Wednesday, January 24, 2007

Top 10 Management Fears About Enterprise Web 2.0

Technological Barriers

1. How can I be certain that the information that is gathered and shared behind the firewall stays behind the firewall?

2. How do I control who has access to particular levels of information and databases?

3. How do I protect the integrity of the information from malicious tampering by disgrunted employees or managers?

4. How can I be sure that information is being “tagged” properly for efficient retrieval later?

5. What kind of training do employees need before they can effectively use the technology?

Cultural Barriers

6. How can I monitor the system to make certain that what individuals are saying and sharing reflects company policy?

7. What are the legal dangers in saving and sharing so much loosely supervised input?

8. How do I distinguish “productive” use of the technology from horsing around?

9. How do I “manage” the gathering and disseminating of so much unstructured information?

10. How do I know if I’m getting my money’s worth out of the investment in technology?


Tuesday, January 23, 2007

Finding the hidden costs of outsourcing

Media coverage of IT outsourcing projects abounds but there are too few failed engagements that ever see the light of day. But what causes failures among these massive projects that for all intents and purposes appear like well-thought out engagements by virtue of their dollar value and multi-year lifespan?

According to Jerome Barthelemy, a professor of strategic management at Audencia Nantes graduate school of management, companies choose the outsourcing path for the right reasons – reduce operating cost, focus on core business, reduce risks associated with new processes, and protect against technology obsolescence.

In a survey of 50 companies that outsourced part of all of their IT operations, companies missed out on three key areas: finding the right vendor, drafting an appropriate contract, and managing the engagement throughout its lifecycle.

Marketing hype coupled with forecasts of big savings often blindside management paying attention to the details that should be part and parcel of any purchase. First timers to outsourcing are particularly vulnerable to missing out on the things that would cost the company more than what is written on the contract because there is no information available out there to guide them through the process.

Vendor search and contracts
The Boy Scout motto of "Be Prepared" is apt in outsourcing. It is easy enough to get hold of a list of vendors offering a whole gamut of services. Finding the one vendor that best fits the needs of the enterprise is where failures begin to rear its ugly head.

Enterprises need to spend an appropriate level of time and resources to the selection process after all when you are planning to give away all or part of your operations to an outside firm and be willing to pay millions for that, it's only prudent to investigate all options.

There is an associated to cost to searching for the right party and many enterprises underestimate this cost together with negotiating and contracting costs. Unfortunately there are no industry standards for such because there are too many variables to consider. Anecdotal evidence, however, suggests that by spending appropriately on the search process, enterprises are able to lower the other hidden costs.

It is so much easier to use the vendor that everyone else is using. But Mr. Popular may not be Mr. Right for your business. An agreement with a trusted vendor presents a number of advantages including fairness and flexibility. A trusted vendor, keen on protecting its reputation, is more willing to fill any gaps fairly even if it's tempting in the short term to be opportunistic. Test your vendor. If your vendor can handle a series of contracts involving commodity activities like providing programmers to give the business more flexibility in staffing systems development, it is more likely to be able to handle sensitive IT activities, such as a company's core applications development.

Don't be shy about asking for references – past and present, successful and not-so successful. Your peers are your best resource for information that will be important to pursuing strategic initiatives.

Next to the vendor itself, the contract is probably the most important part of an outsourcing engagement. Many companies go into outsourcing with a vague idea of what they want the vendor to do. But when you deal with technological uncertainties, can you afford to leave your future in the hands of a third party – even a trusted one? While some amount of uncertainty is inevitable – predicting what technologies will be available after five years or the economic forces that will determine the size of your business in three years.

It is always cheaper to stay vague about your expectations and sign the vendor's standard contract than to develop clear expectations and build them into the contract. It is cheaper to go with the convenient vendor, rather than research the vendor's suitability. The true costs for such shortcuts come at the end of the term of the contract or when you want to opt out and you are presented with the bill for early termination.

Consider including these clauses into your outsourcing contract: Evolution clauses apply to both technology and to the price and the scope of the outsourcing contract; and Reversibility clauses gives the company the option to repurchase premises and equipment from the vendor; and allow the company to hire employees from the vendor. Without such clauses, the company or a new vendor may have to rebuild the entire IT department.

