IT 2.0

Our focus to date has been on the future of Enterprise 2.0 with regard to four communities: customers, contracts, corporation and HR. There are some trends in information technology (IT) that are enabling what is happening in these four enterprise communities and is in turn being driven by them.

In a March 2000 study by PricewaterhouseCoopers titled Why isn't IT spending creating more value? looks at the value of IT spending from 1973 to 2006. They concluded that, "from 1995 to 2000, information technology played a central role in the productivity of IT-intensive industries [and] that the decline in quality-adjusted prices and the increase in computer processing power contributed 'directly to aggregate, or economy-wide, productivity gains.' ... business communications equipment, hardware, and software began contributing less to rising US productivity after 2000.

"PricewaterhouseCoopers believes that the decline in IT-related productivity over the past few years is attributable partly to an unintended consequence of Moore’s Law. ... As the cost of computer power has continued to fall, it has been easier and easier to fulfill business units’ demands for more features, functions, and applications. The result is greatly increased IT complexity, a phenomenon we refer to as Moore’s Flaw.

"A significant challenge for companies, then, is to manage out unneeded complexity. Once they free up corporate resources by managing out complexity, they’ll be able to redirect these resources to spending on IT innovation.

"IT innovation is the chief casualty of this preoccupation with system maintenance. In 2007, only 13 percent of the average IT budget supported innovation in business processes or products. ... The remaining 87 percent disappeared into the black hole of general maintenance and upkeep, ... The key is that the proportion of IT budgets dedicated to innovation must increase, complexity must be managed out to prevent innovation from drowning in a sea of redundant systems, applications, and hardware.

"A good example of a highly strategic redeployment of resources is ... Hewlett-Packard. ... The company reclaimed IT dollars from the dustbin of system maintenance—resources that could then be targeted to whatever innovations HP’s employees could conjure up.

Before	After
85+ data centers in 29 countries	3 paired centers
3,500 to 5,000+ applications	1,100 applications
21,700+ servers	14,000 servers
762+ data marts	Single view of the enterprise
Excessive power consumption	Power and wattage reduced by 65%"

"... today’s executives need a much better understanding of which IT investments maintain and create competitive distinction, and which can—and should—be cut or managed differently. ... A good place to start is by understanding the potential correlation between IT spending and profitability.

"Over the next five years, enterprise software will continue its evolution to offer a management platform that allows customers to design, deploy, manage, and measure their own unique business processes. This structural transition is fundamentally altering the nature and purpose of enterprise applications and, PricewaterhouseCoopers believes, will be more disruptive than the move to client/server architecture in the 1990s. The core of the next generation of enterprise software is the concept of "loose coupling," or decoupling the business process logic from static source code so that the software can be modified and managed to accommodate changing business requirements."

Enterprise 1.0	Enterprise 2.0	Impact
Process standardization	Process differentiation	Firms will be able to differentiate their business processes, releasing a new wave of innovation.
Systems integration	Process integration	Instead of conforming to the static way that systems function, a business will be able to configure and manage systems to meet changing needs, making the entire organization more agile.
Go-live	Continuous Releasing	Releasing business process logic from static source code means companies will continually manage and improve how systems support the business.
Data capture	Data insight	Companies will move from a focus on data collection to a focus on data analysis that drives competitive insight.

E2W2 comments: The PricewaterhousCoopers' paper is written for C-level officers because of the impact the change in IT will have on the way the enterprise does business. Fortunately, many of the changes that will occur in the business will be enabled and enhanced by these changes in IT. There are problems, of course. Many of the security structures now in place will have to be modified to manage date as it is processed and made available to different users, some of whom may not be authorized to view some of the data. As users gain power in tailoring their systems some of the costs will be moved from IT to the users so trend-line data may be skewed. These are relatively small prices to pay for the benefits. The good news is that IT and the rest of the business will be working more closely together.

You can obtain a copy of the paper Why isn’t IT spending creating more value? from PricewaterhouseCoopers.