Executive Briefings

Top-Ten Disruptive Technologies and CIO Issues for 2009

This Research Alert summarizes key findings from two recently published Strategic Perspectives focusing on five of the most important and disruptive technologies to watch in 2009, as well as five critical key issues for CIOs to manage.

While readers may want to dig deeper into the original source Perspectives, which includes relevant customer quotes, or an expanded set of critical issues to be addressed and Strategic Planning Positions (SPPs) per each technology or topic, this Research Alert provides an interesting quick-and-dirty snapshot of where enterprise IT is heading over the next 12-24 months.


Why is it Happening?
Let's begin with the list of top disruptive technologies, all of which are of increased interest as a result of the current economic downturn:

Software as a Service:
The economic appeal of SaaS is that usage-based or subscription pricing can move software costs into the operating budget from the capital budget. Plus, the supporting infrastructure is off-premises, thus eliminating the need to buy additional hardware or hire personnel to manage it.

Critical Issue: Integration.

Strategic Planning Position(s): 2009 will be the year that serious horizontal and "buying center"-driven SaaS suites emerge, via pure-play investment and aggressive industry consolidation and M&A. By 2012, roughly half of the companies considered "SaaS Master Brands" will be pure-play SaaS providers; the remaining will be traditional Master Brands who have repurposed their businesses.

Cloud Computing:
Whether it is on-demand storage services, an on-demand application development platform, a runtime infrastructure for a custom mission-critical application, or integration-as-a-service, CIOs are taking cloud computing seriously. Cloud computing--whether through public or private services--promises reduced costs while satisfying the needs of both large and small enterprises alike.

Critical Issue: IT Management challenges.

Strategic Planning Position(s): By 2013, at least 20 percent of enterprise IT workloads--that historically would have operated on-premise--will be run in the Public Cloud, providing significantly enhanced functionality, lower costs, fewer staff, and reduced carbon footprint.

Virtualization:
Consider that on average, a physical server typically runs at ten percent or less utilization, while a virtualized server can mean an increase in utilization to sixty or seventy percent. This means that data centers can reduce the number of servers required to support the business by eighty percent or more.

Critical Issue: Ownership.

Strategic Planning Position(s): By YE 2010, large enterprises will virtualize at least 35 percent of non-desktop IT infrastructure and 20 percent of desktop IT infrastructure. Through 2013, management tools, processes, expertise, and services (not functionality) will remain the key limiting factor in user adoption of IT Virtualization.

Open Source:
The same factors that attract users to open source--lower costs and reduced times of development, and reduced dependency on vendor-specific technologies--have attracted commercial software vendors to use and incorporate open source into their offerings and portfolios.

Critical Issue: Governance.

Strategic Planning Position(s): By YE 2009, open source will be part of practically all software in user enterprises. By YE 2009, the widespread inclusion of multiple open source software components by vendors (including SaaS and cloud providers) will force users and vendors to invest significant IT, Finance, and Legal resources on open source licensing governance.

Social Computing:
With the potential to improve information sharing internally, and connect companies more closely with external customers, suppliers and partners, social computing is beginning to prove itself beneficial to the enterprise.

Critical Issue: Integrating social applications into enterprise business applications.

Strategic Planning Position(s): By year-end 2010, one-quarter of business process improvement initiatives will include the integration of social information into the context of business applications and workflows.
Now, taking a step back from these new technologies, let's consider the broad management challenges facing CIOs in the coming year:

Balancing Act:
CIOs must balance radical, immediate, operational cost-cutting requirements from the CEO, who will be looking to protect precious cash through the economic downturn. At the time, there will be demand to improve IT services to internal and external users, retaining customers and growing revenues.

Critical Issue: Scope of cost cutting and shift to self-funding projects.

Strategic Planning Position(s): The global economic downturn will result in flat-to-modest IT budget growth in 2009, across most industries (0-2 percent), with IT budgets rebounding in 2010 into the 4-6 percent range. Through 2010, to continue to deliver existing service, CIOs will renegotiate contracts, and seek dramatic operational efficiencies, while accelerating outsourcing initiatives, and cloud / SaaS investments that do not require substantial upfront capital.

