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Harvard Business Review
HOW SUCCESSFUL
LEADERS THINK
BROCADE HELPS YOU INNOVATE TO MEET YOUR BUSINESS NEEDS.
With the new Brocade
®
DCX

, you can cut costs and complexity by bringing together your data, applications, servers,
and storage onto a single platform that swiftly scales and adapts to the needs of your business. And Brocade
technology is already at work in more than 80% of the world’s data centers. So you can build on proven technology you
already own. Find out how Brocade drives business results for companies like yours at www.brocade.com/connected
I’m convinced
technology can help
us drive innovation.
But how do we
get there?
THOUGHTS ON THE CONNECTED ENTERPRISE
© 2008 Brocade Communications Systems, Inc. All rights reserved. Brocade is a registered trademark, and the B-wing symbol and DCX are trademarks of
Brocade Communications Systems, Inc.
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This emerging computing model
threatens the CIO’s autonomy.
Can you maintain control?
Taming
The Cloud
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Strategies for
IT Business Leaders
March 2008 I No. 91
TRENDS
Virtual Environments
Companies can profit in
synthetic worlds.
EXPERT VOICES
Jim Champy
The reengineering guru
discusses IT’s power.
RESEARCH
Collaboration
Find out which tools
increase productivity.
STRATEGIC TECHNOLOGY
Security
Network behavior analysis
identifies risks.
PERSPECTIVES
Allan Alter
CIOs Gripe Too Much
Larry Downes
Hollywood and IT Values
John Parkinson
Remote Team Woes
www.cioinsight.com
CIOI_0803_cover_v3_ef.indd 1 3/6/08 11:14:43 AM
job name: System Center “Elevator”
media type: Magazine
media unit: Spread
b/w or color: 4/C
client: Microsoft
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file name: 50700993_A_prf.indd
studio artist: Studio G5 [Jeff Boice]
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notes: ComputerWorld, InformationWeek, CIO Insight, Baseline, eWeek.
WebNative PDI.
Microsoft
®
System Center is a family of
IT management solutions (including Operations
Manager and Systems Management Server)
designed to help you manage your mission-
critical enterprise systems and applications.
Nissan manages 56,500 PCs on three continents
with System Center. That’s big. See Nissan and
other case studies at DesignedForBig.com
MICROSOFT SYSTEM CENTER. DESIGNED FOR BIG.
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job name: System Center “Elevator”
media type: Magazine
media unit: Spread
b/w or color: 4/C
client: Microsoft
job #: MPLT-SC-50700993-A
size: A
live: 14.75 in x 9.75 in
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file name: 50700993_A_prf.indd
studio artist: Studio G5 [Jeff Boice]
date: 7/25/07 5:03 PM
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link names: Microsoft_Elevator_SPD_SWOP.tif (CMYK; 332 ppi; 90.13%), System_Center_Building_Sprd_EB_dk.ai (94.93%), SysCenter_bL_r.eps,
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inks: CMYK
fonts: Segoe (Regular, Semibold, Bold)
notes: ComputerWorld, InformationWeek, CIO Insight, Baseline, eWeek.
WebNative PDI.
Microsoft
®
System Center is a family of
IT management solutions (including Operations
Manager and Systems Management Server)
designed to help you manage your mission-
critical enterprise systems and applications.
Nissan manages 56,500 PCs on three continents
with System Center. That’s big. See Nissan and
other case studies at DesignedForBig.com
MICROSOFT SYSTEM CENTER. DESIGNED FOR BIG.
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J. Siebert, M. Piro, K. Hammond, M. Kohler,
C. Joyce, M. Rostron, C. Guzy Kuhn, B. Bannor
DDB CHICAGO INC.
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ad # P96155Ci
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x 10 in, 4CB
Publications: CIO Insight Magazine: issue 3/1/08; Materials due:
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Pre-Press: DDB Studio
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Date
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Revision #
Lead
cgk
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Creative Director:
Art Director:
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trends Cloud Computing | 26
Taming the Cloud By Tony Kontzer
Cloud computing has the potential to transform the role of the IT organization
by letting enterprises rent access to IT infrastructure and applications that
reside on the Internet and pay for them on a subscription or per-use basis.
Virtual Environments | 35
Synthetic Worlds By Kamales Lardi-Nadarajan
There is real business going on in virtual environments, as a growing number
of enterprises use synthetic worlds to connect with customers or interact with
employees. Find out if your company can benefit by establishing a presence in
a virtual environment.
expert voices Jim Champy | 40
Corporate Darwinism By Brian P. Watson
The best-selling author and consultant says there’s nothing new in
management but plenty new in business. And IT can be a change leader in
the evolving business environment.
research Collaboration Software | 46
Unlocking the Power of Teams By Allan Alter
Collaboration tools have tremendous strategic potential, though CIOs
must invest wisely. Our data and analysis reveal the reasons behind the
technology’s growth, the tools making the biggest inroads and how Web 2.0 is
being used in the workplace—and by whom. Plus: Midmarket firms don’t go
quite as gaga over collaboration software.
“IT will have little left
to do once the bulk of
business computing
shifts out of private
data centers and
into the cloud.”
IT contrarian Nicholas Carr
from “taming the cloud,” page 26
CONTENTS.1
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MARCH 2008 NUMBER 91
randy lyhus
CIOI_0803_TOC_v4_amy.indd 3 3/5/08 3:06:13 PM
Budget Triage for
Hard Times | 15
As IT budgets shrink,
it helps to know which
projects to cut first, and
which to keep.
CIO Insight Asks | 16
Which formerly trendy
tech practices does your
company still follow?
Q&A: Bobby Cameron | 16
Innovation, or lack thereof:
A conversation with
Forrester’s principal analyst
about why CIOs don’t drive
innovation.
What’s Next | 18
The virtual world depends
on some very concrete
investments.
Book Excerpt | 20
In Innovation to the Core: A
Blueprint for Transforming
the Way Your Company
Innovates, authors
Peter Skarzynski and
Rowan Gibson mash up
W. Edwards Deming and
Web 2.0 to prescribe a
new, inclusive innovation
strategy.
strategic technology Network Behavior Analysis | 57
The New Hall Monitor
By Bob Violino
Though sometimes lost amid the jumble of security technologies, network behavior
analysis gives companies a clear view into the true risks of network intrusions.
“You get a lot of interest in
innovation and a lot of noise,
but in reality, it’s not there.”
Bobby Cameron
Vice President and Principal Analyst,
Forrester Research
see “innovation, or lack thereof,” page 16
FOREWORD
CONTENTS.2
MARCH 2008 NUMBER 91
Editorial | 11
Feedback | 12
Legal Jungle | 23
A Virtual Battle for Value
By Larry Downes
When it comes to determining how
to pay for intellectual property, CIOs
have as much at stake as Hollywood
studios do.
Research Central | 24
Stop Griping About Skills Deficit
By Allan Alter
The real problem behind the IT skills
shortage is that many companies don’t
keep IT professionals for the long stretch.
Strong Signals | 64
‘Wherever’ Doesn’t Work Anymore
By John Parkinson
Executives enhance the creative process by
having developers work side by side rather
than remotely.
departments
CIOI_0803_TOC_v4_amy.indd 4 3/5/08 3:06:46 PM
XO Communications built a state-of-the-art IP network
from the ground up with business customers in mind.
Now, we’ve put a decade of successful business
experience into building an enterprise-grade IP
product suite. And we’ve assembled an Enterprise
Solutions Group to bring you the best, most fexible
communications solutions…created and delivered
with unmatched customer focus.
Enterprise ready:
• State-of-the-art IP network
• Metro and national fber
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• Customized communications solutions
• End-to-end security & reliability
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With more than one million metro fber miles,
an 18,000-route-mile intercity network, and more
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Let us build a solution around you. To learn more about XO
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Enterprise Networking Built Around You.
© COPYRIGHT 2008 XO COMMUNICATIONS, LLC. ALL RIGHTS RESERVED. XO AND THE XO DESIGN LOGO ARE REGISTERED TRADEMARKS OF XO COMMUNICATIONS.
MARCH 2008 NUMBER 91
CONTENTS.3
AD INDEX
AMERICAN POWER CONVERSION 25
AVAYA 19
BLUECOAT 44-45
BROCADE C4
DELL 2
FUJITSU COMPUTER 39
SYSTEMS CORPORATION
HEWLETT-PACKARD 9, 10, 13
IBM 29, 31
ISACA 52, 56
JUNIPER 17
LED 14
MICROSOFT C2-1, 7
NOVELL 22
STERLING 21
SUN C3
TRIGEO 34
XO COMMUNICATIONS 5
CIO Insight (ISSN 1535-0096) is published monthly by Ziff
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SALES “Technology
on its own isn’t
strategic. But
technology
combined with
the business
idea is more
strategic than
ever. In fact,
the ubiquity of
technology is
what makes it
strategic.”
Jim Champy
Reengineering Guru
see “corporate darwinism,”
page 40
CIOI_0803_ADINDEX_v2_ef.indd 6 3/5/08 5:27:41 PM
job name: VoIP “Change Your World”
media type: Magazine
media unit: Page
b/w or color: 4/C
client: Microsoft
job #: MRTC-GEN-50700926_A
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studio artist: Studio G5 [Jeff Boice]
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notes: None
Don’t touch it. Don’t move it.
