A new report from Butler Group finds that “less than 8% of the IT budget is actually spent on initiatives that bring value to the enterprise”. This is not an encouraging number for those who believe that CIOs have their finger on the pulse of the business, but merely confirms other studies e.g. one from A.T. Kearney, which found that business executives perceive their IT departments to be out of touch with the business. Yet the same study found that “70% of respondents see IT innovation as important or critical to their company’s success”. I’m afraid that my own experience would side with the cynics. There are certainly some talented and hard-working people in corporate IT departments, but in general the management of IT is woefully out of synch with the needs and desires of the operational business executives. CIOs continually act as gatekeepers rather than enablers, often seeing their role as one of cost-cutting and standard-bearers in the fight to reduce the number of vendors, preferably to a set that can be represented on a single Powerpoint slide.

Unfortunately this is generally not what business executives need. Since exciting new business applications are unlikely to come from the big vendors that wine and dine the CIOs, the business will look to IT to bring them new ideas that technology can enable geneuine value, and help them sift out the genuinely interesting from the slideware and the charlatans. I had a conversation with a business executive in a large company this weekend, who explained that his IT department had recently made a software product from a small vendor “non strategic” in favor of a less functional one from SAP, despite some objections from him. A year later this same IT team has had to admit that his new global retail management information system cannot be delivered by the SAP technology. Just what sort of business value is this IT department delivering to its customers? People working in IT at that company can hardly be surprised when one-third of its IT jobs were recently shifted to India. If IT departments do not bring perceived value, then they are just a commodity cost as far as executives are concerned, in which case they can expect to be treated as such.

The management of IT badly needs to speak the language of business and to become more aligned to the priorities of its customers, rather than its own agendas and technology religious wars, most of which leave business people cold and are perceived as irrelevant. The status quo will see a lot more IT jobs headed towards Bangalore, and not just the low-level programming ones.

A new report from Butler Group finds that “less than 8% of the IT budget is actually spent on initiatives that bring value to the enterprise”. This is not an encouraging number for those who believe that CIOs have their finger on the pulse of the business, but merely confirms other studies e.g. one from A.T. Kearney, which found that business executives perceive their IT departments to be out of touch with the business. Yet the same study found that “70% of respondents see IT innovation as important or critical to their company’s success”. I’m afraid that my own experience would side with the cynics. There are certainly some talented and hard-working people in corporate IT departments, but in general the management of IT is woefully out of synch with the needs and desires of the operational business executives. CIOs continually act as gatekeepers rather than enablers, often seeing their role as one of cost-cutting and standard-bearers in the fight to reduce the number of vendors, preferably to a set that can be represented on a single Powerpoint slide.

Unfortunately this is generally not what business executives need. Since exciting new business applications are unlikely to come from the big vendors that wine and dine the CIOs, the business will look to IT to bring them new ideas that technology can enable geneuine value, and help them sift out the genuinely interesting from the slideware and the charlatans. I had a conversation with a business executive in a large company this weekend, who explained that his IT department had recently made a software product from a small vendor “non strategic” in favor of a less functional one from SAP, despite some objections from him. A year later this same IT team has had to admit that his new global retail management information system cannot be delivered by the SAP technology. Just what sort of business value is this IT department delivering to its customers? People working in IT at that company can hardly be surprised when one-third of its IT jobs were recently shifted to India. If IT departments do not bring perceived value, then they are just a commodity cost as far as executives are concerned, in which case they can expect to be treated as such.

The management of IT badly needs to speak the language of business and to become more aligned to the priorities of its customers, rather than its own agendas and technology religious wars, most of which leave business people cold and are perceived as irrelevant. The status quo will see a lot more IT jobs headed towards Bangalore, and not just the low-level programming ones.

SAP’s Netweaver initiative is an astute move to try and define and so to control a standard for applications in large enterprises. It will certainly present advantages to existing committed SAP customers, who will be able to interact more easily with some non SAP applications. However there are several drawbacks. Firstly, NetWeaver’s integration is skin-deep. If you are on an SAP screen you can potentially branch out to a non-SAP routine e.g. a specialist payroll calculation routine. However anything that requires the integration of data between SAP and a non-SAP system is no better off than they are today i.e. customers are still into coding. Since the higher value levels of integration will usually involve not just portal-like “put in on the same screen” integration but actually dealing with business meaning of data, this will limit the use in reality. For example Netweaver would allow you to drop out of an SAP process into a supplier system, but does not help you deal with the issue that your set of product codes, or your general ledger structure, are different from that of your suppliers. For meaningful integration you need to resolve the business meaning or semantics.