Transition costs
Very little has been documented about the cost of making the switch from in-house to the external vendor. It can take months before the vendor becomes intimately familiar with the company in the same way as the IT department. The transition period is usually measured in months and the associated costs are generally unknown. What is clear is that the transition will mean service disruption and productivity loss due to delays in getting back on track. The more tailored the service to specific needs of the company, the higher the cost to pass it to a vendor that must take time to learn the activity.

The best way to reduce transition costs is to be aware of it. Know what you want from the outsourced activity, and clearly communicate your needs to the vendor. Get a guarantee from the vendor that critical employees who are absorbed into the vendor's organization as part of the engagement need to have a waiting period during which time they must remain assigned to the company to ensure appropriate transfer of skills and knowledge.

Managing the effort
Just because you've outsourced part of your operations does not mean you give up responsibility for the delivery of associated services. Service Level Agreements provides guidelines for the delivery of agreed upon services. But only by carefully monitoring such delivery can expectations be ensured. Because of the uncertainty in business model and technology evolutions, you will also encounter periods when you need to renegotiate changes into the contract to accommodate changes in the business. Management costs, including performance analysis meetings, are internal to the vendor and only get highlighted when the bills are presented.

Experience is the best remedy for reducing the cost of managing the relationships. Another way to reduce cost is to cultivate trust in the vendor relationship. You do this by making that both sides' objectives are clearly understood. You also need to foster good communication through discussion of potential problems as they arise and through collaboration on problem solving.

Transitioning after outsourcing
So months or years after the contract was signed and services delivered, you've decided its time to call it quits and you need to move on. When a company decides to outsource to a specific vendor, little regard is given to the idea of bringing back staff that migrated to the vendor or moving to another vendor. Either move is conceding failure. Regardless, if you do decide to bite the bullet and move to another vendor, the costs involve will cover finding the vendor, drafting the contract and transitioning resources. If you decide to bring back the services in-house, the costs involve building a new internal IT team to take up the activity.

Again the best defense against post-outsourcing transition cost is awareness. Ending an outsourcing contract is expensive – make no mistake about it. How do you reduce the cost? Calling back employees that have moved over to the vendor will reduce the cost. Keeping a sufficient level of IT expertise in-house will also help reduce the costs.

Hidden costs occur somewhere between the point when managers first conceived the idea to outsource and the end of the project, when a company is looking to bring back the services in-house or switch to another vendor. Understand what goes into the costs and when to expect these, and you get an idea of the trade-offs before deciding to outsource. Manage the four costs proactively and holistically, and spend the extra time and resources in the early stages of the outsourcing effort. Companies that spend the time and resources early on will fair better in achieving successful outsourcing projects.


Friday, January 19, 2007

E-Commerce 2.0: Architecture

There are three architecture elements that define E-Commerce 2.0 sites and help break the virtual store (everything under the same roof) mentality:
  • A composite front end that integrates disaggregated services into a coherent, fluid user experience. How is this different from a portal? In a portal, the various pieces of content are often independent of one another. Here, everything is highly integrated from a data and user experience standpoint. The front end will initially run in parallel to the existing e-commerce 1.0 site because etailers will experiment and make the switch to e-commerce 2.0 gradually. Pieces of the front end will be embeddable in other sites. (Yes, even as MySpace widgets.)
  • A backend suite with three main purposes: (1) tying into existing e-commerce functionality that doesn’t need to be replaced such as the catalog, order processing and customer service, (2) creating an intermediate data layer optimized to support the user experience and (3) maintaining interaction state, a task which becomes a lot more complicated with disaggregation.
  • A sophisticated battery of tools for brand managers, merchandisers and analysts that takes IT out of the equation. Control of content, promotions, design, layout, interactivity and analytics should be firmly in the hands of business users and the creative types. IT should worry about scalability, reliability and security.
"E-Commerce 2.0" – The Velvet Revolution by Simeon Simeonov

New Trend : E-Commerce 2.0

TREND #1: Rich Internet Apps Are On the Rise
First, expect a significant move to more interactive user experiences delivered through rich Internet applications (RIAs).

The early signs are everywhere: from Gap’s QuickLook to Amazon’s & Angara’s Diamond Search to MyRatePlan’s phone chooser to Harley Davidson’s bike configurator. This is just the beginning. With E-Commerce 2.0, RIAs will dominate. The main goal will be reducing shopping cart & checkout abandonment which, believe it or not, is sometimes in excess of 50% and is the key ingredient of low conversion rates (some of the best etailers are in the 3-4% range). In a world where shoppers can increasingly get the same product from ever more etailers, innovation will also target search integration and optimizing consumers’ browsing & product selection experiences to attract a bigger audience.

