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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.
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Software represents 31% of IT budgets this year, and it's likely to increase to 36% in two years, according to the survey. However, software cost ranks as a leading concern with just 14% of respondents.

How companies pay for software, however, looks very likely to change. Business technology execs expect, on average, that just under 60% of their software needs will be paid for through traditional licenses over the next two years, and about 40% through alternative business models, including subscription pricing and even ad-supported business software. Among those planning to try alternative models, 80% say they'll try subscription software services, and 60% cite transaction-based models--such as paying per order for a financial app or per query for a CRM app.

chart: In Search Of innovation

There aren't a lot of ad-supported options today for businesses. Google offers Google Docs & Spreadsheets; Microsoft has its free Microsoft Office Live Basics, which includes a Web site domain, hosting, 500 Mbytes of Web storage space, and 25 e-mail accounts; and a startup called Spiceworks offers it for IT management software.

Eric Berridge, co-founder of Bluewolf Group, a company that specializes in IT consulting for software as a service, contends SaaS will be used more often for critical applications than many IT pros realize. "That's because business can't wait for IT to deliver service," he says. "They need results quickly."

When asked which software trends will make the headlines, respondents' top pick went to service-oriented architecture. It's already driving the tech agenda: Oracle, SAP, and a rising member of the software big leagues, Infor, say SOA is the foundation of their future software development, as it will let developers link services to automate specific business processes.

NOW
69%
Centrally controlled

31%
Business-unit controlleds
IN TWO YEARS
28%
More central control

32%
Same

40%
Less central control
Data: McKinsey & Co. and Sand Hill Group survey of 475 senior IT and business executives
Rod Masney, global IT architect of glass container manufacturer O-I Global and president of the Americas' SAP Users' Group, calls SAP's Enterprise SOA architecture, based on its NetWeaver middleware, the vendor's most important innovation, and one that's generating a lot of customer interest, though a lot of questions remain about how to take advantage of it.

Vendors are promoting their SOA technologies as a way to develop and reuse services quickly based on Web standards that can be woven into business processes, rather than force-fitting large software applications. That in itself is innovative because it's going to require companies--and vendors--to think about application development in an entirely different way.

The innovation will come from having the software adapt to the business, rather than requiring the business to adapt to software, says Peter Lagana, an IT director at Wyeth Pharmaceuticals. Since SOA lets a business break a process into small components of code, it should be easier to change one part of a process without having to "rewrite tons and tons of code," he says.

A good number of SOA trailblazers are reporting success. Allstate Insurance, for example, has just overhauled the claims processing system for its property business using SOA. It expects the $125 million project to deliver benefits in the form of faster processing and more consistent payouts, and that it will establish a foundation that makes it more practical to quickly change business processes as business needs change. The project isn't finished, and Allstate's now overhauling its auto insurance claims processing.

There are common threads in all of these approaches to innovation, including software that's easier to use, costs less to develop and deploy, and runs in the background while letting businesses react fast to a changing marketplace. While most respondents to the McKinsey survey agree that we've returned to software innovation after years in the doldrums, they've also set a high bar for what they expect out of suppliers. Those that survive this era will have to embrace low cost, flexibility, and ease of use.

Editor's Choice
Mary E. Shacklett, President of Transworld Data
James M. Connolly, Contributing Editor and Writer