Contrary to what they might say, VoIP isn’t synonymous
with “starting over” (a.k.a. ripping and replacing). That’s because
it’s no longer about hardware. It’s actually about software.
Now you can keep your hardware—your PBX, your gateways,
even your phones. Move to VoIP with software. Software that
integrates with Active Directory
®
, Microsoft
®
Office, Microsoft
Exchange Server, and your PBX. Maximize your current PBX
investment and make it part of your new software-based VoIP
solution from Microsoft. You’re much closer to VoIP than you
realize. Learn more at
microsoft.com/voip
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ONLINE MARCH 2008 NUMBER 91
Content
Top Challenges for CIOs
go.cioinsight.com/challenges
What’s keeping IT chiefs up at night? Recruiting, training and
retaining talent rank high, and charting career paths for staff
members also figures in.
What CIOs Look for in Service Providers
go.cioinsight.com/serviceproviders
Our research reveals the role CIOs play in choosing business
partners, and which technologies and functions are most
likely to be farmed out.
Where to Offshore IT
go.cioinsight.com/offshore
We explore the strengths and weaknesses of the most popular
countries for outsourcing IT.
Video
CIO Insight Weekly Report
go.cioinsight.com/weeklyreport
CIO Insight editors weigh in on current trends and research to
help IT and business leaders make wise decisions.
d Read these stories and more at www.cioinsight.com.
Statement of Ownership
Parallax View
by Eric Chabrow
CIO Insight Editor
go.cioinsight.com/
parallaxview
Excerpt: “Google bolsters its
position as a key insurgent in
a guerrilla war against CIOs
that could give employees
control over what IT applica-
tions companies will use.”
Biztech 3.0
by Brian P. Watson
CIO Insight Online Editor
go.cioinsight.com/
biztech3
Excerpt: “For a profession
that talks a lot about ‘best
practices,’ IT lacks a critical
one: a standard for educating
future CIOs and defining career
tracks for younger workers.”
Blogs
CIOi_0803_WEBTOC_v3_ef.indd 8 3/5/08 5:24:38 PM
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CMY K
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Intel’s numbering is not a measurement of higher performance. Intel, Intel logo, Intel Inside, Intel Inside logo and Intel Xeon are trademarks or registered trademarks of Intel Corporation
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America’s standing as a world leader is under attack.
No, not because of the damage the Iraq war or the plummeting dollar
have done to our global reputation. We’re losing our leadership in cor-
porate adoption of new technologies to drive productivity and earnings
growth. American CIOs, says Accenture Chief Technology Strategist Bob
Suh, have become followers rather than leaders.
Suh reached that conclusion after reviewing results of a survey of
more than 500 global CIOs that the business advisory firm conducted late
last year. Only 6 percent of American CIOs surveyed responded that they
wanted to be leaders in adopting new technologies vs. 15 percent among
European and 19 percent among Chinese IT leaders. But 54 percent of
American CIOs said they would rather be followers in adopting technol-
ogy, compared with 44 percent in Europe and 27 percent in China.
The American approach of spending mostly to bolster older systems
could hurt productivity. “New systems will simply outperform refur-
bished ones for two reasons: Technologies have improved substantially
in five years, making them easier to implement, integrate and change,”
Suh writes in a just-published online article. “As a result, more business
processes will be online, driving levels of productivity.”
Suh says U.S. productivity is weakening. Between 2001 and 2005, he
says, employee growth outpaced the rise in revenue and profit among S&P
500 companies. By comparison, the S&P European 350 companies have
kept revenue and profit growth above employee growth. In China, produc-
tivity growth is more than triple the U.S. and European rates.
Why are American CIOs so gun-shy in adopting new technologies?
Suh reckons that some CIOs are waiting for the returns promised from an
earlier spending wave on Internet technologies. Others recall the dam-
age failed projects have had on their careers.
Suh analogizes CIOs’ reluctance to build new systems to patients
who avoided heart surgery 30 years ago. “Taking no action, with a
100 percent chance of gradual death, is far more palatable to under-
going a procedure that could deliver a 66 percent chance of sudden
death,” he says. “Today, heart transplant procedures occur without com-
plications 95 percent of the time. If systems projects were as predict-
able as heart surgery, far more capital would pour into technology.”
It’s not too late for U.S. companies to regain their leadership in pro-
ductivity by investing in new technologies rather than window-dressing
legacy systems. “As with stock portfolios,” Suh says, “cutting your losses
and redeploying the capital to fresh investments is often a better strat-
egy than thinking the stock owes you a return.” — Eric R. Chabrow
Editor Eric R. Chabrow
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Follow the Leader
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Getting IT Right
Re: “CIOs at the Crossroads” (go.
cioinsight.com/crossroads): It is
refreshing to see this brief article
grounded in the reality of the CIO’s
role. Business management carries
several self-contradictory expecta-
tions for IT. We must:
dProvide a robust, secure global
service, but simultaneously support
the latest IT innovations.
d Create competitive advantage
when the strategic capability of IT is
not something that most business
management has any interest in.
d Continuously reduce IT costs,
but invest to enable the rest of the
business to reduce its costs.
For the majority of IT leaders
the logic is clear. Keeping systems
available and information secure
is the highest priority, bar none.
Innovation is essential but neces-
sarily entails change, and chang-
ing the machinery will increase
failure rates, thus reducing opera-
tional excellence.
Clearly, an IT leader who can
deliver reliable services and innova-
tive business applications will pros-
per. Such folk are, sadly, rare birds.
Don’t attempt to find the rare
IT leader who can achieve stra-
tegic and tactical goals. Instead,
find one person for each role and
put your efforts into selecting two
people who can work harmoni-
ously together.
Bernard Abramson
Retired CIO from Edison Properties,
Merck and Hooper Holmes
Princeton, N.J.
Empowering the CIO
Re: “Should CIOs Report to CEOs or
CFOs?” (go.cioinsight.com/cioreport):
If one looks at the structure of a
business, then it quickly becomes
apparent that the CIO controls the
handoff between the functional
silos more than any member of
the senior executive team. The CIO
makes more decisions on cross-
functional revenue operations than
anyone else in the business. If one
is asking whether a function this
important should report through
the CFO, then they are only looking
at the cost of business—not its abil-
ity to generate revenues.
I find it surprising that anyone
would propose that financial con-
trol of the IT budget is better met
by putting the CIO under the CFO.
This logic says that manufactur-
ing, sales and marketing should
also be there. Businesses that
spend more time controlling costs
rather than optimizing revenue
are doomed to failure in our com-
petitive economy.
Regis Betsch, Ph.D.
Velocity Pointe
Wilmington, Del.
Getting IT Value Wrong
Re: “The Cost of Bad IT Economics”
(go.cioinsight.com/Rubin): This in-
terview is dead on. I have seen large
IT organizations struggle time and
again with efforts to improve pro-
cesses, reorganize, and drive effi-
ciency and quality. The underlying
cause of all of these struggles was
how IT was paid for. The focus on
cost rather than service and value
is the roadblock that keeps IT from
operating at a truly strategic level. I
can’t agree more with what Howard
Rubin has to say. Let’s hope that CIOs
everywhere are listening.
Charles Araujo
President, CastlePointe LLC
Temecula, Calif
CIOs Using Web 2.0
Re: “Try It, You’ll Like It” (go.cioin-
sight.com/likeit): There are real is-
sues that need to be solved before
social computing can be an effec-
tive corporate tool. But while the fit
with traditional corporate practice
may not be a comfortable one, it is
essential that corporations explore
social computing. The reason is
that smaller companies can use this
technology to level the playing field
and compete with their larger and
better-established competitors.
The concerns of IT about security
are real ones. But unless CIOs start
to pay attention to social computing,
I fear that this will become yet
another example of IT being out of
step with business trends.
Charlie Kreitzberg
CEO and Founder, Cognetics
Princeton Junction, N.J.
Please send letters to editors@cioinsight.
com. All letters to the editor become the
property of CIO Insight. Letters may be edited
for space requirements. Unless noted, letter
writers express their own views and not nec-
essarily those of their employers.
FEEDBACK
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www.cioinsight.com
G
artner finally dropped the bomb that every
one saw coming, announcing in late February
that CIOs should start cutting costs. Gartner’s
advisory reflects an increasing pessimism among tech
sages about the impact of an
economic downturn on corpo-
rate IT budgets.
The advisory laid out guide-
lines on how to plan for cost-
cutting, but didn’t specify what
to cut. That’s a decision CIOs
will have to make, and that
means taking a hard look at
current investment priorities.
Traditionally, emerging IT in-
vestments are the first to go at
budget-cutting time, followed
by staff cuts and, finally, on-
going projects. Our take is that
smart CIOs will fight to protect
the least-sexy, most frustrating
investments around: big infra-
structure integration and con-
solidation projects.
These endeavors often seem to take as long as build-
ing a pyramid and tend to cause severe headaches for IT
managers along the way. Knitting together a company’s
infrastructure requires CIOs to mess with their favor-
ite toys—servers, storage, critical applications—and the
bigger strategic concerns of cost management, align-
ment and data integrity. Funding can run out, and ven-
dors and consultants can muddy the plan. It’s no wonder
that CIOs lose sleep over these projects.
