Photo credit: Clouds Dancing by Michael Krigsman

Last week, I spent several days in Orlando, at SAP’s huge Sapphire Now conference, speaking with company executives, partners, and customers.

I was particularly interested in SAP’s plans around the cloud, which involve consolidating on-demand and cloud products under Lars Dalgaard, who joined the SAP’s Executive Board following the company’s $3.4 billion acquisition of SuccessFactors, where he was CEO. The acquisition enabled SAP to bring in an external cloud executive willing and able to disrupt the status quo, an important step in the company’s long evolution to embrace cloud computing.

An historical perspective. For years, SAP has had an identity crisis over its relationship to cloud computing, which makes sense given the differences between business models and corporate culture associated with cloud and on-premise software. To appreciate fully the significance of this internal disruption, it is necessary to review a bit of SAP’s history with the cloud.

In a sense, the roots of SAP’s cloud efforts began prior to 2004, with Project Vienna, a service-oriented architecture re-platforming initiative intended to unify SAP’s underlying data model. Project Vienna consisted of approximately 700 software engineers. By 2006, SAP presented SOA by Design, which analyst Josh Greenbaum speculated would be “potentially available in SaaS mode.”

By 2006, when SAP formally released Business ByDesign, the company had spent substantial sums but still could not deliver software as a service economically. In a meeting around that time with several members of the Enterprise Irregulars, including me, then-CEO Henning Kagermann said the company had considered spinning off the ByDesign group into a separate company, although that idea was eventually rejected. By 2010, SAP had finally turned ByDesign into a fully multi-tenant product capable of supporting the economics of software as a service.

In summary, it took SAP almost ten years and highly significant investments to make an irrevocable commitment to the cloud. By acquiring SucessFactors and installing Dalgaard as cloud boss, SAP has made an irreversible commitment to the cloud as a core competency going forward. Despite this commitment, we must remember that cloud today accounts for less than ten percent of the SAP’s overall revenue. Therefore, today’s cloud strategy is a foundation that will only achieve fruition in years to come.

For a company with deeply established on-premise revenue streams and a correspondingly strong on-premise sales culture, the shift to SaaS and cloud has been slow and painful. For this reason, one should congratulate Co-CEOs Bill McDermott and Jim Snabe for pushing cloud deep into SAP. For the last several years, they have worked closely with CTO and Executive Board member, Vishal Sikka, to re-build SAP’s innovation culture. The new cloud initiatives are a continuation of those efforts to reinvigorate SAP’s culture.

SAP’s cloud transition. Congratulations aside, SAP’s cloud success is far from assured. SAP is a massive company with sales and consulting organizations that expect the big hit financial benefits associated with selling on-premise software. Substantially completing this cultural transition will take years, especially since most of SAP’s current revenues come from on-premise products and services.

Lars himself will face obstacles as he seeks to challenge and disrupt SAP’s consensus-driven culture. However, as I said on Twitter:

Lars is brash, people will fight him. But, brings right kind of aggressiveness to push SAP hard. That’s good.

Some confusion is also inevitable during the early transition period. For example, SAP projected mixed messages (and here and here and here and here and here) on the role and importance of Business ByDesign in SAP’s cloud strategy. All of which prompted Dalgaard himself to respond on Twitter:

ByD is important to us and I said we are making a serious investment in ByD targeted at smaller businesses

Responding to the confusion around Business ByDesign, Lars wrote a blog post specifically on this topic, saying:

SAP Business ByDesign is an integral part of SAP’s Cloud portfolio.

Although SAP will clean up short-term transition confusions quickly, deeper tensions between the on-premise and cloud parts of SAP’s business will remain for the next 3-4 years.

CIO recommendations. SAP customers should consider their own cloud strategies independent of SAP’s current product readiness, bearing in mind that SAP’s cloud portfolio will expand over time to include more offerings for companies of all sizes.

Even if you are a dedicated SAP shop, it is still worth being aware of buying options such as Workday, NetSuite, or salesforce.com. These companies helped establish the competitive environment that pushed SAP to make the dramatic cloud moves we now see.

When deciding which existing systems to move into the cloud, distinguish between core applications (such as finance) and those on the periphery (such as CRM). Build your cloud transformation strategy by analyzing which applications can move to the cloud with least disruption and greatest benefit.