Cloudy Future.
Saugatuck believes that CIOs will turn to cloud computing to meet the twin objectives of reduced costs and improved service. But with cloud still in its infancy, and standards still evolving, selecting cloud solutions may seem to be a gamble.

Critical Issue: Avoiding vendor lock-in and "operationalizing" with broader enterprise.

Strategic Planning Position(s): Through YE 2009, less than half of enterprises adopting cloud computing will see cost savings of 20 percent or more--especially when considering not just compute resources, but total IT management costs.

Managing a Hybrid Environment.
Virtualization and cloud computing don't necessarily mean that systems management personnel have less to do. In fact, they will likely have more complicated jobs. Further, SaaS and cloud computing necessitates that systems management shift from managing assets to managing provider processes and contracts.

Critical Issue: Skills/staff retaining.

Strategic Planning Position(s): Through 2010, two of the biggest challenges associated with managing hybrid environments are fully addressing the data, process and workflow integration challenges, and shifting the focus from an asset to process management framework.

Vendor Viability and Consolidation:
Saugatuck expects the longer-term trend toward industry consolidation to continue, now impacting a new round of emerging players who have been largely funded since the last IT downturn. In particular, Saugatuck anticipates that 2009-2010 will be a period when a number of category leaders will emerge across a variety of SaaS segments, via a combination of organic growth and aggressive M&A activity. Some of the biggest winners will be pure-play SaaS providers extending their brands into complimentary segments, and/or where they have a common buying center. At the same time, we anticipate significant investments from Microsoft, IBM, SAP and Oracle, among others, as they attempt to transition their businesses (and retain their customers and developer/channel networks).

Critical Issue: Portfolio risk mitigation.

Strategic Planning Position(s): By YE 2010, 30 percent or more of SaaS and Open Source start-ups that currently have annual subscription revenues streams of $5 million or less will fail, along with 50 percent or more of those focusing on Enterprise Social Computing.

Skills, Skills, Skills.
Saugatuck has been hearing for years how CIOs cannot get the skilled workers they need to make systems work efficiently and effectively. While this applies to legacy skills, the emerging cloud computing era demand a significantly new skills mix--and not all existing staff with transition easily to this new world.

Critical Issue: Managing skills transition during period of downsizing.

Strategic Planning Position(s): Through 2012, one of the biggest inhibitors to the adoption of cloud computing will be the re-training or sourcing of IT management skills--as the focus shifts from managing assets to business processes.

Five Disruptive Technologies to Watch:
Knowing how, where and when technology and business disruption is likely to occur enables user firms to improve their planning, management and decision making. Knowing how, where and when user firms will plan and manage disruption in business and technology helps technology vendors and services providers identify opportunities and plan offerings.

Saugatuck does not expect most user firms to invest heavily in any IT for the next year or more, unless those firms are experiencing dramatic growth, or have needs for new or improved IT that will clearly result in strong business improvement. A shift "backwards" toward more centralized IT spending scrutiny (capital and operational) with a renewed emphasis on compelling business cases will be the norm. Such practices can be effective in helping to manage IT costs with traditional technologies.

Under this scenario we can expect some investment in these technologies and some progress toward business and IT improvement--especially when they can help deliver new innovation cost-effectively, or lower the cost of existing service delivery.

But these five disruptive influences will also continue to come in through "side doors" and could reach critical mass through unofficial channels and practices. User firms that are unaware of their presence and/or lack effective governance to deal with these influences will find costs for IT management, security, integration, and operations escalating during a time when those firms may need some very tactical restraint.

Five Key Issues for CIOs to Manage:
Being aware of realistic, important management challenges just over the horizon is important for any successful (and cost-effective) management strategy. And being aware of peer/colleague concerns and challenges promotes the spread and implementation of best practices, and enables improved collaboration between business partners. It also enables improved collaboration between users and vendors, so that vendors can better serve and support (and profit from) user concerns.

Any discussion of "top five" technologies, CIO challenges, or other aspects of business and technology management is of course open to debate. What's most important is that CIOs--and their CEO, COO and CFO colleagues--do not fall into reactionary modes of operation and management.

