What Every CEO Needs to Know About Key Supporting Technologies
I recently started a series of blog posts on what CEOs (and for that matter, all senior corporate executives) need to know about IT. The first covered the high-level issues. As I noted there, it’s not necessary for a CEO of a company to be able to write Java code or master the intricacies of an ERP or sales compensation application. However, CEOs must grasp the basics of IT just as they must understand basic corporate finance, the production process and – at least at a high level – the technologies that support that process. This installment is about four supporting technologies that will be drive considerable change in business computing over the next five years. Each of these subjects is worthy of a chapter-length discussion or even a book; what follows is the “elevator pitch” version.
The cloud is a general term for computing capability that is not physically located on a company’s premises and that is purchased as a service, typically for a monthly charge. The name comes from the use of a cloud shape to represent the Internet in network diagrams. The two types of cloud computing that businesses typically purchase are software as a service (SaaS) and platform as a service (PaaS). The former typically allows a company to access application software and a database. Companies can use PaaS as a means to create a custom application without having to invest in and manage the underlying hardware and software or provisioning the hosting capabilities needed to run and manage the application on their premises.
Cloud computing is a hot topic because it has been reshaping – and will continue to reshape – information technology and how business uses it. The cloud gives users more options for how, where and when to engage technology and information. It is transforming how users interact with computing devices – the so-called consumerization of business computing. It is altering the economics of selling and consuming computing power, applications, intellectual property and information. In so doing, it’s enabling new business models, new products, improved business processes and making a greater range of business relationships practical. And, as such, it’s making some existing business models and methods obsolete.
Unfortunately for executives, too little of the discussion of cloud computing to date has focused on business value and promoting better understanding of where cloud computing is – and is not – the right choice. Instead, the discussion has been dominated by marketing agendas and techies debating the finer points of technology, which only promotes confusion. Our benchmark research into business data in the cloud confirms that companies achieve cost savings and process efficiency by adopting cloud computing, and that these are major reasons why companies use this technology. Moreover, for many midsize and smaller companies, applications in the cloud can provide more sophisticated computing capabilities than they could afford in an on-premises deployment. Two notable examples are ERP systems and internal call centers as an alternative to outsourcing this important function.
Cloud computing is not about to replace traditional on-premises deployments, which still can be the best approach. But cloud computing creates opportunities and threats that CEOs and all senior executives need to understand so they are able to make the right decisions for their companies.
Big data is a term that begs the question, “How big is big?” The answer is: any data set so large and complex that it’s difficult or impossible to process it with existing tools in a reasonable amount of time. There are three dimensions to big: volume (the number of bytes), velocity (the speed with which data must be moved) and variety (the number of types of data). Big data has become an issue because businesses are generating an accelerating amount of usable information, and even more useful information exists outside of a company’s walls than within it. At the same time, data processing systems no longer limit organizations to using mainly (or only) structured data; that is, the type that exists in formal databases. Advanced techniques make it possible to mine social media to gauge sentiment or parse audio files to rapidly uncover unhappy customers. Industrial data from sensors in machinery and at every point along a supply chain gives organizations greater insight into ways to improve efficiency and respond faster to changing environmental and business conditions. Our big data benchmark research found the top benefit for the technology, cited by three-fourths of organizations (74%), is to allowing companies to retain and analyze more data. Big data can be an important resource for companies, but it’s equally important to recognize the importance of good data management practices. Failure to institute appropriate practices simply results in “big garbage in, big garbage out.”
In-memory databases and processing use main memory rather than hard drives for data storage, which enables much faster response times. In-memory computing can make analytical applications much more interactive in working with very large data sets, which in turn enables analysts in every part of the business to work faster and smarter. According to our benchmark research in-memory technology is fast becoming mainstream. It is already being used in one-third of organizations and another 17 percent plan to deploy it within 18 months. In-memory is also at the heart of complex event processing (CEP), which can be used by sales, marketing and customer service to identify and make sense of information collected in disparate systems in order to enhance market responsiveness. In financial services, CEP already supports sophisticated algorithmic trading strategies and risk management. Executives also can benefit from in-memory computing, because it can transform a monthly budget review into a much more collaborative, interactive and forward-looking activity. Instead of focusing mainly on past events, organizations can make changes to forecasts, examine the impact of alternative future actions and immediately see how the changes affect revenues, expenses, cash flow and the balance sheet. Most companies don’t do that already because with systems that use disk storage, it can take minutes, hours, days or even weeks to get answers back from even a straightforward business question.
Mobile devices have grown in importance since the introduction of the first Compaq Portable PC in 1983. Mobile devices like smartphones and tablets have become pervasive in business computing. According to our recent business technology innovation benchmark it is the third most important area for technology innovation after analytics and collaboration. Today, people walk around with powerful computing devices in the form of tablets and smartphones, which enables more people to interact with business computing systems anytime and anywhere. They eliminate the barriers to smoother operations that exist when people have to get back to their desks to get information, execute a process, pass along information or make a decision. Mobile computing is especially important for front-office workers in areas such as sales and field service, because these individuals are often mobile, out of the office and beyond the firewall. It’s also valuable for executives, because these individuals often manage by walking around. Being able to summon up data or charts in the middle of a conversation and perform analyses makes any discussion and decision-making more fact-based and rigorous.
CEOs and senior executives must have a basic understanding of these four core technologies and how they will affect each part of their businesses. Everyone running a company must find the time to better understand and manage the information technology dimension of their business. Over the past 60-odd years, IT has grown in its importance to the daily functioning of a business, and increasingly has become a means of competitive differentiation. IT is a major element (and in some companies the major component) of capital spending. Technology continues to advance, bringing threats and opportunities. CEOs must stay on top of how IT can serve their businesses.
Robert Kugel – SVP Research
Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning.