” he explains. “There will be huge problems when you have petabytes (one thousand billion bytes) of data being generated in a very short time. How do you manage it?”

Capturing such data is just part of the problem; there is also the issue of backup. This is now done to tape, but that will not be feasible when the data sets are so large, says Dr Roberts. One option is not to back up the data at all, but simply to keep the original DNA samples as a highly efficient and low-cost “data” storage medium, so that the data can be recreated if needed. “It could be much cheaper than building redundancy into the computer system,” says Dr Roberts. “That would be a completely new paradigm for how we think about system design and how we manage data, and will be determined by the cost and speed of sequencing compared to the alternative IT backup solutions.”

Another option would be to use cloud resources, and this is something Roche is experimenting with already. “Cloud is definitely an enabler for us to work with massive data sets, to have access to very large computational machines that we otherwise wouldn’t be able to afford to build in-house. However, moving high volumes of data also has its challenges.”

“Our direction, our strategy and everything we are doing is linked to supporting research and development,” Dr Roberts says. “We work in a very close partnership with the research scientists. We rely on our corporate IT colleagues to provide our commodity IT. We focus on enabling scientific decision-making.”

What’s the hold up? Risks and obstaclesThe combined impact of the cloud, data and mobile technology trends may have game-changing potential, yet some firms remain cautious. In part, this reflects need. Mr Nielsen at Zappos, for example, believes cloud computing could play a significant role in the future of the business, but he has not invested yet. “It’s an area that’s continuing to evolve, and it’s something that we’re paying a lot of attention to,” he says. “And the cloud conversation is increasing in frequency and importance within our IT organisation, but it’s still in the early stages.” For now, at least, the company has sufficient capability inside its own computing systems, he explains.

At Global Blue Mr Hanafi is also keeping some of his powder dry, but for different reasons. Because the pace of change has been so rapid over the last 18 months, with storage and servers especially, he delayed significant investments to see how the market evolves. “I want to wait as long as possible,” he says. Likewise at Roche, Dr Roberts is experimenting with cloud but expects to take “one to three years” before having a clear position on the extent of its value for his R&D activities.

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More broadly, the main drag on cloud and mobile investment tends to be worries about security. One-half of survey respondents (51%) say this is among the top three obstacles companies face when considering an investment in cloud. Security is an even bigger worry for mobile deployments: 67% of respondents say it is a problem. That is nearly twice the number of respondents who point to cost as a barrier.

It is no surprise that firms are sensitive to the security risks associated with technology investment. Mobile and cloud deployments both move sensitive customer and business information outside the relative safety of the corporate IT environment. A loss of such data can be a significant reputational blow, and evidence that management does not have things under control. “A lot of lawyers will focus on the legal risk, but what keeps the chief executive awake at night is worrying about what the city will feel or what the media will say,” argues Graham Hann, the London-based head of technology at Taylor Wessing, a global law firm.

“Security is a significant issue in financial services, but it’s perceived as well as actual,” says Mr Young at NYSE Euronext. “When customers own and can touch something physically, they understandably feel more comfortable. When the technology is virtual and hosted in one of our facilities, it becomes a question of trust. Customers might say: ‘I can’t see it, I don’t own it, but I know I have complete access to it’. To help them better understand and fully utilise the benefits of a hosted and managed service model, you need to establish a high level of trust and a value-added partnership.”

Mr Pilar at DHL identifies another issue: some IT cloud providers need to “rethink their attitude” to service management. The IT outsourcing industry has developed robust standards for assuring reliability and availability, which many cloud-service providers have yet to match, he argues. Mr Hann agrees that the small print in many cloud contracts, for instance, especially those from providers that do not have an enterprise-focused model, “is a bit one-sided and do not address the risks”. Indeed, 43% of respondents from these firms cite concerns about placing reliance on a third-party company for their IT needs as one of the top obstacles for adoption. Mr Hanafi agrees. “The problem with cloud is not security, it’s reliability,” he says, emphasising the importance of choosing a provider carefully. Because of these concerns, many businesses are delaying investments as they observe the market develop.

But attitudes towards these risks are maturing, says John Winstanley, a technology partner at Deloitte, the consulting firm. Most large corporations have segmented the way they use the cloud, for example. “They’ll have a governance structure in place so that users get the benefits of speed and low cost, while the organisation has control over what goes into the cloud,” he says. Ultimately, these technologies carry risks that can be identified, assessed and managed just like any other business risk – with a combination of policies and controls, says Mr Winstanley. But as with any risk, there is no guarantee that staff will comply with these measures.

The key obstacles are different in the big data space. Here the main concern is the high cost involved, cited by 59% of respondents. They also have doubts about their company’s ability to achieve the expected benefits: 47% say they are concerned about its ability to gather reliable data for analysis, and 40% are worried about its ability to understand and apply any metrics that a more sophisticated analysis might generate.

Mr Fox spends much of his time at DDB looking after clients. When it comes to a challenge such as big data, he is clear about what he wants his IT people to provide: “I want ideas that will affect business results,” he says. Data, he argues, are like crude oil. “I’m not interested in the raw material; I want refined petroleum.” So when it comes to the technology around data analysis, “I want clever people who can help me understand data and refine them,” he explains.

