As Functional Knowledge Trumps IT Knowledge in the Age of the Cloud, Middle-Market Firms Behold a Flattened World

What was once best left up to the IT department to procure and deploy is now “embedded” in the business, according to Harry Wallaesa, a seasoned business leader whose varied career includes tours of duty as CIO of Campbell Soup Company, president and COO of Safeguard Scientific, and chairman of technology firm Compucom. Middle Market Executive recently asked Wallaesa, now CEO of consultancy WGroup, to explain the changing landscape of IT decision-making.

MME: You like to say that today the business is taking ownership of and responsibility for IT. What do you mean, exactly?

Wallaesa: Well, it doesn’t matter whether you are a large corporation or a middle-market firm — the idea is that IT is now embedded in the business. And it doesn’t matter whether it’s finance, procurement, sales and marketing, or distribution and logistics — all of these functions have IT embedded in the services that they deliver to the rest of the company. There’s an IT component embedded within each of these. So, for instance, many of the services that HR provides to the rest of the company are dependent on software and infrastructure — and in the past, these types of services may have been provided by an IT shop. It’s the same with financial services that are generally run as ledgers, payables, and receivables, all of which are dependent on IT systems. What we’re beginning to see is a couple of trends, one being that the functional areas of business are no longer necessarily consulting the IT department when they buy these services. And so, cloud services are available to business functions so that they don’t necessarily need to go through IT to buy the IT component of the service they provide within their company. So, for example, we have a client where the CIO didn’t find out about the launch of a fairly significant HR service that included a lot of servers and software and IT services until after it had been deployed. I can tell you, when I was a CIO, that never would have happened.

MME: When it comes to IT decision-making within organizations, what’s influencing these changes, and what does it mean for middle-market firms?

Wallaesa: Well, I think it’s a fairly recent phenomenon that corporate functions have the ability to buy certain stand-alone cloud services that are focused on their function. Second, I think there is a generational aspect to this, where people inside corporate functions are a lot more IT-savvy than previous generations, and they are just a lot more comfortable discussing IT solutions. Last, I’ve spoken to a lot of people overseeing corporate functions who believe that they can get these solutions faster and they don’t need to go through a governance process and all the hassle to get these services delivered.

It’s really a whole new competitive world for middle-market companies. They are no longer at a disadvantage when it comes to accessing IT services, and in fact we believe that the real differentiation for middle-market firms will come from how they manage IT. Can they adopt the IT service management processes and be as disciplined as some of the more sophisticated and larger IT organizations with whom they compete? It’s now a management issue; it’s not access to technology any longer. The question becomes how quickly they can become sophisticated in terms of how they manage IT.

MME: Meanwhile, mobile devices are playing a larger role in the personal and professional lives of workers …

Wallaesa: Companies need to figure out the risks and opportunities of this. How do they allow people to come to work with these devices? People work different hours than they have in the past. More people are working from home every year. It’s a new way of interacting, and people very often want to choose their own device. So the same device that someone is using to access Facebook is the same one that is being used for corporate application. The device is becoming part of that person’s identity inside and outside of work .

MME: We’ve been discussing how IT is becoming embedded and therefore less visible. One area where the role of technology is being more greatly exposed is in the area of Big Data and analytics …

Wallaesa: Well, once again this touches upon the idea that IT being embedded and accessible through cloud services has lessened the competitive advantage that larger corporations have had, particularly when you consider that IT services can be procured by the drink. Middle-market companies can access the same kinds of services that previously only large companies could access, so the competitive advantage that large companies enjoyed — where they were able to access very specialized services — no longer exists. If you think of how companies compete, it is about doing things better than their competitors. This is mostly process-focused, so they have a better supply chain, or better sales and marketing or whatever it might be. I think that today these business processes are fairly commoditized; with the advent of ERP and CRM, no one really has access to intellectual property or business processes that anyone else doesn’t have access to. I don’t think that anyone is competing on supply chain or logistics anymore. So the whole new area where businesses can compete is in analytics and volume of data, as well as in some of the sources of that data, such as social media. The people who cut through that data and access their customers and learn more about them and get them to use more of their services will be the ones who have a competitive advantage.

MME: How has the influence of finance grown inside organizations, when it comes to IT spending?

Wallaesa: What we see happening is that there is a whole new focus on governance, where CEOs and CFOs are working together to make certain that corporate assets and corporate investments are focused in the right areas. In the past, too often the IT budget and IT investments were made without this type of collaboration. So real process, structure, and discipline are being implemented in companies so that CIOs and CFOs can work together to make certain that the portfolio of IT investments achieves the type of value that is required. We interpret value as driving revenue or driving real cost savings. If you’re not going to drive increased revenue or real cost savings, then you probably shouldn’t be making this investment. There is a new focus and discipline in that area, and I think that one of the things that goes along with this focus is that since the downturn, CFOs are not anxious to load up their balance sheets with a lot of IT assets. One of the things they are looking for is the nimbleness to sort of turn off services in case of a revenue dip, so they’re much more interested in the variable cost of services rather than going out and owning them. So we’re seeing more and more outsourcing, more and more externally delivered services, than ever before. CFOs are not anxious to own all of these things — particularly IT.