ALSO READ:

ZDNet: CIO view: Consumerization and the impact on IT
ZDNet: SAP Sapphire: CEO outlines vision for ‘a better future’
ZDNet: SAP Sapphire: SuccessFactors’ Lars Dalgaard swings for the cloud fences
ZDNet: SAP Business byDesign: Status update
ZDNet: Understanding SAP’s Business byDesign SaaS strategy
ZDNet: The Game of Leapfrog, SAP Style
SAP press release: SAP Announces 2012 First Quarter Results
SAP on the Cloud: SAP Business ByDesign: an integral part of SAP’s Cloud portfolio
Wall Street Journal: SAP Says Business ByDesign Remains Part Of Cloud Strategy
Information Week: SuccessFactors Leading SAP Cloud Away From Business ByDesign
Saugatuk Technology: Sapphire 2012: SAP Betting the Ranch on the Cloud
Ventana Research: SAP Brings Out New Voice and Strategy for the Cloud at SAPPHIRE
Business Insider: SAP Almost Killed A Cloud Product That It Now Says Is Super Important

While the growth of cloud is obvious, the impact on IT is less clear. Consider the following chart from a report by the SandHill Group (and sponsored by SAP):

The chart shows the growth of IT spending compared to growth rates of a variety of cloud-focused technology companies. This chart demonstrates a cloud growth dynamism that is impossible to ignore, especially in light of the comparatively small IT growth rate. Although OpenTable, the growth leader shown above, is a consumer company, the chart represents a substantial enterprise component.

Next, look at this graph, showing that Facebook has 901 active million users every month:

With so many users, Facebook itself has become a cultural force in society, helping drive profound shifts in consumers’ expectations of technology. When these expectation shifts meet the enterprise, we call it the “consumerization of IT.” I’ve recently spent time with folks from salesforce.com, which uses the term “Social Enterprise” to describe the impact of cloud, social, and mobile on the enterprise.

Now, consider the following statistics, from Gartner (registration required) and PriceWaterhouseCoopers (reported by ComputerWorld):

The conclusion is inescapable: Cultural shifts, combined with cloud as an enabler, have given end-users and lines of business greater control over technology in the enterprise.

Some IT folks, however, may find this inevitable trend disruptive and challenging. Although it is true that some IT roles will evolve as the transition to end-user computing in the enterprise takes hold, successful cloud transformation requires partnership between lines of business and a robust IT organization.

TEN POINTS OF BUSINESS ADVICE FOR IT IN A CLOUDY WORLD

The transition to cloud and consumer-centric technology creates opportunity for wise CIOs who embrace, rather than fear, this natural evolution of computing. To help lead cloud transformation in your company, consider following these points:

1. Share your expertise on moving to the cloud with line of business folks in your company
2. Provide the facts about opportunities and risk when moving to the cloud
3. Serve as the cloud-provider clearing house for your organization
4. Help the business select the right system integrator
5. Take the lead on developing your company’s a cloud strategy and transformation roadmap
6. Help your business counterparts adapt to the new technology
7. Assess on-premise systems to determine the best cloud migration path
8. Create a long-term cloud delivery model and strategy
9. Lead the effort to standardize security, backup, and other centralized policies as they relate to cloud computing
10. Engage senior management to ensure that cloud computing initiatives support your company’s core strategies

As part of a research project into use of cloud, mobile, social, and advanced network infrastructure, professor Lydia Segal and I have recently interviewed numerous innovative CIOs at institutions of higher education. [Disclosure: sponsored by Enterasys with support from salesforce.com.]

Among our findings:

The most successful and innovative CIOs lead the cloud transition in ways that directly support their organization’s key mission; these top performers also engage other senior leaders in meaningful and ongoing dialog. The combination of sound strategy and active engagement is powerful and does work!

Bottom line: The consumerization of IT offers tremendous opportunity to CIOs possessing the leadership skills and vision to engage substantively with line of business counterparts.

====================

On May 13, 2012 colleagues and I will deliver a workshop addressing business transformation in the cloud as part of the pre-conference activities at SAP’s upcoming SapphireNow conference. For more information, click this link.

BE SURE TO READ PART ONE OF THIS SERIES.

