Prediction is very difficult, especially if it is about the future, Nils Bohr, the Nobel Laureate for physics once said. Despite this, some from the IT industry were brave enough recently to stick out their necks to highlight what they believe CIOs can look forward to or in some cases, be wary of in the year ahead.
First off the bat was Azeem Azhar, the newly installed head of innovation at Reuters. Speaking at the Adobe 2006 Industry and Predictions conference, Azhar believes a major trend and something that CIOs need to watch out for is the challenge to existing business models from new ones, especially peer-to-peer ones. He sees the growing emergence of peer-to-peer models as having an increasing effect on the way business is done. The classic example of this is a success story like eBay.
According to its most recent financial report it has 11 million registered users in the UK – or one-in-five people. Azhar says this is even more impressive when you consider the number of people that simply do not have access to the internet.
“You are then looking at 11 million eBay users out of perhaps 35 million. This is without any real branding work, no TV advertisements – although they have started recently. They have reached 33 per cent of the population through purely organic word-of-mouth activity. That is a pretty significant peer-to-peer model. The point about the eBay model is that it will start to have a tremendous effect right across a series of sector industries.”
He points to other emerging peer-to-peer models that are changing the rules of the game for more traditional industries, such as ‘blogs’ challenging mainstream media.
“There have been many occasions where bloggers have beaten the mainstream press – not just in quality terms. The classic case is Trent Lott, the US senator, who made some racist remarks. Although not picked up by the mainstream press, it was picked up by bloggers. It resulted in his resignation in the US Senate a few days later. We’re already seeing blogs turning into mainstream businesses.”
Even the financial services sector is not immune, with banking being challenged by the likes of new wave independent financial organisation Zopa. Set up by former directors of Egg, the peer-to-peer lending model is proving a big hit.
If you want to make a return on spare capital, you can lend it to other members on Zopa’s lending exchange and dictate the interest rate. You will also get a better rate because the spread that Zopa offers between lending and borrowing can be better than what the mainstream banks offer.
He also cites the success of online peer-to-peer betting sites, like Tradesports and Betfair, which are challenging traditional gambling businesses like William Hill.
Similarly, there is HedgeStreet, a website which offers the facility for people to take up bets on particular attributes of the financial market.
Azhar argues that one of the reasons that the peer-to-peer model is gaining ground is because firms can innovate faster and to a higher quality than they would by bringing in partners or external players to the innovation process.
He believes the success of Salesforce.com is an example of this. “It launched a service called AppExchange, which allows third parties to develop applications on the Salesforce.com platform and sell them. So customers can develop a very specific application for a tiny niche that Salesforce.com would not target because it is chasing bigger accounts.”
James Bennet, director of technology at Ernst & Young, cautions CIOs against getting blinded by the next big thing.
“A lot of new things that get column inches in the press are actually not being deployed that widely. Salesforce.com for example, is fantastically successful in its niche and a lot of what it’s doing will ultimately change how business is done. But it is a very small percentage of the overall IT market and I think one can get carried away by looking for the new ‘new’ thing.”
As to how CIOs should respond to the peer-to-peer threat, Azhar says: “It really depends on the industry you are in. Part of it is still a case of listening out for the weak signals that are going on in the industry to understand whether they really are threats or whether they represent opportunities.”
He argues the financial services industry is probably better equipped than most to adjust to this trend. “Within the financial services industry − and I am thinking more of wholesale banking rather than retail banking − all of the banks are looking very closely at these peer-to-peer applications. The thing to remember is that the core trading businesses that they are in is peer-to-peer. If you are selling foreign exchange or dealing in commodities, that is peer-to-peer. The same thing goes for derivatives. So there is a sense in which these things are already assumed within these industries.”
He also highlights that CIOs can embrace blogging and use it to their advantage. “How you should respond to what bloggers get up to; how they write about your company? You have to treat it as a valuable customer engagement, because most of your customers do not engage with you. For someone to sit down and spend two hours of their time to write a rant about the 19 things that are wrong with your product is a tremendous commitment on their part. So you can take two views. You can say that this guy is a real arsehole, or you can say ‘right, this is really helpful; we’re going to find a way of bringing this guy into the dialogue’.”
“Then you get to the point about whether your staff blog. A lot of IT companies – Microsoft is one – are using blogs for staff to get closer to their customers. Where it can hurt is when you do not trust your staff. So if you have a slightly rotten corporate culture and you do not really want your staff to talk to the customers, then you are going to be nervous about them blogging.”
