Do you consider application rationalization part of your annual cycle? 3

Information Technology and its applications have become a critical part of today’s business operation. In many companies, CIOs have seat at the table to help determine business and operation strategy to gain a competitive advantage. Equally, CFOs and CEOs are participating in IT decision-making process and are no longer just signatures on the paper. Even the consumer has become IT savvy with the advent of mobile devices and tablets that eliminated the fear if computer for all generation. My father uses his iPad to perform most of his banking tasks, his review of MRI /CT Scan reports and to manage his portfolio. This ‘IT consumerization” has now forced C-Levels to pay attention to how IT in integrated in the business.

You can also see that result in today’s world overall. The uptake of technology has become instantaneous (and many times, not by choice)–as a necessity. Hence the problem. In the race to keep up with technology changes and increasing customer demands for more access, companies are deploying technologies very rapidly. And within that process of doing so, their application portfolio is growing rapidly as well. I have visited many government and commercial companies in this last year alone and I have personally witnessed this as a common problem.

Let me try to put this in context of everyday life.

I don’t know how often you look in your closet–I did it first time in 10 years just the other day. I had shirts and pants in there that I hadn’t worn in those 10 years. I have never really thought about getting rid of those clothes, but now the situation is that there is no more space (although my wife’s clothes do contribute to the problem which, of course, is beside the point and so there is nothing you can do about that). The only option I had was to discard some clothes or buy new house with bigger closet!

Now you may think that buying new house for clothes is an absurd thought, but think about what is happening in companies today. With advent of cloud services (especially infrastructure as a service), it is now very easy to add infrastructure and storage (no it’s not like buying a new house, but it’s certainly akin to renting a storage unit just to store the overflow of a closet full of clothes).  Cloud services have allowed me to continually add new technologies and applications. And just like I reached the threshold in my personal clothes closet, a great number of companies are going to soon realize (if they haven’t already) that the IT bill is only going to go up–not down. So the cleaning out of “the closet” will soon be a must in most cases.

CIOs are now struggling to keep control over proliferation of data and security of data. It is an increasing number of controls from an SOX perspective. Does this sound familiar? So what is the solution? Conceptually, the solution is very a simple one–provided in the “closet example:” I went through my closet, made three piles of clothes. One pile was the clothes I wear all the time. The second was a pile of clothes that I wear some of the time depending on occasion, and the third was a pile of clothes that I did not wear. I kept the first and second pile. I made another run through the third pile and took out couple of items that had sentimental value and donated the rest. I have also promised myself that “cleaning out my clothes closet” would now be an annual exercise. Naturally it is very easy in this case (of the closet), but in the case of application, the same concept also needs to be applied.

Application Rationalization is a key component for organizations and for every CIO so that he/she can ensure the organization’s IT is performing its role to stay in synch with its competitive positioning in the business world.  There are also two things that make IT application rationalization very difficult.  Organization Change and Data Proliferation. However, it’s similar to being able to ride a bicycle. Initially it’s difficult to implement, but once you have the processes in place and governance structure in place it will become much more natural (notice I did not say it was easy!). In my opinion, this needs to be part of every organization’s annual budget cycle. This is an area where the other C-level managers need come together with the CIO to perform the analysis.

In the age of Cloud Computing and Modern Application, be aware that you may have application that is mission critical and is still running on older platform. Application modernization methods are the needs of the moment and it is important to take a very systematic and detailed, but (at the same time) very agile approach to portfolio rationalization. Application modernization methods also combine application modernization as well as new technology selection/incorporation as part of a balanced approach to application rationalization. Gartner’s Pace Layered Application Strategy provides a good explanation of this and is well worth the read. This is really a very simple concept to understand, and fairly easy to learn how to segment an application portfolio and go through rationalization process. It is how I decided to make three piles of clothes from my closet.

I suggest that you keep your organization clutter free. Keep the focus on your consolidation and modernization approach while embracing advances in technology. This can be made possible by taking control of ALL APPLICATIONS and DATA (modern and legacy) and making those items part of an annual cycle to rationalize and consolidate. If done correctly (the right methodology, governance and discipline), this annual or regular task will provide your organization with a focused ability to be able to keep up with ever-changing IT landscape (if not full, at least partial). More importantly, IT will become your tool for growth and not burden on the organization.

What’s the Future of ERP? 5

Is ERP Dead?

These days there is a lot to read on Cloud and Cloud Computing. I have a written few blogs on these same topics. In the frenzy of cloud computing (I do admit that the potential of cloud computing excites me very much), what do you think will happen to ERPs? I have had many discussions on the topic. It’s an ongoing debate with customers and system integrators alike. So I’d like to discuss my point of view here on my blog– and I certainly welcome your comments and feedback.

I recently visited museums in India. One of the museums featured India’s Industrial Revolution. It showcased how the country evolved as a spice exporter to a cotton producer and to a technology exporter. It’s an interesting history for sure. Now India is recognized for its technology knowledge base. The museum reminded me of one big fact. Still today, and most people don’t realize this, IT Services is less than 5% of India’s GDP. Agriculture followed by Services and Manufacturing continues to be the major portion of the Indian economy. Why is it important in this context? In today’s IT world, most magazines are full of cloud articles, blogs, presentations, conferences etc. In reality, according to some estimates, ERP Cloud applications (full or partial functionality) are ~$2 Billion. The total market size is over $150 Billion. If you include Supply Chain Management in the equation, the global market for ERP is even bigger. Contrast this with the adoption rate of Cloud Services for Email and Office tools. It is projected that Cloud will account for 40% market share in the next couple of years.

Why is this contrast between ERP adoption and other Cloud software?