Doing so is easy in the best of times. But during times of such economic uncertainty, it is even easier to react rather than to plan and execute--and reaction-based management is a trap to avoid at all costs--even when it seems less costly.
Saugatuck Technology STR 541
Saugatuck Technology STR 542

This Research Alert summarizes key findings from two recently published Strategic Perspectives focusing on five of the most important and disruptive technologies to watch in 2009, as well as five critical key issues for CIOs to manage.

While readers may want to dig deeper into the original source Perspectives, which includes relevant customer quotes, or an expanded set of critical issues to be addressed and Strategic Planning Positions (SPPs) per each technology or topic, this Research Alert provides an interesting quick-and-dirty snapshot of where enterprise IT is heading over the next 12-24 months.


Why is it Happening?
Let's begin with the list of top disruptive technologies, all of which are of increased interest as a result of the current economic downturn:

Software as a Service:
The economic appeal of SaaS is that usage-based or subscription pricing can move software costs into the operating budget from the capital budget. Plus, the supporting infrastructure is off-premises, thus eliminating the need to buy additional hardware or hire personnel to manage it.

Critical Issue: Integration.

Strategic Planning Position(s): 2009 will be the year that serious horizontal and "buying center"-driven SaaS suites emerge, via pure-play investment and aggressive industry consolidation and M&A. By 2012, roughly half of the companies considered "SaaS Master Brands" will be pure-play SaaS providers; the remaining will be traditional Master Brands who have repurposed their businesses.

Cloud Computing:
Whether it is on-demand storage services, an on-demand application development platform, a runtime infrastructure for a custom mission-critical application, or integration-as-a-service, CIOs are taking cloud computing seriously. Cloud computing--whether through public or private services--promises reduced costs while satisfying the needs of both large and small enterprises alike.

Critical Issue: IT Management challenges.

Strategic Planning Position(s): By 2013, at least 20 percent of enterprise IT workloads--that historically would have operated on-premise--will be run in the Public Cloud, providing significantly enhanced functionality, lower costs, fewer staff, and reduced carbon footprint.

Virtualization:
Consider that on average, a physical server typically runs at ten percent or less utilization, while a virtualized server can mean an increase in utilization to sixty or seventy percent. This means that data centers can reduce the number of servers required to support the business by eighty percent or more.

Critical Issue: Ownership.

Strategic Planning Position(s): By YE 2010, large enterprises will virtualize at least 35 percent of non-desktop IT infrastructure and 20 percent of desktop IT infrastructure. Through 2013, management tools, processes, expertise, and services (not functionality) will remain the key limiting factor in user adoption of IT Virtualization.

Open Source:
The same factors that attract users to open source--lower costs and reduced times of development, and reduced dependency on vendor-specific technologies--have attracted commercial software vendors to use and incorporate open source into their offerings and portfolios.

Critical Issue: Governance.

Strategic Planning Position(s): By YE 2009, open source will be part of practically all software in user enterprises. By YE 2009, the widespread inclusion of multiple open source software components by vendors (including SaaS and cloud providers) will force users and vendors to invest significant IT, Finance, and Legal resources on open source licensing governance.

Social Computing:
With the potential to improve information sharing internally, and connect companies more closely with external customers, suppliers and partners, social computing is beginning to prove itself beneficial to the enterprise.

Critical Issue: Integrating social applications into enterprise business applications.

Strategic Planning Position(s): By year-end 2010, one-quarter of business process improvement initiatives will include the integration of social information into the context of business applications and workflows.
Now, taking a step back from these new technologies, let's consider the broad management challenges facing CIOs in the coming year:

Balancing Act:
CIOs must balance radical, immediate, operational cost-cutting requirements from the CEO, who will be looking to protect precious cash through the economic downturn. At the time, there will be demand to improve IT services to internal and external users, retaining customers and growing revenues.

Critical Issue: Scope of cost cutting and shift to self-funding projects.

Strategic Planning Position(s): The global economic downturn will result in flat-to-modest IT budget growth in 2009, across most industries (0-2 percent), with IT budgets rebounding in 2010 into the 4-6 percent range. Through 2010, to continue to deliver existing service, CIOs will renegotiate contracts, and seek dramatic operational efficiencies, while accelerating outsourcing initiatives, and cloud / SaaS investments that do not require substantial upfront capital.

Cloudy Future.
Saugatuck believes that CIOs will turn to cloud computing to meet the twin objectives of reduced costs and improved service. But with cloud still in its infancy, and standards still evolving, selecting cloud solutions may seem to be a gamble.