When budget cuts hamper consolidation efforts,
they become even more challenging. As IT benchmark-
ing guru Howard Rubin (Expert Voices, February 2008)
points out, failure to spend up front on major IT initia-
tives can cost many times more in catch-up mode. The
hard work pays off, too, according to CIO Insight’s annual
IT spending survey, published in the February 2008 issue:
Asked which tactics will pro-
vide the greatest IT savings, six
of 10 IT executives pointed to
infrastructure consolidation.
One reason integration is
hard for CIOs: “They don’t ap-
proach it as an architectural
problem—they approach it as
a utility problem,” says Chris
Curran, chief technology officer
for Diamond Management &
Technology Consultants. IT exec-
utives, he says, spend too much
time talking to vendors and not
enough working with archi-
tects. So the architecture-based
discussions about service levels,
usage and growth patterns are
not happening often enough.
David Cappuccio, managing
vice president at Gartner, points to what he calls IT mod-
ernization—the idea that architecture needs to be at-
tacked strategically, not piece by piece. If CIOs view each
piece as a project, it can lead to a domino effect: Change
one piece, and others begin to topple. “It’s not a proj-
ect—it’s something that needs to be part of the DNA,”
Cappuccio says. “IT and CIOs have to look at it as a long-
term project. And it scares the hell out of them.”
And sometimes things are hard just because they
are hard. Whether it’s server virtualization, the de-
mands of green IT or storage innovations like data de-
duplication, the consolidation equation is growing more
[infrastructure consolidation]
Budget Triage for Hard Times
FORE WORD
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complex. Technological advances over the
last few years have made integral elements
like servers and storage even more intri-
cate. For CIOs, that requires not only great-
er technical proficiency, but also greater
leadership in selecting technologies and
implementing them efficiently.
This has serious implications. Bob Suh,
chief technology strategist for Accenture,
says U.S. companies are falling behind
global competitors in IT leadership, par-
tially because of infrastructure decisions.
European and Asian businesses tend to
build from the ground up with newer tech-
nologies, Suh says. U.S. companies, on the
other hand, invest in strengthening ex-
isting systems. Newer systems are easier
to implement and integrate, which helps
move more business processes online. That
boosts productivity—and outperforms re-
furbished systems, Suh says.
Unfortunately for CIOs, consolidation
is a problem without definitive solutions.
But there are a few things they can do. The
first is to get ahead on emerging and in-
novative technologies in servers and stor-
age. That means boning up on the newest
developments in the space, as well as hir-
ing (and retaining) specialists.
Maybe things won’t get as bad as some
predict. Not everyone’s predicting gloom
and doom for IT budgets: Our IT spending
survey found that IT spending is down, but
not out. Various other reports show spend-
ing forecasts shrinking, but there hasn’t
been a clear indication that costs will have
to be cut. Things do seem to be heading
that way, though.
If they do, CIOs need to recognize that
cutting back on a major element of the
consolidation project could have a bigger
downside than, say, doling out funds for
a test-run on an emerging technology—
unless those new investments can yield
formidable paybacks in a timely fashion.
In any case, CIOs need to take control
of their consolidation projects and their
own budget logic, before someone else
takes control of their budget for them.
—Brian P. Watson
[q&a: bobby cameron]
Innovation, or
Lack Thereof
[cio insight asks]
Old Trends Never Die
www.cioinsight.com
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www.cioinsight.com
It’s happened plenty of times
in the past two decades. A
new idea in the world of man-
agement captures the imagi-
nation of executives, becomes
the rage on the conference
circuit and then appears to
die down. (Gartner calls this
the “hype cycle.”)
But do these ideas and
practices really disappear?
Our recent survey of nearly
200 IT executives reveals that
reengineering, benchmarking,
change management and oth-
er once-hot management prac-
tices remain widely employed,
especially at larger companies.
Old trends never die. They
just become one color on the
palette of modern manage-
ment practice.
B
usiness executives talk about IT innovation more often
than they achieve it, says Bobby Cameron, vice president and
principal analyst at Forrester Research, who backs up his state-
ment with a Forrester report released in late February. Cameron spoke
recently with Brian P. Watson, CIO Insight’s online editor; this is an
edited, condensed version of their conversation.
cio insight: How can you tell if CIOs and CEOs truly want innovation?
cameron: By watching where the money goes and trying to under-
stand the criteria executives set out. IBM found that innovation is at
the top of the CEO’s charter, but look at how these executives execute.
Management trend or practice
In use by
company
Business process reengineering 36%
Benchmarking 35%
Change management programs 33%
Balanced scorecards 29%
Core competency strategies 24%
Six Sigma 21%
Activity-based management 18%
Total quality management 16%
Scenario planning 9%
Mass customization 7%
None of the above 17%
Source: Ziff Davis Enterprise Editorial Research, Feb. 2008; N=188
CIOi_0803_Foreword_v3_ef.indd Sec1:16 3/4/08 5:18:32 PM
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©

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[what’s next]
Let’s Get
Physical
www.cioinsight.com
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www.cioinsight.com
And McKinsey found that only about one-third of executives listed
innovation as a top item on their agenda. So you get a lot of interest
in innovation and a lot of noise about it, but in reality, it’s not there.
A lot of executives say innovation is important to them, but they
don’t try to make their internal organization produce or don’t expect
it to produce. CIOs say innovation is at the top of their list, but when
you look at where they’re focusing, it’s not on innovation—it’s on
operations and efficiency.
Is that because they’re not strategic enough?
cameron: A lot of CIOs are where they are because they’re good
at operational work. When you ask someone who’s an operational
kingpin to drive something new and different, it’s sometimes dif-
ficult. There’s a lot of innovative stuff being done in IT shops to im-
prove efficiency, but not to
improve business results.
IT shops don’t measure
the business impact of what
they’ve done in a business
cycle. They don’t track the
business impact of infra-
structure and operations,
what we might call activity-
based costing. They don’t
rotate senior managers
into the business functions
to see what they do. This
inside-out point of view
limits the ability to be inno-
vative because it’s trying to
solve parochial problems.
So you’re saying that
CIOs aren’t getting any respect from the business?
cameron: The cynical angle is that a lot of these CIOs are accu-
rately perceived. It’s not uncommon for me to get a call from a CIO
saying, “Help me get some respect. I’m trying to move things for-
ward, but they’re treating me like an order-taker.” Often, it’s because
of the company’s business model, not because of them personally. I
say to them, “You tell me where I’m wrong, but if you want to play a
bigger role, you need to find a job with another company.”
In those experiences, the CIOs were unable to recognize the dif-
ference between their world and the world of their peers. The truth?
Not all IT shops should be alike. Not all CIOs should be partners.
It seems like a lot of these CIOs aren’t getting it. Are they clueless?
cameron: Those of us who help CIOs understand what’s possible
are at fault for not making it really clear that there’s not just one CIO
job: The job fits the business requirement for IT, not our concept of
what IT is. It’s probable that CIOs see more opportunity for technol-
ogy-based business innovation than businesspeople do. But it’s im-
portant for us, as IT leaders, to have a realistic view of where our
companies are going—and not beat our heads against the wall.
Metaphors of insubstantiality define the
digital economy, where reality is virtual and
computing power increasingly comes from
a cloud, but the players behind the scenes
are investing heavily in some very tangible
things. The latest example: Google’s share
in an undersea telecommunications cable.
The $300 million Unity cable will run be-
neath the Pacific Ocean between the United
States and Japan. Google is partnering with
five telecoms—Bharti Airtel, Global Transit,
KDDI, Pacnet and SingTel—to build it. The
cable is one of four new trans-Pacific proj-
ects that will more than double available
capacity beneath our largest ocean in the
future, making predictions of traffic jams at
the Internet’s core less likely to come true.
Google is the first non-telecommunica-
tions company to buy its own piece of an
undersea cable, and Alan Mauldin, research
director of the firm TeleGeography, says he
doesn’t expect other non-telecoms to fol-
low suit anytime soon. But Google’s immer-
sion in the physical world is anything but
a one-off: The search giant has purchased
dark fiber-optic capacity and has made
enormous investments in data centers to
support its Internet ambitions.
Its rivals also are building huge facilities
to house the machines that power their ser-
vice offerings. That includes Amazon, which
in the days of the dot-com bubble taught the
world that e-commerce required real-world
logistics, and Microsoft, which is planning a
data center complex in Siberia. The implica-
tions of this activity would be familiar to any
company from the era of the Industrial Revo-
lution: construction costs, fuel costs, physical
security, access to water sources and so on.
Consumers of Internet services can
fancy themselves as connoisseurs of the
incorporeal, but for the providers, the busi-
ness retains some very concrete elements.
—Edward Cone
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employees are unlikely to be a
source of wealth-creating innova-
tion. Go back a few decades, and we
find that a similar prejudice was
hindering most American and Euro-
pean companies from achieving dra-
matically higher levels of quality.
Before the Japanese introduced
us to the processes and methods for
making quality everyone’s job, in
most organizations, quality was the
responsibility of a very small group
of people. We called them “inspec-
tors,” and quality was their job.