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RISK AND ACCOUNTABILITY

While executives cannot anticipate every risk, current standards of accountability are clearly too low. The incidence of failed IT projects, leading to dramatic examples of waste, remains high and there is little cause to assume this situation will change soon.

Author and Suffolk University ethics professor, Lydia Segal, sees the result as “economic abuse” on the part of company executives. “Disregard for successful outcomes is the unintended, if frequent, consequence.” she says. “We expect senior management to be financial stewards on all matters of material importance, including large IT projects.”

And those who assess corporate risk agree. One of the UK’s top authorities on managing risk, David Hancock, also refuses to excuse failures, saying, “Executives who do not protect this value are negligent in their duties. Failing IT projects can rapidly erode shareholder value and company reputation.”

As evidence, look at these examples, which do not even scratch the surface of IT failure stories:

• In March 2012, United Airlines changed a variety of ticketing and web systems as part of a merger with Continental. Problems arising from the upgrade caused prominent sourcing blog, SpendMatters to comment on the impact to United’s best customers: “across the globe, frequent flyer chaos, even for top-tier flyers, has ensued as a result.”
• The National Health Service (NHS) IT failure, a massive project, has ongoing ramifications for system integrator CSC, which is currently negotiating with the UK government. Earlier in 2012, the company was forced to write off almost $1.5 billion resulting from its participation in the ill-fated National Programme for IT (NPfIT)
• In 2010, publicly traded wood retailer Lumber Liquidators announced a 45 percent drop in earnings, due to “reduced productivity” associated with its ERP deployment.
• In the UK, in 2010, system integrator EDS was forced to pay £318 million ($460.3 million) to British Sky Broadcasting (BSkyB) to settle another CRM failure case
• In 2008, clothing giant Levi Strauss reported a 98 percent drop in net income due to problems with its SAP implementation.
• Also in 2008, retailer J. Crew reported weak earnings due to problems deploying a new CRM system and website
• In 2007, Arizona State University had to bring in armed guards on payroll days, due to problems with an Oracle system. One can only imagine the reputation damage to the university when the Wall Street Journal published that story.

ADVICE FOR MANAGEMENT

IT failures are a byproduct of poor management practice and can be prevented. Organizations committed to change and improvement should consider these points carefully:

Make your CIO an equal partner in the business - if he or she doesn’t measure up, then find a replacement. Many sophisticated CIOs seek a “seat at the table,” hoping to forge a genuine partnership with business peers. However, not all CIOs possess the experience and understanding needed to discuss business issues at that level. For the good of all concerned, senior executives should invite the CIO to participate in strategic discussions while demanding that IT play a user- and business-centric role.

Enlist the Board behind your effort to improve. The size and scope of many IT initiatives requires approval from the Board of Directors. Too often, the Board is so far removed from IT projects that members do not fully understand the risks and practical realities of complex project execution. Enlist the CEO to champion IT change at the Board level - do so by considering the aggregate IT budget and making the strategic relevance of IT to the business as a whole. The more the Board is seen actively sponsoring the change, the greater the acceptance of the change among the employees.

Take control of change management, the silent killer of IT projects. Despite lip service to the contrary, most organizations treat change management as a relatively low-priority activity. As a result, change budgets are low and companies do not invest adequately in engaging employees at early stages of change or properly training them to perform new processes.

Define success and failure metrics; track progress over time. Many IT departments track key performance indicators such as system uptime and user logins. However, these technical measures do little to address the underlying reasons for IT failure. Instead, develop metrics related to user satisfaction, collaboration between business and IT, and senior management support for IT delivery.

Acknowledge failure when it happens; sweeping a mess under the carpet won’t fix it. Transparency can be painful at first, but it also encourages trust and enhances long-term credibility.

CIOs should take personal control to assess and track the buy-in of employees to ensure they:

• Are aware of the need for change
• Possess the desire to change
• Understand what they must do to make the change
• Possess the necessary new skills to enable them to handle the changed way of doing things
• Reinforce the change over time

CONCLUSION

Responsibility and accountability for IT project success or failure lies with senior management - transferring blame to project managers or third parties is ultimately a misguided effort that will not solve this massive problem. It is time for the business community to expose IT project failures as an important source of economic waste and take steps to fix the problem.

BE SURE TO READ PART TWO OF THIS SERIES.

