Software // Enterprise Applications
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5/3/2007
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IT Departments Will Set Less Of The Business Tech Agenda, Survey Suggests

Far more companies plan to give business units more control, and more spending will be through nontraditional licensing models, survey for Software 2007 Conference suggests.

Business users want more innovative software faster and will bypass the IT department if necessary to get it. Executives of both business and IT departments define innovation as better integration and usability, more so than whiz-bang features. And software costs? For the first time in years, they're not a leading concern for companies.


Graves tries to stay a step ahead of the rogues

Graves tries to stay a step ahead of the rogues
Those are the results of a survey of 475 senior IT and business executives, conducted by consulting firm McKinsey & Co. and Sand Hill Group, a Silicon Valley venture capital firm, on software trends, expectations, and spending habits, now and over the next two years. The survey results, which will be introduced at the Software 2007 conference in Santa Clara, Calif., this week, show the dynamics of a modestly healthy economy, one where companies are more focused on growing their businesses than controlling cost.

In some cases, the research also shows IT organizations turning a blind eye when business units take risks with smaller, more innovative approaches to software. Businesses can do that more easily than in years past since new models, such as software as a service and even advertising-supported software, don't require a lot of up-front costs and support.

When asked what software trend will have the biggest impact on their businesses, and what they need most from vendors, survey respondents cite innovation broadly most often. After that, they cite specific innovations: Software as a service ranks second, service-oriented architecture third, and open source software fourth. "The software industry is emerging from a depression and consolidation, and entering an era where we can feature innovation again," says M.R. Rangaswami, co-founder of Sand Hill Group and one of the survey's authors.

This growing interest in innovative approaches to software is generating new energy, as evidenced by a fresh wave of startups, old startups turning into bigger companies, and a rise in tech-related venture capital funding. Fifty-five percent of respondents agree that software industry innovation is on the upswing, with more expected in the next few years. "The post-bubble flash fire created fertile ground for innovation to take root, but it was a couple of years of developments that led to the flowering we have today," says Ken Berryman, a principal in McKinsey's Silicon Valley office.

Yet a sizable minority isn't nearly bullish on the future. Twenty-two percent of respondents say industry innovation is at its peak right now, and 8% say software's high point is in the rearview mirror.

chart: In Search Of innovation

INMATES, ASYLUM--YOU KNOW

Innovation can cause its share of problems.

Joe Graves, IT director at Stratus Technologies, a $200 million-a-year computer company, views software as a service as one of the industry's most important innovations. Stratus uses Salesforce.com's on-demand salesforce automation applications, Eloqua's marketing apps for lead management, and QuickArrow's professional services billing apps. It's testing SaaS offerings in contract management and sales compensation.

While SaaS brings a lot of flexibility, it also makes it possible for business units to adopt software quickly--setting up a constant battle for Graves. "There's always a rogue department that thinks it knows IT better than the IT organization, especially in an engineering company like Stratus," he says. "Some divisions, if they could, would set up their own IT organizations. So I'm working as quickly as I can to meet their needs."

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That's a scenario likely to be repeated in the near future. Right now, 69% of respondents say their software budgets are centrally controlled. But 40% say there will be more business unit control of software over the next two years, with just 28% planning further centralization. This shift should make it easier for small software vendors to get their feet in business units' doors, says Rangaswami, using monthly subscriptions that lead to lower up-front costs than those of established vendors.

It's a shift larger software companies need to address. Among respondents who work in IT, 29% say they're confident that large vendors can deliver innovation; among those in non-IT business roles, only 15% have that same confidence. Since business users are involved in 61% of all software decisions, and another 35% offer informal input, according to the survey, it suggests big software vendors need to cut back on the tech talk and work on communicating the value of their offerings to business managers.

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