Then W. Edwards Deming and
others came along and said that
management should teach first-
level employees about statistical
process control—that they should
unleash people’s discretionary
decision-making power—and that
doing so would deliver a positive
return on investment. Thus, the
quality movement was born.
If the answer to quality was
tapping into the problem-solving
skills of rank-and-file employees,
why has it taken us so long to fig-
ure out that innovation should be
approached the same way?
In the past, most employees
never had the tools or opportuni-
ties to unleash their creativity. Now
they do. Armed with new, easy-to-
use software tools, workers are
proving that they are capable of
amazing creativity. So-called ordi-
nary employees are the ones who
can make innovation happen, but
only if your organization is will-
ing to develop a social architecture
that teaches and encourages them
to be innovators, that unleashes
the power of their imaginations
and that supports their innovation
efforts in appropriate ways.
The greater the number of
employees who regard themselves
as innovators, the greater the
innovation yield. Set a spe-
cific goal. Identify the peo-
ple in your company who
have an innovation role: R&D
personnel, product develop-
ment staff and so on. If this
group represents less than 10
percent of the employee base,
commit to tripling it over the
next 12 months—not by hiring
more innovation specialists, but
by involving existing employees in
innovation processes and events.
Send your employees the mes-
sage that you expect them to gener-
ate new ideas—that innovation is at
least part of their job. Then give them
the training, the time, the tools and
the space they need to exercise their
innovation muscles. For every depart-
ment and business unit, benchmark
the percentage of employees who
have submitted ideas or participated
in innovation events.
Give everyone in your company
the opportunity to innovate. If you
do, your innovation yields will soar.
Reprinted by permission of Harvard Business School Press.
Excerpted from Innovation to the Core: A Blueprint for
Transforming the Way Your Company Innovates. Copyright
© 2008 Peter Skarzynski and Rowan Gibson; all rights
reserved.
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www.cioinsight.com
Everyone talks about the importance
of innovation to business, but actual
nuts-and-bolts primers on how to
innovate are not so common. That’s
the turf carved out by Innovation to
the Core: A Blueprint for Transform-
ing the Way Your Company Inno-
vates, written by Peter Skarzynski,
CEO of the Strategos consulting firm,
and Rowan Gibson, a business strat-
egist and author of the best-seller
Rethinking the Future. In this excerpt,
the authors mash-up W. Edwards
Deming and Web 2.0 in prescribing a
new, inclusive innovation strategy.
W
hat companies seldom
seem to recognize is that
one of the best ways to
get more ideas into the innovation
pipeline is to ask for them.
How many of your employees
do you regard as innovators? How
many regard themselves as innova-
tors? What percentage would tell you
that they are fully deploying their
creativity on the job every day?
While most companies tell their
employees to bring their brains
to work, many still limit the use
of that brainpower to initiatives
aimed at improving operational
efficiency. They rarely ask all their
people to get involved in imagining
new markets or new growth strat-
egies. Instead of tapping into the
huge potential for creativity that
is latent throughout their organi-
zation, too many senior executives
continue to view innovation as the
exclusive province of one or two
specialized departments, such as
R&D or new product development.
The problem is rooted in the
widespread notion that “ordinary”
[book excerpt]
Tapping Into Employee Creativity
Innovation to the
Core: A Blueprint for
Transforming the
Way Your Company
Innovates
By Peter Skarzynski
and Rowan Gibson
HARVARD BUSINESS
SCHOOL PRESS, 2008
CIOi_0803_Foreword_v3_ef.indd Sec2:20 3/4/08 5:18:46 PM
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CYAN MAGENTA YELLOW BLACK
Aside from missing some favorite shows,
why should CIOs care about the recently set-
tled strike by the Writers Guild of America?
Remarkably, the three-month-long work
stoppage came down to a single issue: how to
value and allocate intellectual property rights
for emerging and new media. The writers
demanded a fixed percentage of any revenue
generated in the future from Internet-based
content distribution.
CIOs have a similar problem. How much is
software worth? Is it better to pay for a life-
time license or simply pay as you go? How do
we value data we buy, sell or consolidate with
that of our business partners? Should our com-
pensation be based at all on the usefulness of
the applications we develop and, if so, how do
we calculate that worth?
It’s hard to say whether the parties in the
writers’ strike got the answers right, or even if
they should have spent as much capital—finan-
cial and otherwise—duking it out. The tools
for valuing intellectual property are lousy to
begin with, and when you factor in the uncer-
tainty of emerging new media (iPod, iPhone)
or how users will use and misuse them even
in the short term (YouTube, Tivo), chaos theory
quickly takes over.
It’s like predicting the weather … for next
year. Though the industry is in the very early
stages of figuring out the right models, the
writers risked everything on an unknown
future value.
In some sense, our valuation problem is
even tougher than the entertainment indus-
try’s. For IT products and services, the back-
ground rules themselves are changing, and
their direction is unclear. Before 1976, there
was no copyright protection for source code.
Before 1981, there was no patent protection for
applications. In both cases, the current level
of protection is being challenged as both too
generous and too stingy.
No doubt you’ve faced problems of valuation
like these before, when negotiating with a soft-
ware supplier, deciding the terms of your own
or an employee’s compensation or developing a
joint application with a business partner. If you
haven’t, maybe you should start paying closer
attention. Here are some intellectual-property
“gotchas” I’ve noted in recent client work:
dIn a complicated licensing agreement
with a major software vendor, the client failed
to notice that the vendor retained the right to
charge more if the client’s profitability improved
from use of the software—without any indi-
cation of how the improvement was to be
measured.
dThe default rule under patent law is that
employees retain rights to inventions made
even during work hours; the opposite rule
applies in copyright. Without proper assign-
ments, your company could lose out on inven-
tions it paid employees to develop.
dService agreements with client-based
software vendors often permit the vendor to
consolidate data of different—often compet-
ing—companies passing through its systems
and sell the results back as marketing data,
with no compensation to the originators.
Don’t think that just because valuating
intellectual property is difficult, or even inde-
terminate, that it’s worthless. As the writers’
strike suggests, these intangibles could have
significant value—if not today, than perhaps in
the near future.
They may even be worth fighting for. n
larry downes is a Fellow with the Stanford Law School
Center for Internet and Society. Please send questions and
comments to editors@cioinsight.com.
A Virtual Battle for Value
When it comes
to determining
how to pay for
intellectual
property, CIOs
have as much
at stake as
Hollywood
studios do.
LEGAL JUNGLE
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Stop Griping About Skills Deficit
The real
problem
behind the
skills shortage
is that many
companies
don’t keep IT
professionals
for the long
stretch.
CIOs keep complaining that they can’t find
workers with the skills they need. In fact, two
recent surveys on top issues among IT exec-
utives—one from the Society for Informa-
tion Management and another by Robert Half
Associates—rank finding skilled IT professionals
as the No. 1 issue.
Many IT executives gripe that universities
are not producing a stream of IT graduates
who are prepared to function in the busi-
ness world. Some worry about the unflatter-
ing image of technical professionals as socially
awkward. But no one is more to blame for the
skills shortage than CIOs, especially those at
large companies. The reality is that IT exec-
utives are creating the skills shortage they
grumble about.
If companies were serious about ending
the skills shortage, they would make more
investments in IT training. A new Comp-
TIA survey of technology managers on skills
gaps in the IT workforce found that sending
employees for external professional training
is the most frequently cited way to enhance
IT employees’ skills.
However, spending on external training is
merely inching up at most large companies.
While our February 2008 IT Spending Survey
found that companies with revenues below
$500 million increased spending on tech train-
ing services by 7.2 percent, larger companies
increased it by only 2.8 percent.
Why are large companies loath to make
the needed investments? For one thing, there’s
the risk that employees could accept train-
ing and then take jobs at other companies. But
that’s a controllable risk: If a company is a well-
managed, interesting place to work, most techni-
cal workers will be content to stay. The real issue
is that many companies aren’t interested in keep-
ing IT professionals for a long stretch of time.
Information systems professors Thomas
Ferratt of the University of Dayton and Ritu
Agarwal of the University of Maryland have
found that companies follow different IT
HR strategies. One approach is to develop IT
staff members for the long term, emphasiz-
ing career development and commitment
to employees. Companies that follow this
approach are more likely to have adequate IT
staffing levels and lower turnover rates.
But the larger the company is, the less likely
it is to follow this approach: The June 2007 CIO
Insight survey on recruitment and retention
discovered that only around one-quarter of
companies with revenue topping $1 billion take
this approach, compared with more than half
of firms between $5 million and $99 million.
Instead, many large companies regard IT
workers as disposable: They’re willing to pay
top dollar for talent, but then drop these work-
ers when they’re no longer needed. Many
billion-dollar corporations pay little attention
to career issues: Just 42 percent of these large
organizations do a good job of creating specific
career paths for members of their IT organiza-
tions, our research reveals. At smaller firms,
the number is around 60 percent.
There’s a three-part solution to the skill
shortage: One, no matter how the economy
affects your firm, increase training for employ-
ees. Two, when recruiting from outside your
company, be willing to interview capable IT
professionals, even if their skills aren’t a per-
fect match for the job. Three, be willing to pro-
vide new hires with technical training.
