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Software // Enterprise Applications
04:03 PM
Bob Evans
Bob Evans

Business Technology: IT Transformation: Two Companies That Get It

In Part 2 of our three-part series, as you try to determine which technology vendors are tactical suppliers versus those that are strategic business partners, consider this: Do they talk only about scalability and manageability and reliability, or do they talk about nimbleness and agility and opportunity? Do they emphasize their ability to help you maintain competitive advantage, or do they help you conceive and build new and more-valuable competitive capabilities for the future?

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." --Sir Winston Churchill, November 1942

Last week, I proposed the idea that it's time for the makers and buyers of IT stuff to radically shift the focus from the technology side of the equation to the information and business side. To be sure, many technology vendors--perhaps most or even all of them--will contend that they've been doing that for some time. In fact, I'd bet a fat percentage would even say something similar to the old bromide of "we don't sell technology--we sell solutions." Fair enough. But not far enough.

It's not far enough because they're still thought of as "IT vendors," when what they need to become is agents of change and of innovation, enablers of real-time operations and customer intimacy, thought leadership in helping customers achieve market leadership, and hubs of both best practices and next practices. Here's another way to look at it: Do the suppliers of technology you currently work with or are evaluating reduce the complexity of your operations, or increase it? Do they increase the security of your business, or do they increase the exposure you face? Do they offer you products and services that only help you maintain what you already are, or do they help you evolve into what your customers and prospects demand that you become?

Do they talk to you about turning data into information into knowledge, or do they limit their vision to just the data? Do they talk only about scalability and manageability and reliability, or do they talk about nimbleness and agility and opportunism? Do they emphasize their ability to help you maintain competitive advantage--the status quo--or do they help you conceive and build new and more-valuable competitive capabilities for the future? When they talk to you about "aligning your technology with your business," do they define "your business" as only what it is today, or do they define it as a complex ecosystem of current and future customers, partners, suppliers, and other stakeholders?

Finally, after considering all those questions, it's time to sharply divide these providers of technology into two camps: those that help you maintain your status quo, and those that help you define and then achieve future growth and value and profitability. The first group should then be categorized as "IT suppliers"--not bad people, but also far from strategic. But, oh, that second group--probably an elite and tiny club--those become strategic business partners who happen to express a significant part of their value to you via their technology products and services. The additional value they deliver is in ideas, knowledge, expertise, contacts, best practices, insights, and innovation. If they can't meet those standards, then they're not qualified to be strategic partners. The sooner you can clarify these two types of technology companies, the sooner you can begin working intimately with the select group on building your company's future.

Is that overly dramatic? Maybe. But think of it this way: imagine you wake up Monday morning and find out that your top competitor has just signed a five-year deal with a team of four major technology companies to work together in unprecedented and exclusive new ways to help you drive business innovation powered by technology. Would that be trivial? Trite? Troublesome? I don't think such times are far off, because the game now is about helping customers optimize specific services, expand and enhance vertical expertise, and generate the highest-quality information in real time so that the best possible business decisions can be made.

Let me mention a couple of examples of companies--IBM and Microsoft--that I think are doing a terrific job at embracing and making this transition. Because they're two of the best-known companies of any kind in the world, the choices might seem rather obvious; however, the rationale behind my selections is that these technology companies have expended massive amounts of time and energy to remake themselves so that they can offer to customers the types of value described above. Both are global, multibillion-dollar brands with massive and complex interlaced networks of employees, partners, customers, strategic relationships, R&D facilities, and the often-delicate relationships that always accompany such far-flung webs of influence and involvement. Yet, in spite of all that--or perhaps because of it, and the risk of losing it--these two companies provide great examples of how to help customers make the jump at this end of the beginning into the next phase of global, real-time, customer-driven business. And here's how I think they're doing it.

First, IBM. Two months ago, here's something we wrote about an acquisition IBM was making, and it didn't involve Rational or Candle or Lotus or anything close to a software company. Rather, it was a pure services play: "IBM is getting into the life-insurance business. The claims-processing part of it, that is. In a deal disclosed Tuesday, the company said it will acquire Liberty Insurance Services Corp., the business-process-outsourcing division of RBC Insurance Services Inc. Under the deal, financial terms of which weren't disclosed, about 700 Liberty Insurance staffers will transfer to IBM. Liberty Insurance's operations will remain based in Greenville, S.C., IBM says. The deal also calls for IBM to provide a number of business and technology services to RBC Insurance."

InformationWeek sibling Insurance & Technology offered this perspective on IBM's motives from Cynthia Saccocia, senior analyst at Tower Group: "At this point the deal introduces another player for insurers to evaluate. Right now we've got CSC, CGI, Accenture, and Deloitte all playing a role, and it's an interesting twist that we have IBM more firmly rooted by a center that will be able to handle BPO while bringing software capabilities and an understanding of core operations to the market."

And here's how IBM itself describes the move: "This new IBM organization will focus on delivering life insurance and annuity processing and administration services and will integrate its deep process expertise with IBM's advanced consulting methodologies and emerging technologies, such as real-time process and data integration, enabling IBM to offer real business-optimization value to life insurance clients." Noting that the new subsidiary will handle life and annuity policy processing for more than a dozen life-insurance companies worldwide, IBM offered this crystal-clear view into its emerging strategy: "These specialized insurance industry services, together with our existing business-transformation capabilities for human resources, customer care, finance, and administration and procurement, will help clients in the insurance industry derive new business value from an IBM relationship."