TREND #2: Disaggregation is Accelerating
The second trend is accelerating disaggregation, brought about by the dual forces of focusing on core competencies and leveraging network effects.

Disaggregation is not foreign to E-Commerce 1.0. Some businesses have pushed it to the extreme, outsourcing their entire online operations to Amazon, GSI Commerce and the like. For years, Amazon’s affiliate Web services have allowed businesses to build sites using the Amazon catalog and backend. That’s nothing new, though even more highly-customized, audience-specific sites will serve the Long Tail of consumer interests.

What’s new in E-Commerce 2.0 are network-wide services that provide only a portion of the e-commerce experience yet benefit from focused network effects. Ratings and reviews are a good example. E-commerce 1.0 has aggregators such as NexTag and Epinions. E-Commerce 2.0 has BazaarVoice and PowerReviews, which bring ratings & reviews capabilities to all sites. Payment is another good example. E-Commerce 1.0 has PayPal while Google Checkout belongs in 2.0. The key distinguishing features of the 2.0 services are tight integration with the e-commerce experience and the ability to go beyond simple hosting and leverage network effects. The most successful services will reduce the barriers to purchase across sites. Google Checkout and ARPU are two early innovators that merit keeping a close watch on. It is also interesting to ponder whether there is a 2.0 version of e-commerce analytics driven by the following trend.

TREND #3: "Social Commerce" is Emerging Fast
The third trend is social commerce, which comes in two flavors: content-driven and interaction-driven, or passive vs. active.

Examples of content-driven social commerce are already present, albeit not automated. Our purchase choices are influenced by those in our social networks. Brands know that. That’s why promotion on MySpace is the cool new thing. What about being able to see what products your friends have viewed or purchased? It’s coming to an e-commerce site near you.

Interaction-driven social commerce is different yet, again, a new spin on an offline idea—multi-level marketing. Remember Tupperware house parties? Well, the company has started hosting these online. Why can’t iTunes start offering incentives to people who recommend songs to others? And, since any individual can become an Amazon affiliate, anyone can have product links in their social network profiles that reward them for sending interested buyers to Amazon. With E-commerce 2.0 these types of social interactions will infiltrate the shopping experience. Combined with disaggregation, it means that social commerce will happen everywhere, not just on the e-commerce sites.

"E-Commerce 2.0" – The Velvet Revolution by Simeon Simeonov

Thursday, January 18, 2007

Seven best practices in oursourcing

What timeline can we expect, and what kind of partners do we need? Which processes should we outsource, and which should we keep? How do you structure the deal to allow for changes in the business environment over the course of the arrangement? Can you outsource a business function whose processes are broken, or do you need to fix it first and then outsource?

How does an outsourcing arrangement impact our relationships with our people? We have projects going all the time; how do you juggle all those projects and introduce outsourcing without the disruption?

Outsourcing conjures more questions than there were available answers. This is particularly true in Asia where there is a scarcity of insight on the subject as it relates to specific businesses. What scares first-timers to outsourcing is the trial and error process that often precedes adoption of new technologies or change processes.

A survey of 565 experienced [in outsourcing] executives by Accenture sheds some light into the hidden best practices. Their experience allows us to minimize the potential loss to businesses that so often come part of a trial by fire exercise.

While the experiences of these outsourcers are as diverse as is their needs, what is a constant matter-of-fact is that "the longer a company engages in outsourcing, the better it becomes at managing outsourcing ventures, and consequently the more satisfied it becomes."

This naturally implies that the few first attempts will always be the most painful and expensive. But as long as the company learns from the experience and change as it moves forward, the continual experimentation should yield the right combination that best fits the business.

But why reinvent the wheel? Below is a seven-piece skill for managing outsourcing arrangements learned from the survey.

Build in Broad Business Outcomes Early and Often: Outsourcing is not only about cutting cost. Companies that integrate desired business outcomes into the exercise early on [and constantly tweaked to reflect changes in the business environment] are able to reap benefits that go beyond pure profitability metrics.

Hire a Partner, Not Just a Provider: Look for a provider that brings a wide set of skills and strengths, and a long-term track record of delivering results. Competitive pricing should not be the only criteria upon which an outsourcing deal is concluded. Experienced outsourcers weigh both "soft issues" and "hard issues" in the selection process.