Let’s trace the brief history of ERP (enterprise resource planning). There is a short article published in the Journal of Operations Management. I have tried to summarize it to jog our memories on why ERPs came about. In the early 1940s companies started using the calculating machine to automate some functions. When IBM started marketing mainframe machines for organizations, operators saw the value of the technology and some large organization stared to invest in it. Mainframes were used for specific functions and needed a lot of support and they created silos within organizations. For instance, there was a job to calculate payroll, there was a job to compute totals to be included in the financial book-keeping, but the two jobs didn’t necessarily talk to each other so humans had to intervene and made them match. This matching of jobs, however, caused inefficiency in operations as well as gross inaccuracies in reporting. Then someone thought it would be great idea to have systems talk to each other and automate some of these tasks. This started more specifically with Material Resource Planning (MRP) applications. This integration of business operations soon showed a benefit and then further “consumerization” of Information Technology allowed other companies (large and midsize) to start adopting it. Then companies like Intuit and NetSuite started to focus on small business to offer a similar benefit. Companies started to spend a substantive effort and resources to implement these business applications and standardized business processes. Salesforce and NetSuite changed the paradigm on how companies license the software. In early 2000, the Service Oriented Architecture (SOA) concept came about mainly to address the biggest issue with ERP. No single ERP could satisfy corporate requirements and it cost too much to integrate and keep systems fresh. SOA got a lot of press and was the talk of the town, but it never took off until just recently and (not surprisingly) it took off just after most large ERP vendors started supporting SOA natively.

Now, Cloud is the talk of the town. There is an increasing adoption of cloud services when it comes to infrastructure, but it’s still in its infancy. There is lot to learn. As it pertains to enterprise applications, there are many roadblocks. There is very little adoption of Cloud applications when it comes to enterprise business. The main reason for this lies in the history of ERP and how ERPs came about. ERP vendors like Oracle and SAP have plans to offer an ERP suite in the Cloud, but they are not in any hurry to do so for obvious reasons. There are niche players that offer specific applications where ERPs have gaps like WorkdayRightNow, etc. Integrating these individual applications into ERP is still an organization’s responsibility. Enterprises, however, will never go back to 1960-1970 where they have “siloed” applications and as a result still struggle to integrate them.

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Cloud applications make business sense for those organizations that are not in the business of IT. Companies have been trying to set this up via outsourcing for some time, but it’s never actually relieved them of the burden of managing IT software and infrastructure. Cloud offers that promise. There is an opportunity for the System Integrator here to provide a platform that will give choices to the customer and allow them to integrate the various cloud applications from one or more vendors without organizations having to care about it. Both Cloud vendors and System Integrators need to figure this out together. If Cloud adoption is to really reach the enterprise in a meaningful way (outside of communication and messaging), this integration issue must be addressed. There needs to be a framework that can support integration of various platforms, technologies and applications with central management processes. It needs to be easy to understand and has to be secure.

For now, most organizations are still continuing to rely on ERPs. However, ERP vendors are now preparing for new ERP packages with a “Cloud” model by revamping their applications and licensing models to provide this option to their customers. ERPs are very much alive and will be here for some time to come. How it’s delivered to the customer will definitely change and System Integrators will have to play big role in the adoption of a Cloud model for ERPs.  This warrants a separate blog to discuss the role of System Integrators in our new Cloud economy. For now ERP is here to stay in some form and the role of System Integrator will still be a critical necessity for some time to come.

Right Size IT 1

Mainframe…Client Server…ERPs…SOA…Cloud…

What’s next?

Great technical advances and concepts. How do you keep up with them? And more importantly how do you know what is right and optimal for your business and organization culture? When I was in business school, my professor always use to draw a triangle to explain organization theories and how the balance is created by using a bridge between opposing forces. That analogy is a very relevant today as well.

Example 1

Business models are changing very fast. Social media has completely changed how marketing strategies are formed. There is not one person who has ever heard of crowd sourcing who has not done so without spending a dime to make this change. Organizations (people) and cultures are still very slow to adopt these changes. The gap between changing business models and its existing organization is growing continuously. This is where today’s CIO has the opportunity to provide the right solutions to bridge this GAP – as shown in the illustration below.

Example 2

Another common problem phased by business today is that consumer expectations are getting higher. Consumers are expecting more for less. Businesses thus have more pressure to improve the bottom line. Most businesses are either commoditized or on their way to be commoditized. So the only differentiator left is really the efficiency of the organization. CIOs have an important role to play in this scenario as well. The right IT solution can provide that differentiator. Wal-Mart’s inventory control system, for instance, provided the right differentiator for that particular organization. A differentiator in highly commoditized business is illustrated below:

Example 3

This last example is for the businesses that are involved in highly innovative products. When a company launches a successful product which is innovative in market and meets a consumer need, it is challenging for businesses to keep the focus on innovation and not to get distracted by the “success pain.” IT has an important role to play here too in order to allow the organization (company) keep its focus on their mission while IT keeps the supporting processes running and to scale as business grows.

All three of these examples describe how IT must now focus on solving business problems. All too often I see IT starting with the solution without looking for the problem. This was true, during the Dotcom days and it is equally true in today’s Cloud Economy. I am very big on Cloud Services because I think the Cloud is truly going changing how we consume IT and communication services. However, CIOs still need to carefully evaluate the business’ fit into the Cloud. It is not easy to access and there is no one-size-fits-all formula or solution. Gartner has published many guidelines and best practices that are good references, but there is no substitute for one’s own due diligence and finding the specific answer. It’s your discrimination after all. I call this methodology “Right Size IT!”