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It’s a sobering statistic: nearly 70 percent of IT projects fail in some important way, putting the economic impact worldwide at three billion dollars, which corresponds to 4.7 percent of global GDP. And it’s a universal problem: setbacks span the public and private sectors, occur in all industries, and often result in substantial economic and productivity losses.

Read Also:
Annual cost of IT failure: $6.2 trillion
Worldwide cost of IT failure: $6.2 trillion
Critique: $6.2 trillion global IT failure stats
Worldwide cost of IT failure (revisited): $3 trillion

Just look at these CRM failure statistics for the years 2001-2009 - the numbers tell a story of significant problems related to IT project delivery:

• 2001 Gartner Group: 50%
• 2002 Butler Group: 70%
• 2002 Selling Power, CSO Forum: 69.3%
• 2005 AMR Research: 18%
• 2006 AMR Research: 31%
• 2007 AMR Research: 29%
• 2007 Economist Intelligence Unit: 56%
• 2009 Forrester Research: 47%

In virtually every case of failure, management fails to anticipate serious problems. Even in cases where challenges are likely, IT failure is too often considered business-as-usual, with executives throwing their figurative hands in the air, in surrender to chance or bad luck.

IT failures happen when managers exercise insufficient judgment, possess too little experience, hire the wrong people, ignore warning signs and, crucially, fail to involve affected employees in a way that eases the path to success.

WHY IT PROJECTS FAIL

Although tempting to blame project managers for failure, we must point attention to senior executives for allowing the conditions for failure to exist in the first place. The underlying reasons fall into three categories:

1. Unrealistic and mismatched expectations
2. Conflicts of interest among customers, vendors and integrators
3. Corporate organization structure that conspires toward failure

Unrealistic and mismatched expectations. Too many executives expect technology magically to solve business problems, an almost delusional misconception that leads to unhealthy risk. Dr. Paul Kedrosky, a well-known investor and economics writer, explains why: “Software is super malleable and appears to create infinite productivity,” he says, “which creates a nearly perfect trap for senior executives.”

Health-care business services provider, MedSynergies, fell into this trap when it purchased software from Lawson Software. The ill-fated relationship ended in a lawsuit when MedSynergies sued Lawson and hosting provider, Velocity Technologies, claiming the companies:

[C]onspired to lure plaintiffs into onerous, long-term software, hosting and services contracts and then simply failed to perform,” the complaint said. “When their software did not work, defendants piled up the services, charging hundreds of thousands of dollars in ‘consulting fees’ to fix the problems they themselves created.”

Although there are two sides to every story, it’s clear the parties had sharp differences of opinion regarding software capabilities and implementation process.

In another case of mismatched expectations, farming organization Woolf Enterprises sued ERP supplier Ross Systems over a failed implementation. Woolf’s lawsuit states that Ross made:

[P]re-sale promises…that its software would fit Woolf’s needs without major tweaks, save for a “grower accounting module…” Moreover, while Ross promised it would develop the grower accounting module at no charge to Woolf, it never had any intention of doing so, according to the complaint.

Forensic financial analyst and blogger Francine McKenna adds, “We let business off the hook because IT is complicated.” In both the previous examples, the lawsuits are rooted in business, rather than technology, disputes. However, when technology is involved, many executives relinquish accountability they might otherwise retain.

Read Also:
IT failure and collaboration: Ten big symptoms
Design thinking: A new approach to fight complexity and failure
Amplifying ‘weak signals’ for IT success
Three simple truths of failure

A recent failure involving ERP vendor, Epicor, demonstrates this critical point. In a lawsuit filed earlier this month, Group Manufacturing Services claims that Epicor misrepresented the functionality and ease of implementation of its software. Epicor’s response states that the customer chose to implement the software itself to save money, and “adopted a go it alone mentality, despite Group’s lack of experience.” To an outside observer, it appears that Group over-estimated its own ability to manage the implementation and tried to pass blame to Epicor.

Of course we cannot ignore technology as a complicating factor on business-oriented IT projects. Beverage distributor, Major Brands, describes this situation in another lawsuit against Epicor. After years of cost overruns and delay, Major Brands scrapped its ERP project, for which it paid about $1.2 million (including software and related implementation services). The big culprit, according to the lawsuit: the software was so slow as to be “absolutely useless.”