What Netweaver certainly does is to declare war on several industry players who were previously either neutral to SAP or indeed active partners. IBM is the most obvious example. IBM has a massive services arm that does huge business implementing SAP, and IBM has decided to stay out of the applications business, so relations between the firms were good. Netweaver directly attacks IBM’s core websphere middleware, and so now IBM’s software group is in direct competition with SAP. The same would go for the EAI and ETL vendors (e.g. Tibco) and Microsoft, who have their own middleware stack. Oracle competes here too, but of course Oracle was already the most direct competitor to SAP. SAP may not care about the EAI world, but IBM especially is a big target to take on. The reason that SAP is prepared to take this risk is that the reward is so great: Microsoft showed the power that can be exerted by controlling the critical standard, in their case Windows.

Most large corporations have multiple middleware stacks within their organization (SAP, but also IBM Websphere, Microsoft and probably Oracle as well), so the key issue for them is how to deal in a neutral way across these, rather than how to rip all but one of these out. This is where the Netweaver strategy may ultimately fail, since the sheer cost of ripping out an existing well-established software infrastructure is gigantic, and that assumes that corporations donÂ’t care about the lock-in that would give SAP. Some won’t care about this, but many will. However the practical problem is the sheer scale of core infrastructure that would have to ripped out, and yet without data and business semantic integration, the benefits of doing such a thing would be very limited. Oracle and SAP are both giants locked in a battle to gain a larger and larger footprint in the enterprise, yet both are too well-entrenched to ultimately destroy the other. SAP has no database, for example, an Achilles heel for it, and SAP grieves every time they win an application account from Oracle and then see the customer deploy SAP on the Oracle platform. Oracle and SAP are always likely to optimize their applications for their own proprietary middleware, since their agenda is to expand their footprint inside large corporations, yet by doing so they rule themselves out of being an idealapplicationsn-neutral layer that can genuinely help their customers.

For most enterprises, Netweaver looks superficially attractive but does not solve the core integration problem, that of resolving the differences in business meaning embedded in their many, many core transaction systems. Netweaver’s widespread deployment is certain, but its skin-deep level of integration will deliver only limited benefits to customers, yet at considerable cost. Perhaps customers should check back on the investment cases they made a few years ago before they went down the ERP route - did the benefits promised then actually materialize? The costs certainly did (billions of dollars each for global corporations), but I haven’t seen too many of their IT departments shrinking away to nothing because all their integration problems were solved.

The business intelligence/data warehouse market is generally perceived to be in glowing health, with steady rather than wild growth predicted by most analysts e.g. 8% growth a year was a recent IDC figure. However there are many separate sub-segments here: data quality. ETL, data warehouse platforms, appliances, analytic tools, BI tools, data mining etc, and not all are in the same state. I have written before on how most people in a large company do not need, or indeed want a BI tool, something that people selling enterprise licenses for BI tools do not want to hear. In the late 1990s a lot of large companies went crazy with their IT budgets, and purchased huge blocks of BI tool licenses that often ended up as “shelfware”. Some consolidation in this sub-industry followed, with Brio being bought by Hyperion and Business Objects buying Crystal. However at some point I wonder whether gravity will reassert itself and companies will realize that only 5% of their staff actually need BI tools, while probably they already own many more than this, often from different vendors (a survey I conducted in Shell in 1992 counted 27 separate BI vendor products in use, and that was just within one company). The conventional wisdom is still the “democratization of BI”, with powerful BI tools spreading throughout a corporation, but I believe this vision is fundamentally wrong. Technology companies seem to struggle to grasp that just because they build something clever, it doesn’t mean people will buy it unless they actually perceive value from it. If one day I see a shelf-stacker in a supermarket puzzling over the latest shelf-stacking patterns on his BI tool I will admit I am utterly wrong about this.

But not today. Early signs of inflated expectations falling to earth appear in the latest results from Cognos, who have developed an enviable reputation in recent years but seem likely to end the quarter 19% down year over year in revenue terms, and 6% down over the previous quarter, and only three deals over one million dollars in the quarter. License revenue down 32% year over year cannot bode well for any software company, though with operating margins of 18% Cognos is clearly still doing pretty well on the profitability front (all those yummy maintenance revenues). There may have been some company-specific problems e.g. its latest software version 8 seemingly has yet to set the world alight. However it will be very interesting to see whether this is actually something deeper, with corporate buyers making better use of what they already have. Hyperion appears to be in rude health, but its products are mostly rather higher up the value chain (financial consolidation, budgeting) and it is unclear how sales of Brio are actually going. One interesting thing I noticed recently was one of our major customers (a household name) switching away from BI vendors and standardizing on the Microsoft tools (Analysis Services, Excel, Reporting Services etc) which have been steadily creeping up in terms of functionality. Since most users use only a tiny fraction of the features in a BI tool anyway, piling on yet extra features to stay ahead of Microsoft may not actually work. This may be an isolated case, but perhaps the cracks are starting to appear in the BI edifice?