Critical Issue: Avoiding vendor lock-in and "operationalizing" with broader enterprise.

Strategic Planning Position(s): Through YE 2009, less than half of enterprises adopting cloud computing will see cost savings of 20 percent or more--especially when considering not just compute resources, but total IT management costs.

Managing a Hybrid Environment.
Virtualization and cloud computing don't necessarily mean that systems management personnel have less to do. In fact, they will likely have more complicated jobs. Further, SaaS and cloud computing necessitates that systems management shift from managing assets to managing provider processes and contracts.

Critical Issue: Skills/staff retaining.

Strategic Planning Position(s): Through 2010, two of the biggest challenges associated with managing hybrid environments are fully addressing the data, process and workflow integration challenges, and shifting the focus from an asset to process management framework.

Vendor Viability and Consolidation:
Saugatuck expects the longer-term trend toward industry consolidation to continue, now impacting a new round of emerging players who have been largely funded since the last IT downturn. In particular, Saugatuck anticipates that 2009-2010 will be a period when a number of category leaders will emerge across a variety of SaaS segments, via a combination of organic growth and aggressive M&A activity. Some of the biggest winners will be pure-play SaaS providers extending their brands into complimentary segments, and/or where they have a common buying center. At the same time, we anticipate significant investments from Microsoft, IBM, SAP and Oracle, among others, as they attempt to transition their businesses (and retain their customers and developer/channel networks).

Critical Issue: Portfolio risk mitigation.

Strategic Planning Position(s): By YE 2010, 30 percent or more of SaaS and Open Source start-ups that currently have annual subscription revenues streams of $5 million or less will fail, along with 50 percent or more of those focusing on Enterprise Social Computing.

Skills, Skills, Skills.
Saugatuck has been hearing for years how CIOs cannot get the skilled workers they need to make systems work efficiently and effectively. While this applies to legacy skills, the emerging cloud computing era demand a significantly new skills mix--and not all existing staff with transition easily to this new world.

Critical Issue: Managing skills transition during period of downsizing.

Strategic Planning Position(s): Through 2012, one of the biggest inhibitors to the adoption of cloud computing will be the re-training or sourcing of IT management skills--as the focus shifts from managing assets to business processes.

Five Disruptive Technologies to Watch:
Knowing how, where and when technology and business disruption is likely to occur enables user firms to improve their planning, management and decision making. Knowing how, where and when user firms will plan and manage disruption in business and technology helps technology vendors and services providers identify opportunities and plan offerings.

Saugatuck does not expect most user firms to invest heavily in any IT for the next year or more, unless those firms are experiencing dramatic growth, or have needs for new or improved IT that will clearly result in strong business improvement. A shift "backwards" toward more centralized IT spending scrutiny (capital and operational) with a renewed emphasis on compelling business cases will be the norm. Such practices can be effective in helping to manage IT costs with traditional technologies.

Under this scenario we can expect some investment in these technologies and some progress toward business and IT improvement--especially when they can help deliver new innovation cost-effectively, or lower the cost of existing service delivery.

But these five disruptive influences will also continue to come in through "side doors" and could reach critical mass through unofficial channels and practices. User firms that are unaware of their presence and/or lack effective governance to deal with these influences will find costs for IT management, security, integration, and operations escalating during a time when those firms may need some very tactical restraint.

Five Key Issues for CIOs to Manage:
Being aware of realistic, important management challenges just over the horizon is important for any successful (and cost-effective) management strategy. And being aware of peer/colleague concerns and challenges promotes the spread and implementation of best practices, and enables improved collaboration between business partners. It also enables improved collaboration between users and vendors, so that vendors can better serve and support (and profit from) user concerns.

Any discussion of "top five" technologies, CIO challenges, or other aspects of business and technology management is of course open to debate. What's most important is that CIOs--and their CEO, COO and CFO colleagues--do not fall into reactionary modes of operation and management.

Doing so is easy in the best of times. But during times of such economic uncertainty, it is even easier to react rather than to plan and execute--and reaction-based management is a trap to avoid at all costs--even when it seems less costly.
Saugatuck Technology STR 541
Saugatuck Technology STR 542