Although technology itself plays a role in some IT failures, far more often the problem is connected with the customer’s inability to cope with organizational change, conflicts with vendors, lack of training and other management issues.

Conflicts of interest among customers, vendors and integrators. Implementing enterprise software typically involves multiple groups, each with its own set of interests, goals, and measures of success. For example, when IBM faced lawsuits in the Philippines over a failed government project involving the company’s DB2 database product, tensions rose among the customer, IBM, and the system integrator. All three parties pointed fingers at each other in a series of public accusations.

Continue reading to hear from prominent CIOs »»

Image credit: iStockphoto

Calculating the global impact of IT failures on an annual basis is a worthy goal. However, aside from the challenge of collecting data, failure itself has no clear definition, subjecting the entire effort to assumptions and guesses. Still, several years ago, one analyst attempted to quantify the data in a noble, yet ultimately flawed, effort.

Also read:
Worldwide cost of IT failure: $6.2 trillion
Critique: $6.2 trillion global IT failure stats

Related:
British Computer Society: A study in project failure

Nonetheless, the challenge of quantification remains. For this reason, I invited two qualified experts to re-assess the worldwide economic impact of IT failure. Gene Kim was the founder and former CTO of Tripwire, Inc., co-author of The Visible Ops Handbook, and a co-author of an upcoming book called When IT Fails: The Novel ; his colleague, Mike Orzen wrote the book Lean IT and consults on IT operations and business transformation. They are currently co-authoring a new book called The DevOps Cookbook.

The two experts calculated the global impact of IT failure as being $3 trillion annually. They supplied the following text to explain their logic:

For just the Standard & Poor 500 companies, aggregate 2012 revenue is estimated to be $10 trillion. If 5 percent of aggregate revenue is spent on IT, and conservatively, 20 percent of that spending creates no value for the end customer - that is $100 billion of waste!

(The 20 percent assumption is an extremely conservative number when you consider that when we analyze the value streams of almost all processes across all industries, we discover over 80% of the effort creates no value in terms of benefit to the customer. Mike Orzen’s work value stream mapping in many of the largest IT groups around the world consistently shows the same results.)

Here’s another approach at calculating the total waste in IT worldwide: Both IDC and Gartner projected that in 2011, five percent of the worldwide gross domestic product will be spent on IT (hardware, services and telecom). In other words, in 2011, approximately $5.6 trillion was spent on IT.

There are two components to IT spend: capital projects and operations/maintenance.  If we assume conservatively that 30 percent of IT spending is for capitalized projects, and that 30 percent of those projects will fail, that’s $252 billion of waste!

But IT is like a free puppy — the lifecycle cost of the puppy is dominated by the “operate/maintain” costs, not the initial acquisition costs. If we conservatively estimate that 50 percent of global IT spend is on “operate/maintain” activities, and that at least 35 percent of that work is urgent, unplanned work or rework, that’s $980 billion worldwide of waste!

What reward can we expect through better management, operational excellence and governance of IT?  If we halve the amount of waste, and instead convert it into 5x of value, that would be (50 percent * $1.2 trillion waste * 5x). That’s $3 trillion of potential value that we’re letting slip through our fingers!

That’s a staggering amount of value, 4.7 percent of global GDP, or more than the entire economic output of Germany.

My take: These are the most reasonable numbers I have seen on the global economic impact of IT failures. Unlike previous estimates, which considered complicated matters such as lost opportunity costs, this formula is simple and credible.

Many CIOs feel caught between the desire for openness and the mandate for safety and protection. It’s a tough balance and there are certainly no easy answers, especially during this period of cultural transition in regard to these issues. Despite the difficulty, some CIOs have forged a path that successfully manages these conflicting goals.

The chart below, put together by Mark Fidelman, Chief Social Strategist at harmon.ie, lists 25 top CIOs, from the world’s largest companies, who engage on social channels such as Twitter and Facebook. I personally know several people on this list and can verify they understand the need for communication and openness, while still fulfilling their mandate to protect corporate assets.

When reading the list, remember there are many quiet innovators among the ranks of CIOs. To those unsung heroes I say: keep doing your thing. The value you offer is tremendous and will be recognized.