So stop griping about the skill shortage,
broaden your searches and start creating the
skilled workforce your company needs. n
ALLAN ALTER is editorial research director of Ziff Davis
Enterprise. Send questions and comments on this article to
editors@cioinsight.com.
www.cioinsight.com
RESEARCH CENTRAL
by allan alter
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The promise of cloud computing goes far beyond
simply providing software updates and dealing with
growing server and storage requirements. It has the
potential to transform the role of IT within the business.
By Tony Kontzer
huge cloud hangs over the
future of IT.
After more than a decade
of refining the Internet as a
marketplace, the business
world is grappling with the
uneasy reality that companies can run
almost every information system they
rely on without owning any tech equip-
ment. Thanks to the phenomenon known
as cloud computing, businesses can rent
access to applications and IT infrastructure
that reside on the Internet, pay for them
on a subscription or per-use basis and
provide employees with access to infor-
mation from anywhere at any time with
nothing more than a connected device.
In theory, it sounds great. No more
wrangling with software updates or
growing storage requirements. And the
days of having to expand data centers to
make room for additional racks of servers
to support a growing business? Gone.
Of course, the promise of cloud comput-
ing goes far beyond providing solutions
to such headaches. It may, in fact, hold
promise for transforming the role of IT
within the business. The potential to one
day subscribe to systems as a service could
mean an end to wrangling with infra-
structure decisions by letting a service
provider sweat issues like server capacity,
storage and bandwidth. Cloud computing
also may prove to be an ideal strategy for
reaping the full benefit of mobile devices
by allowing companies to essentially
push their IT environment out to employ-
ees, rather than employees having to get
access to the IT environment.
But theory isn’t reality, and just
because cloud computing holds promise
doesn’t mean that’s going to translate
into practical solutions for real busi-
ness technology challenges—at least, not
anytime soon. Cloud computing serves as
a reminder that computing models con-
stantly change. As businesses face increas-
ing pressures to be as agile as possible,
they’ll be forced to adapt to evolving com-
puting models to remain competitive.
Like all technological advances, cloud
computing isn’t without risk. For instance,
there are security risks related to commin-
gling your data with that of other com-
panies. And reliability concerns arise
whenever you depend on a third party’s
systems to be up and running 24/7, as com-
panies that rely on Amazon.com’s fledgling
www.cioinsight.com
Taming the Cloud
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Simple Storage Service, or S3, learned when the service
went down for two hours last month.
Still, IT folks seem willing to put up with the glitches
in exchange for the potential benefits, as indicated by
one online poster who chimed in on The Wall Street
Journal Web site after reading of the Amazon outage.
“Cloud computing may be new and may not be at tele-
phone reliability,” wrote the S3 user, “but Internet
hosting as a utility is a trend that’s well on its way.”
There’s plenty of evidence to back up such state-
ments. On-demand application providers such as
Salesforce.com and NetSuite have proven that there’s
a market for so-called software as a service, or SaaS.
Amazon’s S3 and Elastic Compute Cloud offerings, which
provide storage and excess server computing capacity,
respectively, as utility services, have been met with great
enthusiasm. The tech industry’s old and new guards,
IBM and Google, also have made strategic commitments
to cloud computing, separately and in tandem.
This spring, IBM will roll out Blue Cloud, an initiative
that lets IT departments benefit from cloud comput-
ing technologies within their own data infrastructure.
Eventually, this effort could allow IT departments to
build internal clouds that will link to the larger public
cloud or to other private clouds. “However, our cus-
tomers are telling us that’s not what they want today,”
says Dennis Quan, chief technology officer for the Blue
Cloud initiative. “What they want are the benefits of
cloud computing to maximize their infrastructures and
control the rapid growth in their data centers.”
Google, meanwhile, has been building a head of
steam for its Google Apps, a suite of Web-based pro-
ductivity and collaboration tools, such as e-mail and
word processing, designed for use by consumers and
small businesses.
And last year, IBM and Google announced a
research initiative in which they’ll invest $30 million
to develop a joint infrastructure cloud for universi-
ties that want to provide remote programming and
research capabilities for their students.
Predicting the Weather
What does cloud computing mean for the future of
large-scale corporate IT? Will cloud computing evolve
into a big, fluffy cumulus, allowing IT to transform
from a perceived technology cost center into a stra-
tegic business asset? Or will it become a dark, stormy
mass signaling the end of corporate IT as we know it?
The truth probably lies somewhere in-between, with
large companies likely to apply a hybrid model in which
they use cloud computing for noncritical systems and
applications, while keeping sensitive apps and data on
in-house networks. Before that can happen, they must
be convinced that cloud computing holds value for
them, and, to date, CIOs at large companies have been
reluctant to venture too far into the cloud.
The way Marc West, CIO of H&R Block, sees it, cloud
computing at its best offers corporate IT executives the
perfect opportunity to break out of their technology
shackles and raise their boardroom profile by allowing
them to shift their attention from mundane technol-
ogy matters to issues more strategic to the business.
“CIOs are always talking about why we’re never at the
table, why we’re never invited,” West says. “If you’re
waiting to be invited, you’ll never be there. Figure out
how to spur growth, not just deploy software.”
In other words, CIOs need to do whatever is nec-
essary to avoid being considered a commodity. As IT
becomes less of a market differentiator, it’s not enough
for CIOs to oversee effective rollouts, integrations and
development projects. Instead, they need to focus their
efforts on articulating how to extract the most business
value from each new technology. By turning to cloud
computing, they can begin to shed themselves of some
of the technological burdens that weigh them down.
Others believe that regardless of where the technol-
ogy resides, businesses will continue to need technol-
ogists. The difference will be that IT departments will
place higher value on skills like project management,
quality assurance testing and business analysis rather
than on traditional coding and development skills.
“You still need IT for acceptance testing, configura-
tion and communication with the IT service provider,”
says Sue Powers, CIO of Travelport, which runs one of
several reservations systems used by airlines, hotels
and car rental companies. “IT still needs to be involved.”
In any case, you’ll be hard-pressed to find a CIO
who shares the views of Nicholas Carr, the former
Harvard Business Review executive editor and current
roughtype.com blogger who earned fame—and gener-
ated controversy—with his 2004 book, Does IT Matter?
Information Technology and the Corrosion of Compet-
itive Advantage. In his follow-up book, The Big Switch:
Rewiring the World, From Edison to Google (W.W. Norton,
2008), Carr all but declares the pending death of IT.
“In the long run, the IT department is unlikely to
survive, at least in its familiar form,” he writes. “It will
have little left to do once the bulk of business comput-
ing shifts out of private data centers and into ‘the cloud.’
Business units and even individual employees will be
able to control the processing of information directly,
without the need for legions of technical specialists.”
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Carr admits, however, that a time when IT depart-
ments no longer exist as they do today is probably 20
years off. Of more concern to IT executives is what to
expect over the next five to 10 years. At the very least,
they can expect cloud computing providers to beef up
the main areas of concern: security and reliability.
Even as his firm contends with those issues, Marc
Benioff, the CEO of Salesforce.com who built his
company on the slogan “No software,” says the distress
over the perceived lack of security of the “multiten-
ant” model—in which multiple companies’ application
instances are stored on the same servers—is overblown.
Granted, Benioff has reason to promote such a mindset,
but the analogy he uses, comparing cloud computing
service providers to the banking industry, has merit.
“If you met a CFO who insisted on keeping the
company treasury in a safe in the basement, you’d
think that he or she were nuts,” Benioff said in an
e-mail interview. “Why isn’t that money in a secure,
internationally accessible system that’s reliable and
highly available? I think we aren’t far away from a
similar view toward data and applications.”
Looking for the Personal Touch
H&R Block’s West goes against the grain by not men-
tioning security or reliability among his primary misgiv-
ings about cloud computing. He believes there’s a more
critical element missing from cloud computing soft-
ware offerings that he’d like to see added: professional
services supplied by a person rather than a machine.
West’s company has subscriptions to Salesforce.com’s
on-demand customer relationship management app
for isolated groups within H&R Block and has inte-
grated it with an on-demand analytics tool from
British software firm Datapoint. But the CIO would be
more gung-ho about cloud software if Salesforce.com
were packaged with, say, access to a marketing expert
who could help organize sales initiatives and provide
advice on how to get the most out of the software.
“The problem with the SaaS model is that it still isn’t
helping the buyer get the value out of the technology,”
West says. “It’s just a different way of paying for it.”
That’s why West suggests that on-demand applica-
tion providers cut deals with professional services firms,
allowing them to offer premium subscriptions that would
include access to real-time expert advice. H&R Block took
precisely that approach in designing Tango, its consumer
online tax-preparation service, which, for $70, includes
unlimited round-the-clock access to tax experts.
In the case of NetSuite’s on-demand accounting
application, for example, West believes that bundling
it with 24/7 access to 5,000 H&R Block accounting pro-
fessionals would make it immensely more compelling
for larger companies that need to do more than reduce
their software costs in order to justify the switch from
a client-server application to a cloud-style alternative.
