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Ch-ch-changes – IT Must Turn and Face the Strain

May 19, 2015

Mark Yates, Research Manager, IDC CEMA

photo Mark Yates

Automation is the watchword of the emerging business era. From spot welding and the packaging of products to automobile assembly and warehouse retrievals, routine physical tasks can be done by machines and robots. And from search query predictions and just-the-numbers report writing to diagnosis and legal research, routine cognitive tasks can be handled by powerful processors and information services.

In this software-mediated world, the driverless car serves as a potent symbol. On the one hand, the technology is amazing. Real-time data collected from sensors, GPS devices, the mechanics of the car, other cars, and infrastructure is aggregated and processed within the car and via online algorithms. It can improve fuel efficiency, reduce accidents, and free drivers to discuss business, watch films, or get much needed sleep. On the other hand, driverless vehicles will displace workers who depend on driving to earn a living. It will upend the auto insurance industry by radically reducing the need for individual insurance and by shifting liability from drivers to manufacturers. And it will change the way consumers approach auto ownership, opening the door to car clubs and services that could substantially reduce annual auto sales.

The same type of disruption has already occurred in other industries. Digital cameras have destroyed former powerhouses such as Kodak, while file sharing has pulled the rug out from under the music and movie industries. Hotel and restaurant review sites such as Yelp and Trip Advisor combined with price comparison sites and discount airline portals have rendered surviving travel agents anachronistic anomalies. Online shopping has generated an entirely new paradigm for retailers, with an omni-channel experience aimed at maintaining customer loyalty rather than improving same-store sales. And banks can no longer operate without online and mobile services.  

With or without you – the firm can live

While one might expect IT teams to be at the center of these transformations, this is not always the case. For both Central and Eastern Europe and the U.S., around 60% of line-of-business managers fund their own IT projects. Many also manage their own IT projects, with little to no oversight from IT teams. This speaks to the increasing technical savviness of non-IT staff. As little as 10 (and sometimes 5) years ago, getting approval for, say, a CRM system depended on a detailed business plan and lots of arguing with IT teams about schedules and functions. Today, off-the-shelf CRM systems are delivered via the cloud, with no IT input required. Moreover, they are easy to acquire. Because nothing has to be built from scratch, large upfront costs are eliminated. Marketing and sales directors can use OPEX rather than CAPEX, enabling trial runs, scaling up or down as needed, and quick termination if a better option comes along.

That is a single example of a ready-to-go solution. Pick your industry – finance, telco, manufacturing, business services, education, government, transportation, healthcare – and you will find scores, sometimes hundreds, more. Many are delivered via the cloud, making them easier to use and maintain. This does not mean organizations will dispense with servers and proprietary solutions. For sensitive data and applications, client-based servers and private clouds will be de rigueur. But it does mean the way in which IT environments are planned and connected must change.

Rising up, straight to the top – CEE moving up the value chain

One thing Central and Eastern European (CEE) countries currently have going for them is the low cost of labor coupled to acceptable levels of quality, especially in manufacturing. Though still higher than in China, that low wage has attracted considerable investments, with many of the region's markets becoming workshops for the Western European automakers. Companies such as Huawei and Foxconn have also recognized the potential and have been opening factories in CEE. In Bulgaria, for example, manufacturing has been the main beneficiary of the cost component, with industrial production rising by high single digits for the textiles, chemicals, and electronics industries in 2014. Rubber and plastic production has jumped by around 12% last year. Meanwhile motor vehicle and auto parts production has soared by nearly 35%.

But cost alone is not enough for long-term success. It also requires economic diversification, the embrace of change, and an innovation mindset. In its 2014–2015 report on competitiveness, the World Economic Forum lists Bulgaria as an efficiency-driven economy. The Czech Republic, Slovakia, Slovenia, and Estonia are all classified as innovation driven. Croatia, Hungary, Poland, and Russia are on their way.

Little things mean a lot

Broadly speaking, this is good news. It means Bulgaria has room to create entrepreneurial frameworks and "creative mindsets" that power economic development. This may happen through the right combination of economic policies, fiscal stimuli, and education and training. It might also happen out of sheer necessity, with supply and demand forces pushing organizations to change.

And there is more good news: Innovation does not have to happen on an epic scale. As Bojan Markovic from the European Bank of Research and Development pointed out at the IDC Predictions event in Sofia in early 2015, we are so used to hearing about large disruptive players and technology that we forget that innovation can also occur on proverbial tabletops. After a trip to Italy, a restaurateur redesigns the décor to attract more customers. An analyst programs an Excel plug-in to improve work quality and speed. A factory floor manager cooperates with an IT director to create solutions that make the line and distribution more efficient.

Look in the mirror and make that change

Information Technology is now the crucial component of innovation in most organizations. The primary components of what IDC calls the 3rd Platform (cloud, mobility, big data analytics, and social business) have created a foundation for accelerating change. In Bulgaria, for instance, the market for cloud-based services is going through the roof, and will maintain strong double digit growth for the foreseeable future. Pretty much every firm is using or will soon be using some combination of these technologies.

To ensure competitiveness, IDC recommends both IT and non-IT leaders do the following:

    • Assess industry IT expectations and your place within it

Firms need to undertake IT audits and compare the results with larger assessments of their primary sectors. IDC suggests breaking such assessments into stages (ad hoc to optimized) and component parts (intent, data, technology, people, and processes) to better identify where the organization is ahead of the game and where improvements are needed. It is also a good idea to focus on key technology areas, rather than on technology in general. For instance, a municipality would limit its focus to smart-city projects, while a utility might focus on analytics.

    • Listen to and design systems for the "new user"

The software-mediated world means people engage through screens. Apps and smartphones are the future (and the present in many instances). But kiosks, ATMs, schedule boards, tablets, televisions, and classic PCs will also be important. Users also expect systems to make predictions on everything from basic text messaging to health diagnoses to future buying behavior. And users expect interaction. Posts on walls and message boards must be responded to; customer service IM windows must be available on websites; and phone calls must be answered by people. 

    • Ask users what works and what could be better

The good old days of designing an application, bug testing it, then presenting it to people are largely over. Even the commercial sector now beta tests upgrades and new applications before general release. For task specific applications developed in house or with a partner, it is crucial to survey users, find out which functions work, which functions could work better, and what might be added in the future. 

    • Be customer focused not product focused

Every company thinks it is customer focused. Few actually are. Too often, large global players create products and do everything they can to sell those products. An internal IT team tends to be better, but it can still get too attached to its approach or to the functions it feels should be in a solution rather than the ones users may be asking for. IT professionals need to consult users directly as often as possible, keep pain points and primary responsibilities in mind, and educate users on new processes that may emerge (and which can be radically different from old methods) from an IT solution.

All of this requires considerable effort. And it is easy to continue with what we know rather than what is needed. But technology won't allow it. Embracing IT-mediated change is now essential to remaining competitive.

Mark Yates is a research manager with IDC. He will speak at the IDC SEE Forum 2015 in Opatija, Croatian on September 16-18, 2015.