Image credit: Mark Fidelman

Image credit: iStockphoto

Despite spending $500 million on the California Case Management System (CCMS), court officials terminated the project and allocated $8.6 million to determine whether they can salvage anything. In 2004, planners expected the system to cost $260 million; today, the price tag would be $2 billion if the project runs to completion.

The multi-billion project, started in 2001, was intended to automate California court operations with a common system across the state and replace 70 different legacy systems. Although benefits from the planned system seem clear, court leadership decided it could no longer afford the cost of completing the system, especially during this period of budget cuts, service reductions, and personnel layoffs. A vague statement on the California Courts website, explains:

“We have to develop a new vision for our branch technology infrastructure given our fiscal climate,” said Judge James E. Herman, chair of the committee. “We are committed to implementing a cost-effective, efficient technology that serves the public, litigants, attorneys, and trial courts.

Translation into plain English: “Branch offices across the state need this system but we just don’t have the money to pay for it.”

CIO ANALYSIS

California has a rich history of expensive and wasteful IT projects. Although the state has an IT project tracking system, based on my research, I personally do not have confidence in California’s IT project tracking website.

ALSO READ:

Did California’s CIO mislead public on IT success?

Follow-up: Duration reporting in California’s IT strategic plan

It’s a shame that California cannot afford to continue the project, which would have brought substantial efficiencies to court system employees and also to private citizens seeking court-related information. Although the project seemed promising, the initiative has been plagued by poor management and lousy planning. A 2011 state audit (PDF download) highlighted the following issues:

Our review of the Administrative Office of the Courts’ (AOC) oversight of the development of the statewide case management project revealed that the AOC:

• Inadequately planned for the statewide case management project and did not analyze whether the project would be a cost-beneficial solution to the superior courts’ needs.
• Was unable to provide contemporaneous analysis and documentation supporting key decisions on the project’s scope and direction.
• Did not structure the development vendor’s contract to adequately control cost and scope—over the course of seven years, the AOC entered into 102 amendments and increased the cost from $33 million to $310 million.
• Failed to develop accurate cost estimates—in 2004 the cost estimate was $260 million and by 2010 the estimated cost was $1.9 billion.
• Has not obtained the funding needed for statewide deployment and without full deployment to the 58 superior courts, the value of the project is diminished.

You may wonder how the state can run such a large project with these kinds of management deficiencies. Frankly, it’s a great question.

An editorial in the Los Angeles Times summarizes the story:

California’s Judicial Council — the leaders of the state’s trial and appellate courts — voted to pull the plug on a statewide computer system that was designed to finally bring courts into the 21st century. There was very little choice: What would be the point in creating technologically competent courtrooms with shuttered doors? The council was right to shelve the Court Case Management System, use the funding to keep courts in operation and hope to salvage the system for use, or rebirth, or spare parts, in better economic times.

Bottom line: The project was a good idea but failed due to poor planning, management, oversight, governance, and controls. California’s legislature should now conduct an in-depth investigation into how the state handles manages its multi-billion dollar IT budget.

RELATED ARTICLES:

CIO Magazine (IDG News Service): California Scraps Massive Courts Software Project

San Francisco Chronicle (Associated Press): Calif. courts scrap $2 billion computer project

Internet Evolution: California flushes $2B IT Project

California Judicial Branch website: California Case Management System

Mercury News: California courts scrap $2 billion tech project

Law.com: How the Branch Killed CCMS, and What It Means for Other Woes

Update 4/2/12: As a commenter on this post correctly points out, Deloitte was the contractor on this project.

Photo credit by Michael Krigsman: The original shiny object

Many enterprise software people love shiny new objects — we are attracted to surface appearances while de-valuing substantive function. As the Biblical story of the apple suggests, the lure of seductive appearance is not new.

In today’s enterprise world, in which software procurement is increasingly decentralized due to the cloud, balancing seductive end-user tools against corporate standards is an important CIO challenge. The issue becomes more profound as users demand even greater independence from centralized IT departments.

When discussing shiny new technology, end-user adoption is a particularly compelling topic. While it’s certainly true that new features and cool user interfaces encourage users to adopt technology as never before, there is also a darker side. Although the new technology can solve current problems, it may also cause unexpected downstream disruption to business processes. This fear of disruption explains why IT is often risk averse; it’s the CIO’s job to worry about potential future disruptions to the business.