It's More Than a Contract, It's a Business Partnership: Contracts are the natural guidelines used in the execution of an outsourcing engagement. However, as this is a long-term journey and a path towards a goal, it is equally important to consider performance measurements and the relationship between you and your provider if success is to be attained.

Leverage Gain-Sharing: Use risk/reward incentives to spur performance. This is particularly relevant where special circumstances, such as taking on challenging situations, where circumstances demand the pursuit of unconventional methods to achieve the desired outcome.

Use Active Governance: It is not enough to sign a contract and leave the execution to the provider. In many instances active governance is necessary to ensure that projects stay on course.

Assign a Dedicated Executive: The decision to outsource is only the beginning of a long journey. Successful outsourcers often assign an executive especially adept with people skills to ensure optimized performance.

Focus Relentlessly on Primary Objectives: Companies engage in outsourcing for specific reasons. The pursuit of those objectives, whether cost reduction, process improvement, or the focus on core business, should be taken with unrelenting determination. This above all else defines successful outsourcing projects.


Thursday, January 4, 2007

What's on CIO agendas in 2007: A McKinsey Survey

Web exclusive, January 2007

Two trends in information technology will become increasingly important to CIOs in 2007: a migration to service-oriented architectures and the introduction of lean-manufacturing principles to data center operations. These are among the results of our most recent survey of senior IT executives. The survey asked CIOs and other senior executives in North American companies about their plans for the coming year.1

New technologies and trends constantly compete for a share of the enterprise IT budget, and during each cycle, one or two rise above the others to become a major focus for CIOs. In 2006 two areas of critical focus have been software as a service and server consolidation and virtualization—two trends that CIOs, a year earlier, had cited as important.2

As those technologies gain traction, executives are also signaling interest in two further trends to improve efficiency and effectiveness. Sixty-four percent of the respondents to the 2006 survey told us they plan to implement service-oriented architectures in the coming year. This strong response suggests that the thinking about IT architectures is shifting to embrace global standards for interaction, both internally and with external partners and suppliers. Advocates of service-oriented architectures expect them to make IT more flexible, open, and efficient by facilitating communication and interaction between systems. Under this design, common IT tasks, called services, can work smoothly together, regardless of an organization’s underlying technology platform. The concept has been around for years, but as more organizations adopt Web services standards, interest in these architectures has grown. That interest persists even though many executives have been unclear about the precise meaning of the term—a confusion made worse by some vendors’ propensity to label every product as “service oriented.” Despite this confusion, the compelling benefits of service-oriented architectures—easier communication and interaction among applications—and the increasingly mature offerings from vendors are enticing more IT executives to give it a close look.

Just as interesting to us, 48 percent of the CIOs we surveyed in 2006 said that they plan to implement service-oriented architectures for integration with external trading partners in 2007. Traditionally, companies pilot any new integration technology within the firewall, and broader adoption for integration with trading partners follows a few years later. The fact that so many IT departments are already moving beyond the internal pilot stage means that enthusiasm for this trend is high. What’s more, the wide-spread adoption of software as a service promises to encourage the spread of service-oriented architectures, because they make it easier to integrate enterprise systems with applications from third-party vendors.

The second trend poised to strengthen in 2007 is the application of lean-manufacturing principles to data centers. In our recent survey, 28 percent of the respondents said that they had already applied or decided to apply lean principles to improve their data center operations. Lean, of course, isn’t a technology but rather a methodology applied to processes—originally in manufacturing operations but increasingly within services, including IT.

Data centers have grown tremendously over the past 10 to 15 years as IT spending has increased and cost-conscious CIOs have consolidated smaller centers into fewer and larger ones. A data center for a typical large enterprise has hundreds of millions of dollars in capital equipment (server farms, mainframes, networking gear, and storage devices), consumes large amounts of electricity, and requires hundreds of highly skilled engineers and technicians to operate. In particular, the labor costs have grown significantly with the commitment of resources to processes such as incident response, problem management, and change management. Applying lean principles can help reduce waste and improve labor productivity by as much as 40 percent in some processes. Nearly one-third of our survey respondents aim to apply lean principles in these centers—a significant share, suggesting that the initial positive results from early adopters are encouraging a wider field of IT organizations to explore this methodology. We will continue to track these trends—and their implications for business and IT leaders—during 2007.