“That, to me, is the cloud,” West says. “It’s called ‘Do
it with me.’ If I give someone the toolbox, that’s one
thing. But customers want true self-service.”
To be fair, Salesforce and NetSuite have been tack-
ling this area in varied ways. Salesforce’s Success-
force services let customers add a professional ser-
vices element that allows them to connect with either
a Salesforce consultant or one of the company’s part-
ners, such as Accenture or Deloitte.
NetSuite, for its part, allows partners to build their
expertise into a complimentary offering by turning
their services into software. This allows NetSuite to
maintain more control over the level of service being
offered. “Otherwise, it could become a bit of a crap-
shoot when it comes to the quality of those services,”
says CEO Zack Nelson.
Minding the Store
It probably won’t be long before West, who supports
more than 100,000 tax professionals, gets his wish,
but his company’s needs are quite different from those
of small and medium businesses. SMBs are more likely
to want to put their IT operations in someone else’s
hands so they can focus on their core business.
“We’re running our whole company on cloud com-
puting,” says Brian Leffler, vice president of TTI Instru-
ments, a 30-person firm in Williston, Vt., that sells
industrial instrumentation. “It works great for us, and
www.cioinsight.com
“CIOs are always talking about why we’re
never at the table, why we’re never invited. ... Figure out
how to spur growth, not just deploy software.”
—Marc West, H&R Block
CIOi_0803_TREND1_v4_ef.indd Sec1:30 3/4/08 6:10:36 PM
it’s a tremendous competitive advantage. It lets us
concentrate on the most important things.”
Leffler’s experience underscores just how great a
match cloud computing and small business are: TTI
had been running its operation on Microsoft’s Great
Plains enterprise resource planning software for
small business, but the cost of licensing the software,
provisioning servers and acquiring complementary
software for niche tasks such as lead management
became excessive. Leffler opted to switch to NetSuite’s
integrated on-demand applications, committing to a
five-year $100,000 contract to run the entire business.
In comparison, Great Plains would have cost TTI
about $110,000 over the same period, plus the cost of the
staff resources needed to administer the servers, back
them up, install updates and handle any other main-
tenance tasks. Today, all 30 TTI employees spend pretty
much all day accessing their NetSuite environment
using nothing more than a Web browser. As a result,
Leffler has become a believer in the promise of the cloud.
“It saves us money every day we use it,” he says.
Leffler expects one of the traditional assumptions
of IT—that having an IT department is a detriment to
small businesses while larger companies need inter-
nal IT units—to face serious challenges in the future.
“Over time, that line will be blurred, and even big com-
panies will be embracing cloud computing,” he says.
That’s not to say traditional IT will disappear. Rather,
as big companies become more willing to bring cloud
computing into the mix, their IT departments will be
able to focus on matching application functionality
to business processes, rather than on upgrading and
patching applications, or writing custom code.
Leffler sees the IT staff at General Electric, one of his
biggest customers, struggle to make use of new tech-
nologies because of the sheer scale of any upgrades.
“When you’re running IT for a 300,000-person organi-
zation, you’ve got a lot of constraints,” he says.
Among the constraints holding back big companies
are incredibly complex business processes that have
taken years to refine and often require highly custom-
ized applications to support them. As a result, one of
the biggest benefits of cloud applications—the ability
to exploit best practices without having to wrestle
with customization—is also one of its biggest limita-
tions. Larger companies that have been willing to try on-
demand applications delivered via the cloud generally
have limited their use to systems that aren’t core to their
businesses, keeping highly customized apps in-house.
Travelport falls into that group, and CIO Powers
says categorizing the company’s apps along those
lines was a critical part of the on-demand strategy it
embarked on a little more than a year ago. She settled
on a list of vanilla, cloud-friendly applications that
include customer relationship management, expense
reporting, payroll processing, human resources and
financials. These apps don’t provide a competitive
advantage and don’t represent things that Powers
feels are distractions from more core activities.
“When we made the decision, what it boiled down
to was, What is the application we’re talking about?”
recalls Powers. “If it’s something that’s highly custom-
izable, that you have to use your way, then cloud soft-
ware won’t work for you.”
Powers wasn’t about to cede control of Travelport’s
core reservations system. However, she believes that
over time, the ability of cloud software providers to
make their products more configurable—meaning IT
folks can tweak the functionality to match their busi-
ness processes—will fuel growth in cloud computing.
In fact, Salesforce.com and NetSuite have been
steadily adding customization capabilities into their
products over the past year or two. Last fall, Salesforce
added a service called Visual Force, which provides
customers with a programmable user interface they
can use to tweak the look and feel of a Salesforce app.
And early this year, NetSuite introduced a business
operating system to its on-demand lineup, giving cus-
tomers tools that let them ensure their own custom
code is compatible with the NetSuite framework.
The fact that Travelport must maintain a sophis-
ticated, well-stocked data center to support its reser-
vations service has Powers thinking about turning
Travelport into a cloud infrastructure provider. She’s
looking at whether it will eventually make sense to
rent out Travelport’s excess data center capacity during
off-peak hours to IT departments seeking temporary
access to computing power for short-term projects.
Jockeying for Position
This kind of service has been offered by companies
with excess data center capacity over the past decade,
but the maturation of the Internet, the standardiza-
tion of infrastructure technologies, and the ascension
of Linux and open-source software has made it much
more doable and much more in demand.
In fact, the field for providing cloud computing infra-
structure is likely to become a bit crowded, as compa-
nies like Amazon and IBM jockey for position.
In addition to Amazon’s S3 service, which essentially
lets small businesses rent out unused space on the com-
pany’s vast storage network, the online retail giant is
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beta testing a product it calls the Elastic Compute Cloud.
EC2 operates like S3, except that instead of storage space,
companies rent out server capacity, adjusting it up or
down depending on their needs.
Instead of sweating over the costs of infrastruc-
ture investments and server deployments, companies
using EC2 get an invoice that looks strikingly similar
to an electric bill, with charges based on minutes of
server access and quantities of data moved and stored.
Adding to the potential for the service, Linux software
distributor Red Hat is beta testing a version of its enter-
prise Linux operating system that can be purchased as
a subscription service in conjunction with EC2.
The idea, according to Brian Stevens, Red Hat’s chief
technology officer, is to provide systems as a service,
which he describes as a layer down from SaaS offerings
like Salesforce.com. That could position just about any
company not just to benefit from cloud computing, but
also to contribute to it. “It could be used to offer SaaS to
your clients or to have a remote data center,” he says.
Red Hat also is exploring ways in which its own IT
department can put the Amazon cloud to work, namely
by tapping it for software development projects that
need server capacity beyond what’s available on the
company’s internal network. That’s an ideal reflection
of the potential cloud computing holds for corporate IT
departments. “We believe in the cloud model,” Stevens
says. “We don’t think it’s where everything goes, but
we’re going to learn from it.”
Whereas Amazon evolved into a cloud computing
provider as a way to maximize the value of its own
IT resources, IBM committed to rolling out a series of
cloud computing components under the handle Blue
Cloud. The first of these products, expected to be avail-
able this spring, includes a package of blade servers and
IBM’s Tivoli management software, and is designed to
allow companies to essentially build their own clouds,
running in their own data centers.
Eventually, IBM intends to offer an integrated stack
of software, hardware and management capabilities
packaged in a self-service Web 2.0 portal, says Blue
Cloud CTO Quan. That would allow companies to book
computing resources the way consumers book hotel
rooms on the Internet. A CIO could reserve server
time, automatically provision needed software, and
provide “keys” that would allow employees to log in
and do their work with only a Web browser.
Driving the need for such flexible computing
resources are challenges such as escalating energy
costs and scarce data center space. These challenges are
getting in the way of innovation, as companies have to
wait on—or completely forego—adding IT resources.
“It’s about business agility,” Quan says. “In order to
get new projects off the ground quickly, with virtual-
ization and automated provisioning, we can get that
up and running in a matter of minutes. That’s a huge
enabler of innovation.”
If the proponents of cloud computing are to be
believed, that’s where the greatest promise of the
technology lies: in spurring innovation. “Cloud com-
puting will completely change the role of IT depart-
ments,” Salesforce.com’s Benioff says. “The IT depart-
ment is evolving from being information technology
to being innovation technology.”
The irony is that evolution has been occurring as
the ability of IT departments to innovate has been
shrinking. As IT budgets have been challenged by the
economic tightening of the past couple of years, devel-
opment projects have been hardest hit, with CIOs
having to commit the lion’s share of their resources
to software updates, server provisioning, data center
expansions and general maintenance of IT resources.
Cloud computing could change all that by making
those IT budget mainstays an afterthought, allow-
ing CIOs to subscribe to on-demand IT offerings and
letting service providers take on those headaches.
That would allow CIOs to commit funds to new devel-
opment projects and even tap those on-demand
resources as temporary development environments.
Given such potential, it’s no wonder that growing
numbers of CIOs have their heads in the cloud. n
Please send questions and comments about this article to
editors@cioinsight.com.
www.cioinsight.com
“We’re running our whole company
on cloud computing. It works great for us, and it’s a
tremendous competitive advantage.”