To explore this important topic, I invited Vijay Vijayasankar to write a guest post here on ZDNet. Although Vijay and I sometimes disagree sharply (for example, see his post on rapid implementation), I hold his views in high esteem. Vijay’s perspectives are balanced, thoughtful, and respectful — a great combination.

Vijay Vijayasankar is an Associate Partner and Head of Forward Engineering for IBM’s global SAP consulting practice. In this role, Vijay advises IBM on prioritizing innovations that come from SAP; he frequently provides customer feedback to senior SAP executives including CEO Jim Snabe, CTO Vishal Sikka, and President of SAP Global Solutions, Sanjay Poonen. Over the last 15 years, he has managed numerous enterprise engagements with Fortune 500 companies across Asia, Europe, and North America. Vijay is an SAP Mentor and often presents at conferences on enterprise software topics. Vijay maintains two blogs here and here. Follow him on twitter @vijayasankarv.

Thank you to Vijay for writing this guest post.

=============================

CIO view: Balancing the blessing and curse of shiny objects

This post represents my personal opinions and not those of my employer.

Technology doesn’t have to be rock solid for buyers or users to adopt it. It just needs to be better than the next best alternative and solve a big, short-term problem. By big, I mean the pain must be great enough for the buyer to dismiss potential future risks or shortcomings stemming from the new technology.

For example, in the 90s, SAP R/3 was far from perfect yet it was widely adopted. Why? For companies creating “core ERP” functionality, by getting different systems to work together, R/3 was light years ahead of other available options. As a result, R/3 was “better, faster, and cheaper” than alternatives. The problem was so important, and the pain of getting different systems to work together so great, that customers, system integrators, and SAP often did crazy things to make it work. Even though many customers knew they would pay a high price in the future when it came time to upgrade the system, the short-term benefits made future upgrade worthwhile. In addition, R/3’s notoriously crowded UI was still easier to use than combining different non-integrated systems.

Fast forward to the last few years and we see smaller cloud vendors such as Workday and salesforce.com leading the market in specific segments. Why? Because just as SAP R/3 was “better, faster, cheaper” in the 90s, these companies provide their market segments with better alternatives today. However, all Is not perfect because history suggests that customers of these companies will eventually face the pain of dealing with multiple vendors, integrating cloud applications with on-premise software, and so on. Nonetheless, the prospect of future integration pain has not dampened interest in software as a service (SaaS). As with the early days of SAP, the current benefits of SaaS and cloud outweigh future inconvenience.

The importance of present benefit relative to future pain is also true in the consumer world. Despite being a Blackberry mobile phone user since the beginning, when the iPhone came out I bought it despite knowing about problems with iTunes and terrible battery life; I even bought my wife an iPhone. Even though I hate the iPhone’s calendar functionality and it has more limitations on the work front than I care to list, I won’t go back. The iPhone’s benefits over the Blackberry outweigh the pain and hassle of the older platform.

Disruption equals pain is a simple constant in enterprise world. Most companies will not endure that pain without a corresponding wow factor: no sizzle means no deal.

To be successful, vendors selling new shiny technology must wow the right people in the buyer’s organization. That might be offering the finance person a “deal that can’t be refused,” supporting a line of business executive whose analysts cry “IT doesn’t get it,” offering a CIO “services thrown in for cheap as goodwill” as encouragement to buy unproven beta software, or giving a procurement buyer “the best discount in the industry.” All these examples demonstrate ways to help enterprise buyers overcome the business disruption that occurs when introducing new technology into an organization.

The CIO Challenge »»

————–

After 131 years great American photographic icon, Eastman Kodak, filed for bankruptcy. Some might say that Kodak never made a successful transition from traditional film to digital cameras, but that’s not exactly correct, because American inventor, Steven Sasson, created the first digital camera for Kodak. I think the Economist put it more accurately, explaining that Kodak had become a “complacent monopolist,” enjoying its profitable film franchise and not keeping up with changing market trends. While Kodak invested in marketing, Japanese competitor FujiFilm created even better films, diversified through acquisition, and changed its business model to attack digital photography directly and with strength.

