We’re in a world of stark economic realities driven by a variety of colliding business and technology factors. The unemployment rate in Jan 2011 was 9% and several experts have predicted that that number could stay consistent for the whole year. 9% is actually a drop in unemployment of .8% over Nov and Dec but contrary to how that sounds it is not good news for several reasons. First in Jan only 36,000 new non-farm jobs were created, far below the 250,000 / month figure that is needed to significantly reduce the unemployment number. Even worse though is the fact that a big part of the decline in unemployed came from an increase from 2.5M to 2.8M in workers considered “marginally attached”. Marginally attached means that the person is unemployed and wants to work, but has not looked for a job in the past 4 weeks. The workers either have become so discouraged that they have given up looking or have decided to get some sort of retraining or education to try and become employable in the future.
Unemployment is only one indicator of the issues facing businesses though. Competition has been inexorably redefined by the connectivity created by a global Internet. Unique business model innovation is also possible through this hyper-connectivity. Historically a new competitor might have taken years to build and launch but today with outsourced business functions, access to emerging countries labor pools, just in time supply chains, and easy access to global distribution channels and global markets, a new competitor could emerge in weeks or even days. In this sort of environment the pressure to innovate for both products and business models is also ever increasing and essential for survival. On top of these factors, the influence of the social web has dramatically changed the expectations of customers, partners, suppliers and employees. Customers expect engagement and for the businesses they choose to provide a high level of customer experience; and employees expect empowered, transparent, collaborative work environments.
Because of the change these factors (and others) have created for the enterprise and enterprise IT, I am often asked to explain the new enterprise IT strategy and buying behaviors. To understand the current IT mentality you have to take a look at the last 10-15 years of IT history. In the 1990’s IT strategy was driven by the need to automate manual processes, the desire to optimize business process through reengineering efforts that applied rigid “best practice” process to as many business functions as possible. The underlying concept was based on standardization and control and grew out of a strong assembly line bias for accomplishing work. Technology was seen as strategic because it increased productivity through automation and cut costs through standardization and control. This was the era of the integrated software system and the trend was to move to a homogenous application layer (as homogenous as possible with a sprinkling of best of breed), In the second half of the 1990’s a new factor emerged, the belief that many older systems would not function past the end of 1999, the Y2K scare. Y2K drove even more IT spend as companies rushed to replace systems with Y2K compliant ones. And the first days of business use of the Internet and its subsequent over enthusiasm for all things Internet and “e” created what we now call the Internet Bubble.
Y2K passed with a whimper and shortly after the we heard the loud pop of the Internet bubble, taking with it paper fortunes and a whole lot of businesses with no real product or business model. The word backlash is maybe an understatement as IT budgets were slashed as a result of economic concerns, shelfware, the inability to get systems into production, and Y2K overspend. IT often was viewed as less strategic and in many businesses ended up reporting to the CFO instead of the CEO. This era also saw the rise of the software as a service (SaaS) model with offering in narrow specialty software markets like sales force automation and talent management. While IT organizations still talked about homogenous environments, at least for the early part of the 2000’s, the reality was that applications became much more of a heterogeneous environment. SaaS offerings found their way into business by approaching business users and often going around IT. In general IT shops did not embrace the new model, but due to the ease of deployment, usability and good end user functionality line of business executives saw the SaaS software as an excellent alternative to dealing with long, slow, costly implementations and the growing control mentality of IT.
Another key series of events early in the 2000’s had a dramatic effect on IT started by the Enron audit failure scandal. As a result of the scandal the US government passed strict regulations for reporting requirements for public companies including the Sarbanes-Oxley Act (Sarbox). Sarbox and other government regulation ushered in the post-Enron tightening of corporate compliance, governance and control and in general created a risk adverse mentality. IT became a part of the new control points in most companies, resulting in a very conservative approach to technology and driving a lot of IT spend in the direction of governance, risk and compliance solutions. Often IT governance processes were put in place that created a lot of overhead and was seen by line of business executives as too narrow and conservative. In some ways this encouraged the use of SaaS solutions as a method to get around IT governance and quickly get needed solutions in the hands of users.
The mid-2000’s saw even more heterogeneity with spend often going to “best of breed” apps and apps that were deeply vertically focused. In the post Internet bubble days faster time to value and clearly demonstrated ROI were also much more central to buying decisions, and indirectly helped fuel more interest in SaaS. The core of the enterprise IT stack was still generally a single brand integrated ERP system but many new apps and different brands were “hung” on the side of the core. The 2008-09 financial crisis had a lasting impact on many businesses and resulted in the redefinition of “normal”. Enterprise IT buying behavior in particular has changed, or maybe more specifically trends that were not mainstream but gaining momentum have now become mainstream. SaaS solutions are now considered a mainstream option for the enterprise and has continued strong double digit growth as it’s value proposition resonated much louder in a tight money situation where companies were willing to spend operating budget over capital budget due to tight overall credit. The SaaS fast time to value message has also helped fuel this growth. Other cloud alternatives to on premise / in house IT like platform and infrastructure as a service have also started to catch on.
IT spend, although diminished quite a bit during the recession, did continue in a few areas. Companies invested in vertical apps that added competitive advantage or had a significant impact on business operations. The rise of social business, especially on the customer facing side of the business also drove spend as companies rushed to engage customers more effectively. Internal and external collaboration has also changed and seen investment over the last few years, tying the inside to the outside of the organizations and vice versa. People-centric systems, particularly in collaboration are growing in importance, shifting the focus from rigid process and file control to more open sharing and interactive workflows. This is a big shift from the file centric collaboration systems of the past which were focused on control and not on getting information into the hands of the people that need them. Getting the right information to the right person at the right time to facilitate better decision making is the key and this includes mobile as well. Many enterprise system end users are demanding mobile access and on multiple devices with several operating systems from smartphones to tablets.
Investment in core ERP systems fell off dramatically as companies decided to keep stable core systems in place for much longer, a trend that I believe will continue. In general companies are investing in edge apps, things that are business critical, best of breed and aid customer, partner and supplier engagement while keep the stable core intact. Over time I expect that companies will slowly, module by module switch out aging core systems but only when the new app offers significantly business advantage and improvement. There will still of course, be companies that replace entire enterprise systems at once, but this approach will be much less prevalent than in the past. Expect much of the full system deployments in the mid market, not in the enterprise, and look for a lot of that spend to go to full SaaS ERP offerings in the future, where SaaS offers significant advantage to these mid market buyers.
So to summarize what’s hot in the enterprise; companies are investing in the cloud, they are buying social business solutions that range from social customer engagement to people-centric collaboration, analytics and business intelligence is even more critical in a tough economic environment and include new socialytic apps as well, commerce apps are changing and the whole commerce / customer experience will require investment in backend infrastructure, mobile experience and social connectivity, and deep vertical solutions are seen as business critical. Companies are replacing and upgrading key enterprise systems, particularly in the CRM suite but other app areas will be more opportunistic or driven by individual company strategies and needs.