—Brian Leffler, TTI Instruments
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www.cioinsight.com
ynthetic worlds are big news these
days, with visitors to these so-called virtual
environments coming from a wide range
of backgrounds—including presidential
candidates and movie stars. In addition, numerous
large and midsize companies have explored synthetic
worlds, though many eventually abandoned them.
Synthetic worlds are computer-based simulated
environments that allow multiple users to inhabit
and interact with each other through two- or three-
dimensional graphical representations of humanoids
and other forms, known as avatars. These virtual envi-
ronments resemble the real world, with rules such as
gravity, topography, locomotion, real-time actions and
communication.
Though more than 50 individual synthetic worlds
exist, according to VirtualWorldNews.com, a social
virtual environment called Second Life has gained a lot
of attention during the past year. Many people believe
synthetic worlds are elaborate games, but there is real
business going on in Second Life. Its service provider,
New Business Horizons, counts scores of businesses
and retailers, such as Coca-Cola and Sears, that have
set up virtual stores to market products and test pro-
totypes. And INSEAD, an international business school
with real-world classes in France and Singapore, has
built a virtual campus and classrooms in Second Life
to supplement in-person learning.
A growing number of companies use synthetic
worlds to connect with customers or interact with
Synthetic Worlds
This step-by-step approach helps companies make an informed decision
on whether or not to establish a presence in virtual environments.
By Kamales Lardi-Nadarajan
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employees, thereby significantly reducing business
travel time and expenses. At Deloitte Consulting, for
example, we used this environment to host our 2007
Global Excellence Awards ceremony, allowing employ-
ees from around the world to “attend” the event.
More recently, Second Life covered the 2008
World Economic Forum in Davos, Switzerland. It
provided virtual interviews and discussion forums
with key attendees.
Understanding the Virtual Market
Skeptics may find it hard to understand all the fuss
about virtual environments, especially when they
find large deserted areas in synthetic worlds such
as Second Life. For the most part, these areas were
set up by corporations that used them for a one-time
media blitz and then abandoned them. This short-
term view has resulted in what media critic Mark
Glaser characterizes as a hype-and-backlash cycle,
which has cast doubt over the potential business
value of synthetic worlds.
The phenomenon is reminiscent of the dot-com
era of the late 1990s, when a large number of Internet-
based companies were formed after the explosive pop-
ularity of the Internet. These enterprises dismissed
standard business models and focused on the common
goal of “getting big fast.”
Unfortunately, thousands of these startups failed,
burning through their venture capital—often without
ever making a net profit. However, some compa-
nies did make it through the dot-bomb, including
Amazon, which differentiated itself through a busi-
ness model that was tailored to suit the new market
environment.
Learning from the dot-com experience, some enter-
prises have identified a key factor that’s necessary to
successfully establish a virtual presence, whether for
marketing purposes or commercial gain: Develop a
strategy specifically suited to consumers of this new
environment. In order to do that, companies must first
understand the virtual market and its users.
Though surrounded by controversy, virtual envi-
ronments such as Second Life can have a huge impact
by quickly redefining personal and business inter-
actions. In fact, the emerging social computing net-
works—online communities of people who share
interests and activities—are predicted to redefine cus-
tomer relationship management and business rela-
tionships within the next five years. This trend is grad-
ually moving toward immersive 3-D environments,
where there has been a tremendous increase in the
number of synthetic world users. Virtual world con-
sultancy K Zero estimates that synthetic worlds have
registered close to 174 million users.
Some companies have developed innovative ways
to integrate synthetic world technologies into their
business model, effectively generating value for their
business. In December, for example, Luxembourg
hosted its first virtual job fair, bringing together pro-
fessionals from 45 countries worldwide.
The Working Worlds fair, hosted in Second Life, wel-
comed 2,000 visitors who conducted more than 300
job interviews, with more than 50 of the candidates
invited to Luxembourg for face-to-face meetings,
according to GAX Technologies, the IT services firm
that organized the event. Luxembourg, which faces
significant recruitment difficulties due to an insuffi-
cient number of job candidates, has used this method
to open the recruitment market internationally—with
no travel expenses and low operating costs.
Communicating With Customers
In the last year, executives in many companies have
had to decide whether to venture into virtual environ-
ments, either for business or marketing reasons. It’s
not an easy decision, as media reports of enterprises
that have abandoned their virtual businesses have cast
doubt on the value and potential of synthetic worlds,
even though there have been consistent increases in
the number of registered users.
Despite getting some negative press, synthetic
worlds are starting to change the way companies
communicate with their customer groups. Over time,
online synthetic worlds will play an increasingly vital
role in business-to-consumer relationships, building
customer loyalty through time and commitment.
Within the next five years, synthetic worlds will
dominate and drive brand building in major companies.
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“Over time, online synthetic worlds will
play an increasingly vital role in business-to-consumer
relationships, building customer loyalty.”
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That will give a competitive edge to enterprises already
established in these interactive environments. When
deciding whether to enter the virtual environment,
companies should take an experimental approach,
focusing on long-term added value.
Unfortunately, many companies view new or
emerging technologies as a way to cut costs, forget-
ting the added value of innovation and new market
development. “New ideas don’t drop from the sky,
but are developed through an analytical experimen-
tal process,” wrote Harvard Business School profes-
sor Stefan Thomke, an authority on the management
of technology and product innovation, in a Febru-
ary 2001 Harvard Business Review article. “The process
should not only identify several new ideas, but also
help narrow the number of ideas and pursue the most
viable option for experimentation.”
Realizing the challenge executives face when
assessing the potential benefits and risks of having
a virtual presence, my colleagues and I developed an
approach that takes a long-term strategic view of syn-
thetic worlds as a new route to the emerging online
consumer market. This three-phase approach encour-
ages experimentation in the virtual environment.
Phase 1: Understanding the Current Environment
The first phase is the most critical, as it ensures that
a thorough assessment of the virtual environment is
conducted. To initiate this process, a company must
first determine the strategic objective of entering a
virtual environment and decide whether this move
is in alignment with the firm’s overall strategic direc-
tion. For instance, if the enterprise has a specific focus
on sustainable growth and innovation, entering the
virtual environment to develop new products and
marketing concepts might be a good move.
At this stage, companies need to develop a clear
understanding of this technology’s potential by
keeping up to date on trends and predictions concern-
ing synthetic worlds. In addition, they should assess
their competitors’ perspectives and reactions to syn-
thetic worlds, while also identifying the customer
group to be targeted in order to gauge its openness to
and expectations of synthetic business environments.
The strategic objectives must be accompanied by
measurable business outcomes—key indicators that
would allow the company to measure and track the
impact or outcome of the approach. These indicators
would likely include the number of weekly customer
visits to the virtual site, the number of media men-
tions and even the impact rating compared to other
customer channels.
The subsequent step involves identifying all relevant
possibilities for entering the virtual environment and
potential operating models. Focus on describing the
options from the perspective of the target audience, the
user’s experience and the functions provided, as well
Enterin¿ the Virtua| Wor|d
Phase I
Obtain interna| buy-in
Determine strate¿ic
Iit with business
ob[ectives
IdentiIy
synthetic
wor|d
entry
points*
Assess
entry
options*
Se|ect
option
and desi¿n
imp|emen-
tation
Launch
and
eva|uate
pi|ot
Fu||
|aunch
Post-
|aunch
and
opera-
tions
Assess competition's
reactions to
synthetic wor|ds
Investi¿ate synthetic
wor|ds' trends and
predictions
Deve|op measurab|e
business outcomes
On¿oin¿ a|i¿nment oI
synthetic wor|d
operations with
strate¿ic ob[ectives
*Repeat process step unti| thorou¿h assessment is achieved
¨Co" or
¨no ¿o"
decisions
Ior pi|ot
¨Co" or ¨no
¿o" decisions
Ior imp|emen-
tations
Phase 2 Phase 3
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Source: Deloitte Consulting
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as alignment with the initial strategic objectives.
Then identify the related costs, resources, timeline
and technology infrastructure required. This is an iter-
ative process, which should be conducted continuously
until a satisfactory assessment has been developed.
Throughout the duration of phase 1, the options
and subsequent assessments need to be shared with
key internal stakeholders. That’s essential, as most
executives shy away from venturing into unknown
territory, particularly when it involves experiment-
ing with new technology.
Once the initial assessments have been conducted,
the most viable option should be selected for further
design. The selected synthetic world entry option
should be developed into a scenario, describing the
customer experiences, as well as the functions, ser-
vices and products to be offered.
A strategic approach such as this will establish a
strong foundation for conversations with executives,
because the risks and investments involved will have
been thoroughly assessed. Then a collective decision
on whether to continue with a pilot implementa-
tion can be made. As with the implementation of any
new technology or media, it is critical to have the full
support of key stakeholders to ensure success.
Phase 2: Launching a Test Environment The exper-
imentation process may be carried out as part of a pilot
implementation of the selected option. In a virtual
environment, the costs of technology and experimen-
tation—as well as the risks—during the pilot imple-
mentation phase are far lower than they would be in
a real-world environment. Of course, the cost of estab-
lishing a functioning pilot business environment can
range from inexpensive to exorbitant, depending on
how elaborate the service scope is.
During the pilot phase, companies should track key
indicators to determine the success rate of the virtual
presences. These indicators include the number of
existing customers visiting the virtual site, as well
as the number of new customers gained through the
virtual presence.