Photo credit: "Pipe Dream Swirls" by Michael Krigsman

As Kodak struggles for survival, FujiFilm is enjoying a renaissance period of innovation. For Nikon and Canon, FujiFilm’s innovation with sensors, the heart of any digital camera, poses a genuine threat. Only the future will reveal whether FujiFilm can make serious inroads against established competitors, but there is no question the company will push Nikon, Canon, and every other digital camera manufacturer to make fiercely better products. As a photographer myself, I think it’s great.

In 2011, FujiFilm released the X100, a small, lightweight camera with outstanding image quality. Despite usability quirks and missing features, the camera became an instant and viral hit among photographers.

For those accustomed digital single-lens reflex (DSLR) cameras from Nikon and Canon, the X100 is a breath of fresh air - it just feels natural to use. One photographer called the X100, “the greatest digital camera ever made and may just be the greatest camera I have ever owned.” Another said, “The images I get from my Fuji X100 are nothing short of amazing.”

Photo credit: "Tourists on the Water in Boston" by Michael Krigsman

I purchased an X100 and absolutely loved it until last week, when I unceremoniously dumped this small camera wonder. Why, you ask, did I get rid of the beloved camera? Because FujiFilm just announced a replacement, called the X-Pro-1. This new machine promises even better image quality than its predecessor, while retaining small size and adding the flexibility of interchangeable and high quality lenses. It’s a winner and I’m in line to buy one immediately on release.

As Kodak fades, FujiFilm embodies a new generation of photographic technology driven by genuine innovation rather than strict adherence to marketing formulas. A powerful lesson is hidden in this story.

Photo credit: "Conversations in Silos" by Michael Krigsman

Update 1/20/12: Thanks to Carlos Francavilla for translating this post into Spanish!!

This post summarizes my remarks to a group of senior government leaders embarking on an innovative and ambitious plan to improve health care delivery in their state. A key issue is fostering communication and collaboration between business stakeholders and IT.

Statistics tell us that almost 70 percent of IT projects are late, over-budget, or fail to deliver expected value (the worst fate of all). Numbers like these make clear there is a pervasive issue in the world of IT delivery.

Despite the glaring statistics, virtually all projects start with good intentions; after all, no sane team intends to fail. Although politics and self-interest sometimes push individuals to undermine team goals, most organizations that invest in technology expect positive results. Despite these good intentions, failures occur with striking regularity and few organizations take steps needed to prevent failures from arising.

For example, no one expected a meltdown when the state of Maine went live with a new Medicaid claims processing system that allowed medical providers to submit claims over the Internet. But meltdown is precisely what happened when unanticipated errors caused the system to handle claims incorrectly. Original project cost: $25 million. Additional work required to fix errors after going live: $30 million. Hassle caused to medical providers and lost credibility to state of Maine health administrators: priceless.

Similarly, everyone surely expected success when Minnesota’s Department of Human Services (DHS) started developing its HealthMatch program, “an automated system designed to match Minnesota residents with appropriate state-run health programs, based on eligibility.” Nonetheless, the state eventually spent $41 million and settled a lawsuit with the software developer before deciding to shut down the failed program. Despite HealthMatch being a total loss, one enterprising Minnesota lawmaker subsequently introduced a bill directing the Department of Human Services to start over with a new external contractor.

As these examples demonstrate, good intentions and an honest soul are not sufficient to create successful IT projects. Many organizations simply lack the skills needed to navigate complex relationships between technology and business holders in an organization.

To avoid these problems, every CIO, project owner, and business leader should understand three basic principles:

1. Put strategy before technology

It may sound obvious but many organizations do not fully consider business strategy before deploying technology.

A prevailing view assumes that IT’s primary role is managing technology. However, this limited perspective obscures a more profound truth: technology’s highest value is helping the business achieve benefits such as driving innovation and competitive advantage, lowering costs, increasing market share, and so on. For those who love jargon, call this “IT enabling the business.”

Projects fail when organizations perceive IT as folks who “keep the lights on.” When business process owners and stakeholders do not involve IT with planning and strategy, they create mutual co-dependence with their IT counterparts. Eventually, IT itself completes this unhealthy relationship cycle by not taking sufficient time to understand and engage lines of business in a meaningful way. For those who love jargon, call this pattern “mutually assured self-destruction.”

The technology must work or you’re screwed »»