By Christopher O'Malley
There is a lot of concern in the financial markets that another recession looms before us. Growth seems to be evaporating worldwide and Europe's continuous deluge of bad news appears to be driving markets to a tipping point.
Times such as these are a source of significant business disruption that cause fire drills to save profits as a means of weathering the storm. Forty years ago, such circumstances would have been ominous for heavy manufactures such as John Deere, CAT and even companies such as IBM with a high dependance on in-sourced manufactured hardware. Forty years ago, the tendency to in-source the majority of the manufacturing efforts for these organizations created a fixed cost business model that was inelastic in scaling down to recessionary demand. This inevitably resulted a sudden swing to unprofitability that left shareholders nauseous and businesses often in crisis.
A few years back, I saw a presentation by the CEO of John Deere. He discussed Deere's transformation to a best in class supply chain management firm and the resulting economic implications to their business. The greatest benefits were derived by appropriately sourcing services (both internal and external) based on measures of risk/value and establishing a variable cost structure to more rapidly scale supply to demand. John Deere achieved better value/cost by sourcing services from companies that are minaically focused on a well defined service and built a variable business model designed for sustain profitability.
I'm sure you;ve heard over and over again that the cloud has fast become a viable supply chain source for IT and, as a result, IT must rapidly develop supply chain management expertise to best exploit. The benefits to be gained are similar to those that manufacturing has enjoyed for decades. Even so, many still question whether IT's relative budgetary size within the business is large enough to move the profitability needle in a meaningful way. They acknowledge that the concept of IT supply chain is interesting from an operational effectiveness perspective, but they question the real impact on long term profitability.
Clearly, John Deere gained enormous benefit to their bottom line by becoming a best in class in supply chain manager given the significant cost of manufacturing to their business, but those material gains have long been harvested. In 2012, we are in a mode that every single point of margin has a big impact on shareholder value. For many companies, rounding profit margins up or down means beating or missing expectations in a very unforgiving market. As such, IT's opportunity has never been so important to make an impact on sustained profitability given the readily available services that the cloud offers.
In researching how IT should build and execute a plan for IT supply chain management, I came across a 2002 documented briefing by Rand to the US Air Force entitled, "Implementing Best Purchasing and Supply Management Practices - Lessons from Innovative Commercial Firms" This is detailed 230 page paper, but the lessons learned from manufacturing are incredibly relatable to what will happen in IT over the next few years. For those interested, I'd encourage you to read the Forward and skim the rest for relevance. John Deere was used as a case study on supply chain strategy and vendor management (starting on Page 124) that is especially helpful, as well as, the examples that follow into the document.
The goals of aligning IT to the business and running IT as a business are no longer aspirational, but demanded. Lessons abound on strategies and best practices for supply chain management. The cloud provides the means and a possible recession the catalyst for change. This is the perfect time to lead a transformational effort within IT.
Economic value ultimately determines whether market disruption evolves into lasting change. The cloud was a market disruption born in the last recession that will dominate in the next as the supply chain for IT.
By Christopher O'Malley
A year ago, I met with the Chief Strategy Officer (CSO) from one of the largest open system hardware companies. Surprisingly, the CSO's interests turned our discussion onto the future of the mainframe. For those that may not be aware, I had formerly led CA Technologies' mainframe business unit for 3 years and led the launch of our Mainframe 2.0 strategy. I assume given my background, the CSO had sought me out to pick a fight and convince me on the looming death of the mainframe.
He initially conceded that until very recently, open system hardware had certain advantages over mainframes (price performance being the most often stated), but there were always show stopper technical deficiencies that prevented any large scale market defection from the mainframe platform. Today however, he argued, the latest advances in open systems had surpassed the mainframe on every technical measure by a highly compelling margin and that the resulting economic value would finally bring old "big iron" down.
I'm not the one to judge the validity of the CSO's "speeds and feeds" argument, but he was missing the most critical point. The mainframe market collectively has invested 100's of billions in proprietary application development on the mainframe platform. Moreover, that huge investment still runs at a level of reliability, availability, and serviceability that remains unique to the platform and which companies have built their business models to depend on. It doesn't just work...it works amazingly well. With all the critical challenges that large enterprise CIO's face at the moment, a mainframe conversion is a high risk/low reward proposition that isn't even worth the time to consider.
I then turned the tables on the CSO and made the point that I believe the most threatened platform in enterprise data centers is not the mainframe, but rather open systems that will succumb to the inevitable gravitational forces from the cloud (gravity from a cloud would require an awfully big cloud :-)). I politely cautioned him that he should focus himself less on the mainframe market and be most concerned about his own companies future.
My reason for bringing this up was based on a article that I read today form Forrester (Forrester: Cloud is not the future of IT. Long live mainframes? See Article Here). The article implies that enterprise data center's last remaining platform will be the mainframe interconnected to an array of cloud services. Can you imagine that?
An enterprise IT model of "big iron" and "big clouds" means "big problems" for those vendors depending on open system sales to enterprise accounts. Long live the mainframe? You betcha!