Sept. 11, 2000

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Upstarts Alter The Rules

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More on new economy:

sidebar: Metrics Measure Performance As An E-Community Computer Reseller News Get Out Of The Way, Old Economy Diehards: The Times Are A -Changin (8/7/00) VARBusiness New Economy, New Culture (7/10/00) VARBusiness The New Rules: Move Beyond 'E' (6/12/00)

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If the basis of competition is the E-community company with its network topology and Internet-enabled skin, how can the community understand where it is in the competitive space? The question points to the need for new metrics that focus on the community, its growth rate, its complexity, and its value. We've taken a first step to try to define such a set of metrics.

The integration of IT into the business structure in these E-communities blows away most of the practices that have been used for IT planning, management, and measuring IT performance over the past 40 years. Budget cycles happen at Internet speed. Many IT investments are truly high-risk ventures. The payoff of IT as a business enabler is more than a return-on-investment computation for cost savings.

Clearly, the notion of fixed annual IT spending is no longer meaningful. IT spending within the IT department or an enterprise may account for as much as 95% or as little as 44% of the total enterprise amount.

The IT budget process no longer makes sense. Artificial budget caps strip the organization of the ability to grab opportunities as they arise or are made to appear. IT must be treated as an investment in which funding is used to drive the company toward its goals. The CIO is now the fund manager, while the various IT product and service managers are portfolio managers.

As IT becomes further integrated into business--and, in fact, becomes the business--it's critical that a company's IT assets be in full, fluid alignment with business needs and actively managed from an investment perspective. IT should be viewed from the perspective of risk, yield, and benefits, instead of solely from a cost perspective.

Seven Characteristics of E-community IT

Value-producing IT organizations of E-community businesses that cross sectors exhibit seven core characteristics. These IT operations:

Embrace decentralized points of control. They know that massive parallel coordination and collaboration are key levers to unleashing the value of technology within a business.

Apply the law of increasing IT returns, not diminishing returns. These organizations know how to accelerate the infusion of technology into all facets of business and realize that, if applied well, this technology infusion accelerates business innovation and growth.

Realize that the value is in the intangible-the existence of the network, the connections between units, and the ability to respond flexibly and rapidly to the market-as well as tangible results such as rate of growth.

Adopt a policy of continuous abandonment of success as the new basis for agility. They're not trapped by the models of past wins.

Maintain an attitude and culture in which flux is the norm. They move away from that which fossilizes processes and practices.

Focus on opportunities instead of efficiencies; cutting costs isn't their central performance focus.

Believe-along with the company's top executives-that IT is an investment and is inseparable from the business, and manage it as such.

DATA: Howard A. Rubin

The concept of an annual IT budget must be blown away. The enterprise IT budget no longer has any real meaning. Being locked into an IT spending cap prevents the company from being entrepreneurial or seeking opportunities.

Managing in the new, sectorless business space requires a rethinking of performance measurement. The E-scorecard of the future must be a diagnostic and prescriptive profiling metric, accommodating the shift from a transaction-based measurement approach to a value-based approach, and must truly integrate the measurement of E-business with traditional measurements. Similarly, financial models, technical performance, and enterprise models of industrial and information economy companies are radically different from the upstarts of the new network economy.

There is a discontinuity between their profiles, preventing comparison of these different business species with a uniform set of business measures. Apples-to-apples comparisons are impossible--it's more like apples to network elements. Companies must be benchmarked in cohort groups as a way to view the key elements of competition and competitive transformation.

Additionally, one of the key business-strategy issues that businesses face today has to do with the direction and integration of E-business opportunities. Current business and technology-modeling frameworks offer little for either mapping the complex and new E-commerce space or providing a basis for strategy formulation. They provide little help for supporting and managing emerging E-communities.

Clearly, the nature of business, the nature of IT, and the interaction between the two have changed drastically in the new century. The emerging business models foster competition outside sector bounds in a manner that makes it difficult even to identify who your competitors really are. This sets the stage for the new IT management imperatives, which are a product of the emerging business E-communities. So if someone asks you where your business problems lie and where your opportunities are, give them the resounding answer: It's in the network, stupid!

Howard A. Rubin is a Meta Group research fellow, CEO of Rubin Systems Inc., and professor emeritus of computer science at Hunter College of the City University of New York. He can be reached at howard_rubin@compuserve.com

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Illustration by Brian Cronin

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