But this does not mean that the head of the company should necessarily start a blog himself though. “If I were an equity analyst, I would be pretty nervous about a CEO or CFO blogging. I would think perhaps they should connect with customers, or figure out why they are not meeting their own targets, or something else before they spend time writing a blog. It is really about priorities. For me though, blogs are a tremendous opportunity for all these organisations and it is really up to them to decide how they deal with them.”
Public sector spending in technology was a running story in 2005 and Charles Hughes, president of the British Computer Society, believes it is likely to be in 2006. “The use of IT has hit the headlines on and off for the past 15 to 20 years – and indeed may well continue to do so.” The simple reason is the scale of the money involved. “With the exception of Sweden and Denmark, the UK public sector spends more on IT and IT related projects than any other European nation. Indeed, if you look at the total spend on public sector IT in the EU, the UK represents 23 per cent. This is big money, it’s our money and we want to see it put to good and effective use. 2006 will be the year we begin to recognise that.”
Hughes says: “Take Connecting For Health, the biggest civil IT project anywhere in the world. The minimum cost for this is meant to be £6.2 billion pounds and, depending on which report you read, it could be £30 billion. That is big bucks. There is a significant degree of anticipation from the government about the whole service, and during 2006 we are going to see delivery from that huge investment.”
He says that on balance the e-government programme has done well. “Pretty much every public sector service, central government, local authority, NDPDs, whatever, is available online from the end of December 2005. I renewed my road tax a couple of months ago on the PC. No paperchase, no post office, no cheques. It all clicked; it worked. This is IT delivering real value, saving huge amounts of time and effort.”
He is not without misgivings, especially about the extent to which Whitehall realises everything should be citizen or user-centric. “I certainly still have concerns. The public sector must recognise that unless it can demonstrate an electronic service offering real value to the user – to citizens – it won’t get used. There needs to be a significant saving in money, time and increased reliability – it needs to be a better service. The other criticism is the lack of communication. I think there are a lot of significant services available online that we are not told about.”
Ernst & Young’s Bennet believes more suppliers will emerge in the public sector arena although it has been something of a closed shop in terms of IT contracts. “What we have observed in government contracts is that it is looking for more players to be bidding. Certainly we have seen a shift. Some of the major outsourcers are working together, or going under a new name for a contract because they don’t want to be seen to be taking all of the cake,” he says.
Patrick Cooper, head of applications and data services at the Department of Trade and Industry (DTI) agrees: “Having a service model means we do not need to maintain loyalties to existing vendors. I think it becomes an economic transaction – you get the best value from the best provider. There is an onus on government not to put all of our eggs in one basket. We do not have that loyalty where we may be in bed for 15 years with one supplier and a particular way of doing things. That is just not necessary anymore.”
Hughes points to shared services being a priority in government. “It is looking to implement a range of shared services across departments and organisations rather than each of the different government bodies – there are well over a thousand of them – having its own back office systems.”
Cooper agrees: “I do believe that shared services is a good thing, but I think something that often gets forgotten is that government does not solely consist of things at the Department of Work and Pensions size, which has 130,000 people. In the DTI we already provide a level of shared service − it’s just a natural thing to do.
“National Weights and Measures has 70 people and they require a level of service. They are not necessarily going to get that by signing up with a big systems integrator. I think an ability to provide shared services to constituents is a good and necessary thing. It can be done without a lot of risk or fanfare and provides a model for others.”
Cooper sees an inevitable, if controversial, government focus on identity management. “One of the things that we do require is a robust means of identity management. That will manifest itself in a number of ways. In particular, things like digital certificates will come to the fore.”
He also offers a novel way of getting public support for ID cards. “Give everyone an iPod. I am not trying to endorse Apple, but you would have no problems getting people to take an iPod home complete with a digital certificate and thumbprint reader. There’d be no reason to steal one because everyone would have one and we know it will be cheaper than the ID cards because the LSE told us so,” he jokes.
Hughes believes the hullabaloo over offshoring will calm down in 2006. There will be a growing realism over what companies can gain from it and the pitfalls. “Offshoring has been significantly over-hyped.”
There are still some CEOs, who are attracted by – maybe bedazzled by – the potential cost-savings. “Indeed, the figures indicate that the cost of doing something on the subcontinent is, give or take, 20-25 per cent of the cost of doing it in the UK. That of course denies all sorts of other issues. It denies any problems relating to data protection. It denies the fact that there is a lot of fraud.” He cites an estimate from India that fraud in call centres and elsewhere was valued at $8 billion last year. So much so that The National Society of Software and Service Companies (Nasscom) – an organisation that represents the interests of Indian-based industry groups and companies – has announced it is going to put in place a register of businesses that are accredited to provide services.