Even when a company does invest in more sophisticated data analysis tools, it can be hard to wean people away from software they know and are comfortable with, typically MS Excel, says Milind Khamkar, Senior Director of Information Solutions for South Asia with Sanofi, the global health business. “We are always fighting Excel,” he says. The company’s finance operations use more sophisticated data tools, but the challenge is encouraging their adoption in areas such as sales and marketing. “So much data is unused,” he says.

“Security is a huge issue, but it’s perceived as well as actual. When they own and can touch something physically, people feel more comfortable. When the technology is virtual, it’s a question of trust. ‘I can’t see it, I don’t own it, but I know I have access to it’; you need to establish that level of trust.”

– Stanley Young Chief Executive

NYSEEuronext’stechnologyarm

How can companies address security as a business risk?

•What steps are called for to separate the perceived risks from the actual?

•What vulnerabilities are already present but overlooked?

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Even when a company does invest in more sophisticated data analysis tools, it can be hard to wean people away from software they know and are comfortable with. “So much data is unused.”

– Milind Khamkar Senior Director

InformationSolutionsforSouthAsiawithSanofi

Cost and security obstacles play out differently across business sectors. Mr Cook, for example aimed to make medical images available on mobile consumer devices, but there are strict regulatory controls about the kind of screen that can be used for diagnostic purposes: it has to be above a certain resolution and its colour palette has to be calibrated and certified to a set standard. As the latter is the significant obstacle, Mr Cook has looked at ways of certifying calibration remotely.

Legal obstacles are also a major drag on Mr Hanafi’s plans to develop mobile shopping applications for Global Blue’s customers. He has experimented with mobile-phone platforms, but to deliver a better experience he would like to be able to capture and store data about a customer’s preferences and location. “The problem is, where can I store this data, even if customers let me collect it?” he asks. European regulations are strict about where data can be stored geographically; the terms and conditions that customers agree to need to be legally compliant with 39 different jurisdictions. That cost is prohibitive, Mr Hanafi says. The risk that customers might perceive mobile-data capture as some kind of “creepy Big Brother” activity is also a concern. “We have to be responsible about how we behave,” he says.

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ConclusionMany companies see a transformation of their IT function and the role it plays in their business. “It seems like we’re on the verge of a next generation of capabilities, both in terms of how we use information technology within our company as well as how that technology helps us to engage with our customers,” says Mr Nielson from Zappos.

Cloud computing could not have emerged at a better time. In a tough economic climate it offers an attractive way to cut fixed costs. Most firms are experimenting with some form of cloud usage, testing whether their lingering doubts about security and reliability can be overcome.

But some are doing more, using the massive computing power that the cloud can make available to power innovation. This can take a multiplicity of forms – from digging out the nuggets of gold buried away in the ash heaps of corporate data to unlocking the secrets of DNA. The mobile trend is important too. On a simple level, the value of business insight and knowledge increases exponentially when it can be made easily available to whoever needs it. But the growth of mobile devices – from consumer-owned smartphones and tablets to a “dumb” sensor attached to a parcel – is further eroding the already fragile walls that mark the boundary of the corporate IT environment.

Does the combination of these forces represent a turning point for the way organisations use IT? For some, the answer is clearly yes. They are discovering ways of overcoming the traditional frameworks for assessing a new technology’s ability to either cut costs or drive revenue: applying these technologies effectively can drive innovation, raise revenue and cut costs. Some companies are only experimenting at present, working out how these technologies fit together. But many expect to transform their use of IT over the next three years.

How fast they move will depend on their ability to negotiate a series of barriers, including sector-specific regulations, customer concerns and their own business culture. Many will also need to establish a more harmonious relationship between their CIO and the rest of the C-suite. If they do not get that right, they will find it far harder to move forward with confidence.

As your business moves forward, consider the following:

• Think widely. A new wave of technology innovation has the ability to transform corporate IT functions and the fundamental ways in which businesses operate. The potential impact need not be viewed solely as the future of the IT function, but also as the direction of the wider business.

• Empower your CIO. Increased access to IT infrastructure as a commodity presents an opportunity to rethink – and at times reduce – the scale and scope of the IT function. But do not confuse that with limiting the role of the CIO. This trend can liberate them to really add value.

• Do not hold “the IT function” in isolation. There is no connection between the value of IT to the business and the size of the central IT function. Some of the organisations best adapting to these broader trends are moving IT leaders out into the business, so they can align more closely with the needs of the wider company.

• Reconsider how the company assesses investments. We could be on the brink of a genuine inflection point in corporate IT, where the trade-off between investing in new technologies to either cut costs or drive revenue becomes redundant. Companies can achieve both.

• Risk is still just risk. Organisations are concerned about the hazards associated with these technology trends, and rightly so. But their understanding of the threats is maturing: they can be identified, assessed, managed or avoided – just like any other business risk.

For more information about solutions for your organisation, contact your Dell account representative or visit dell.com/services.