Meanwhile, as my colleague Paul McDougall articulated in a recent cover story on IBM's new strategy, the Liberty Insurance deal is but one example of CEO Sam Palmisano's strategy to redefine IBM as the world leader in "business-performance-transformation services." That new category, McDougall wrote, "bundles business-process outsourcing, consulting, engineering services, and business-performance-management software. Palmisano, a former top salesman known as 'the closer,' is aiming those at what is, by IBM's reckoning, a $500 billion opportunity in provisioning companies' administrative and other business functions." And early on, the new group's financial results are impressive by any measure: for the first nine months of 2004, revenue reached $2 billion, up 45% over the same period of 2003.

Another example of IBM's new strategy from McDougall's analysis: "IBM health-care consultants are working with executive clinicians at the Mayo Clinic to map out ways to use patient data to improve diagnosis and treatment plans for some of the most resistant forms of cancer and other diseases. IBM has helped Mayo Clinic allow researchers to cross-reference 4.4 million patient records to look for significant patterns. Mayo Clinic executives say they were sold on IBM's ability to bring expertise from multiple disciplines to the project," which incorporates a sophisticated data-analysis system built around various IBM high-end technologies, including custom software that allows unstructured data, such as handwritten notes from physicians, to be incorporated into the analysis.

The value to Mayo, McDougall writes, "is to create networks that let Mayo Clinic researchers draw on case histories not just from their own institution but from public records and partner institutions." And the value to IBM? "IBM plans to sell the architecture created for Mayo Clinic to other health-care providers," concludes McDougall, who then quotes Palmisano as having said, "We're talking about changing how health care is provided; the entire practice of medicine. The opportunity is limitless."

You can find more on IBM's new strategy in McDougall's overview of the company's recent acquisitions related to business-performance-transformation services, and in this Q&A with Ginni Rometty, managing partner for IBM Business Consulting.

Over at Microsoft, most of the action relevant to this "end of the beginning" theme is taking place in its Business Solutions group, which offers enterprise apps to midmarket companies and small businesses. But as with IBM, the core strategy has less to do with the code that makes up the applications, than it does with the human behavior and business processes expressed by that code. As InformationWeek's John Foley wrote last year in a brilliant analysis of Microsoft's future intentions: "What Microsoft is doing in health care is a sign of a major strategic shift, one that raises questions in other industries, as well. From the time it was founded 28 years ago, Microsoft's focus has been on the software that goes inside computers. Increasingly, however, the company is assessing the business processes of specific industries--and writing software products to support them."

"CEO Larry Ellison and co-presidents Safra Katz and Charles Phillips held forth on stage. But it was clear at Tuesday's event at the Oracle campus that the stationmaster who will run the merger of Oracle-PeopleSoft applications is John Wookey, Oracle senior VP for applications."

-- InformationWeek's Charles Babcock, Jan. 18

Overblown? Hardly. Just last week, Oracle CEO Larry Ellison predicted that as consolidation in the enterprise-applications market continues, only three major players will be left standing: Oracle, Microsoft, and SAP. After reading Foley's groundbreaking Microsoft analysis, here's something I wrote about Microsoft's intentions to move further up the value curve into the realm of vertical-market expertise and optimized processes: "But the point people often overlook about Microsoft is that whatever the company 'is' at any one moment in time isn't at all like what the company will be two or three years down the road. A few years ago, it had no ERP-type products; today, it's got sales of half a billion dollars and a pretty steep growth rate. A few years ago, it had only a smattering of vertical-market expertise in-house; today, it has hundreds of employees with domain expertise in specialized sectors. A few years ago, Microsoft lacked the underlying tools to attempt such a move; today, it has .Net and other development and integration technologies that give it at least a chance to convince large customers that it has the capabilities to scale with them. A few years ago, businesses of all sizes looked at Microsoft in precisely the way Microsoft defined itself: a platforms company that also happened to have a lock on the desktop-apps market; today, they see it as a serious applications player that in all likelihood will become much more serious." Indeed, if even as hard-driving a competitor as Larry Ellison is willing to say that Microsoft will be a major player in delivering the software and the industry expertise and knowledge and optimized processes that customers are demanding, would it be wise to bet against Microsoft's chances?

As with IBM, Microsoft is looking to blend seamlessly the two indispensable ingredients of ever-deepening vertical-market expertise with increasingly sophisticated and specialized software. And John Foley notes that while Microsoft is adding hundreds of vertical-market experts to its Business Solutions team, it's also infusing into its enterprise apps some of the knowledge being gleaned by those experts: "Now Microsoft is expanding the number of industries it targets, injecting industry-specific code directly into its core software platforms and hiring business-technology professionals steeped in [those sectors]... Microsoft engineers are creating software add-ons, called accelerators, aimed at business processes common to companies in a given industry. For financial-services companies, there's an accelerator to help with the trend toward straight-through processing, an automated means of moving a transaction through multiple stages. For health-care companies, there's an accelerator to facilitate information sharing using the Health Level 7 messaging standard."

And so it goes. The strategic technology partners of tomorrow will be those that continue to offer brilliant technology, but that also can complement that with equally valuable and indispensable market knowledge for a combination that allows customers to transform who they are and what they develop and offer new products and services as rapidly as their own customers demand them. That transformative promise marks indeed the end of the beginning, and the next steps into a new phase in which that brilliant technology finally, after many fits and starts, takes its natural place as not the end but as the means an end.

Next week, the concluding installment in this three-part series: some customers who've made the leap, and some more technology companies that are helping them do so.

Bob Evans
Editorial director
[email protected]

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