Cooper says that even the cost argument does not hold water for him. “My view is that outsourcing is a cheap way of achieving mediocrity. I do not think it’s a cost-effective way of getting an optimal service. You abdicate a whole level of management to take that approach and I’ve never been enamoured by it.”
Fears that offshoring will destroy the UK IT industry will subside this year, says Hughes.
“I think there is more realism. Reading some of the reports, one would almost believe that the whole of the IT industry is going to disappear. This is not the case. I hope there will be a recognition that this is just a normal part and parcel of the international development of the IT and communications market.”
Reuters’ Azhar agrees: “Some jobs will go, we will become more efficient and new jobs will emerge in new spaces. The issue is one of change for the people whose skills are no longer needed because we’ve got it at lower cost and better quality in another country. It’s not just a cost equation; it is often a quality equation. We’ve been through these sorts of industrial changes before. The question is, to what extent do the people who are at the sharp end need to re-skill and re-tool themselves? Also, to what extent will employers re-skill them and will government – if there is a really big industry shift – ensure there is some kind of support network? But in the long-term, it is going to benefit UK plc and the UK economy,” he says.
Hughes sees that offshoring is just part of the reality of business these days. “Offshoring is just part of the mix and if you are in business then you’re going to look at the most effective and efficient way of providing the services you need – and you’ve got a whole host of different arrows in your quiver,” he argues.
“You could do it in-house, a bit of outsourcing, subcontracting, whatever. The trick is to use all of these; offshoring is here to stay, it is part of the international scene.”
Bennet predicts another year of shrinking budgets. “What we have seen in the industry from both our clients and users of technology is that budgets are tightening. We’ve seen the continuing shift of the power base moving away from the CIO to the CFO.
“We have discovered it is projects that have been delivered by the IT function without properly engaging with the business to find out what users of the applications are looking for, that have failed. If you look at the failure rate of projects, very often it is because the project teams are working in isolation from the business. So budgets are not growing.”
Hughes agrees the IT industry needs to engage with business on a more professional level.
“I believe the most important thing by far is that we need professionalism in the UK IT industry. Everyone in it – all one million of us – must recognise that it is a serious profession; it needs to grow up. We need to improve the delivery of projects and programmes,” he argues.
Hughes says: “A recent report on the delivery of e-enabled programmes reckons that they are significantly better than the normal delivery of projects and programmes. It claims that 33 per cent come in on time, on budget and meet full functionality. Hallelujah! Of course, that means that 67 per cent do not. That must change.”
He believes: “We need to be more professional, understanding and applying best practice. Professionalism, in its full sense, is competence. It is accountability and responsibility.”
Bennet adds: “We see a lot more focus on governance from the beginning of projects. This means putting in place the proper procedures to make sure that projects work; the proper reporting lines to ensure that projects are actually linked into the board and don’t just sit in the IT function.”
On a more positive note Bennet does see some increases in IT spending this year. “One of the key areas has been around compliance – we see that continuing to grow significantly. Obviously, Sarbanes-Oxley and other regulations are driving a huge amount of spend for IT.”
This is not always a good thing. “As a result, what we are seeing in many cases is a stifling of innovation. There’s no more money being spent on IT, so the CIO is having to do more for less and having to divert budgets away from innovation towards statutory requirements,” says Bennet.
“In many organisations this is creating ‘vanilla IT’. This is where organisations are putting in just the bare minimum necessary, preventing people from having anywhere near the computing powers they have at home.”
He adds: “Cost restraints on the CIO means many organisations are unable to embrace the latest innovations and productivity tools. There’s a real conflict going on between costs constraints and the IT industry’s pace of innovation.”
Azhar also sees a challenge with what he terms “infobesity” – the rapid increase in the sheer amount of information that companies must deal with.
“We are drowning in data and that is because of the commoditisation and proliferation of content. The question is how are tools to manage infobesity going to catch up? Hence the importance of things like visualisation and search solutions.”
Bennet says: “We will see continued and growing spend in security and storage.” But he cautions about getting over excited about the ‘the next big thing’, since it is always easy to lose sight of the end user.
“We think a lot of the new things, utility computing, Wimax, open source, RFID, have a place, but if you actually look at large enterprises that have deployed wi-fi across their enterprise, how many of the users are actually using it?”