Phase 3: Full Implementation and Continuing
Operations Following a three- to six-month pilot
launch, a decision should be made on whether or not
to conduct a full implementation based on the key
indicator data collected. If the customer response to
the virtual presence has been positive, there may be
a good case to conduct a full launch of the site. Other
factors that need to be considered include the continu-
ing operational model of the virtual presence, as well
as resources and cost requirements.
Virtual environments face risks that are similar to
those marketing and branding must deal with online.
Since a synthetic world is a consumer-controlled envi-
ronment, organizations have little power over the
impact of their message on the consumer. Therefore,
enterprises should thoroughly assess the risks posed
by virtual environments—including the collateral
effects that could impact their brand and image—
before making a decision to proceed. Once the virtual
presence has been launched, it’s vitally important to
measure and track the business outcomes on a contin-
uous basis.
Synthetic worlds have created a new way for people
to socialize, entertain, innovate and transact business.
This can be a daunting reality for many companies,
since traditional inward-focused business models will
not have long-term sustainability.
In this new virtual environment, as the authors of
Wikinomics note, self-organized consumer commu-
nities offer lucrative opportunities and present grave
new threats to business. Taking a long-term strate-
gic approach to assessing the pros and cons of virtual
environments ensures that enterprises decide to
venture into this environment based on a thorough
assessment of its possibilities and risks.
As the consumer environment changes, virtual envi-
ronments offer a new route to market—one that tra-
ditional business models are unable to cope with. The
inevitable changes brought about by virtual environ-
ments will redefine the way businesses interact with
their customers. Companies that explore and under-
stand these environments today will win consumer
buy-in and loyalty tomorrow. n
Kamales Lardi-Nadarajan is a manager with the Technology
Integration division of Deloitte Consulting GmbH in Zürich,
Switzerland. Please send questions and comments about this article
to editors@cioinsight.com.
www.cioinsight.com
“Synthetic worlds have created a new way for
people to socialize, entertain, innovate and transact
business. This can be a daunting reality for many companies.”
CIOi_0803_TREND2_v3_ef.indd 38 3/4/08 5:48:17 PM
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Live = 7.0 x 10.0
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JIM CHAMPY
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Management expert Jim Champy
sees IT as a game-changer in
gaining a competitive advantage.
n his new book, Outsmart! How to Do What Your Com-
petitors Can’t (FT Press, 2008), Jim Champy chronicles the
success of companies that reengineered their business
models to transform both their organizations and their
industries. In his research, Champy looked at more than
1,000 companies with double- to triple-digit growth. What he
produced is a collection of crisp case studies on the most innova-
tive, growth-charged business models he found.
The common thread: These companies all drew on IT to
produce substantial competitive advantages.
The concept of change and transformation is nothing new to
Champy, chairman of Perot Systems’ consulting practice. With
Michael Hammer, he co-authored the best-selling Reengineering
the Corporation: A Manifesto for Business Revolution in 1994 and
followed up two years later with Reengineering Management:
The Mandate for New Leadership.
In today’s business environment, a combination of innovation,
ambition and calculated risk—mixed with a strong IT strategy—
can transform companies from has-beens to market leaders. The
keys to success? Looking at IT as a strategic asset and adapting
management to meet the changing dynamics of business.
Champy spoke recently with CIO Insight online editor Brian P.
Watson, who condensed and edited the following transcript.
cio insight: You say there’s not much new in management, but
plenty new in business. How so?
champy: Executives know the fundamentals of management
but don’t always practice them. Managers today ask the same
questions about how to change as they did 20 years ago. Every new
manager is still discovering this stuff. It’s not that we shouldn’t
be teaching good management practice—I just felt there wasn’t
much new I could contribute about what’s new in management.
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CIOi_0803_EV_v3_ef.indd 41 3/6/08 12:04:00 PM
But doesn’t management have to evolve to handle
change in business and customer strategies?
champy: Management does evolve. Almost all the
leaders and founders of the companies I wrote about
were very open and transparent in what they thought
or said with their people and their customers. They
were open and transparent to a point where they
were prepared to be vulnerable, to be wrong in their
decisions and to change what they might be doing if it
didn’t work. It was a very open management style and
leadership style that many executives in larger compa-
nies would not adopt, or would be fearful of adopting.
Management style is adapting and changing, and,
in some instances, it was much different than what I’d
find at larger companies.
In those firms, how are IT units and CIOs viewed?
champy: Particularly in larger companies, the IT oper-
ation is viewed as a business function. It’s viewed more
importantly today than it was 10 years ago, but there’s a
great deal of variability about whether IT is considered
to be truly strategic in enabling some dramatic change
in the way the company operates. And there are, in some
large companies, the right sensibilities about what IT can
do to change the business—not make it more efficient,
but really change the nature of the business.
In many of the companies I wrote about, IT was
absolutely central to the business model. The CIOs
were very front and center in the design of the busi-
ness. Even if the companies weren’t IT-based, there
was a sense of IT as the great enabler that allows them
to do much of what they do.
That’s contrary to the notion that IT is no longer
strategic because it’s ubiquitous. That’s a very danger-
ous argument, because the extension of that argument
is that because it’s ubiquitous and no longer strategic,
it can be relegated deep into the organization.
At every one of these companies I’ve written about,
IT was very strategic and enabled them to adapt and
develop new business models. Therefore, it was criti-
cally important to the executives and the founders to
understand not just how IT was working inside their
company, but what it could do.
One young entrepreneur I interviewed said, “The
Internet is the level playing ground for entrepreneurs
in their 20s. We use the Internet as well as an estab-
lished business uses the Internet. It’s the great leveler.
Someone who’s been in the business for 50 years
doesn’t know more about how to use the Internet
than I know.”
Technology, on its own, isn’t strategic. But technol-
ogy, in combination with the business idea, is more
strategic than ever. In fact, the ubiquity of technology
is what makes it strategic.
What from your research makes you disagree with
Nicholas Carr’s thesis that most IT isn’t strategic and
will increasingly become a commodity?
champy: If I went to the founders of the companies
in my new book and said, “IT doesn’t matter,” they’d
say: “What? Look at how central IT is to my business,
and look at how it allows me to invent a wholly new
business model, and how it allows me to operate and
change some of the fundamentals of my industry.” The
dangerous extension of that argument is that an exec-
utive or manager doesn’t have to pay attention to it.
The CEO of SonicBids is changing a $15 billion indus-
try. [SonicBids is an online marketplace that connects
music promoters with aspiring musicians; it’s one of
the companies featured in Outsmart!] He will eventu-
ally get to change the way entertainers are paid.
In the industry today, an entertainer—even a big-
name entertainer—gets paid [some of the fee] in
advance and the balance in cash at the end of the per-
formance. That’s the way the industry operates, because
no one trusts anyone in the industry. SonicBids’ CEO has
the opportunity to create a trustworthy bank to change
the way the industry operates. He couldn’t do that
without technology. It’s changing the fundamentals of
how that end of the industry operates.
The argument that IT isn’t important is an over-intel-
lectualization of what’s going on. It lacks a complete
understanding of what’s going on in business today.
The dot-com bust taught us that traditional thinking
isn’t such a bad thing, in terms of business models and
long-term viability.
champy It’s smart to always have a little skepti-
cism of what’s possible. In the last bubble, some of
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In many of the companies I wrote about,
IT was very central to the business model. The CIOs were
very front and center in the design of the business.”
www.cioinsight.com
CIOi_0803_EV_v3_ef.indd 42 3/6/08 12:04:14 PM
the companies that were trying to build marketplaces
had some very interesting business models—models
that I thought were quite sound. They just didn’t have
enough staying power to perfect the business model,
and they were spending money very foolishly.
It’s important to keep asking yourself, Is this a busi-
ness model that will have staying power, and can I
scale it? Having a little skepticism is good.
The people I interviewed had a mix of ambition
and a willingness to test ideas. You can put a product
or service out there and test it very quickly to see if
customers will bite.
The folks at SmartPak [a prescription service for
horses that used innovative IT to expand its product
and service offerings; another firm featured in Out-
Smart!] launched a product for dogs not long after
they had their engine going for horses. The dog busi-
ness didn’t work initially because there were some
issues with the product and how they would deliver it.
But because they were using an Internet channel, they
were quick to realize how and why it wasn’t working.
The Internet is a great enabler for testing ideas and
maintaining a bit of skepticism.
In the companies you cover, where did the CIO fit in
the business strategy?
champy: Traditionally, in half of all companies,
the CIO reports to the CFO; in the other half, the CIO
reports right to the top. In the companies I’ve written
about, the CIOs report to the people at the top.
What’s different about these companies is that the
executives are hands-on managers. CEOs haven’t del-
egated the important operating decisions deep into
the organization. They’re making a lot of the decisions
about how the company will operate, so they want the
CIO at their side.
The best-run transformational programs have the
CIO reporting to the top executive, not to the CFO.
Operational excellence is about making operational
change happen, and you can’t have that without a
strong CIO who’s integral to the program.
The companies that get in trouble with big trans-
formation programs have the CEO delegating a lot of
the systems application decisions too deep into the
company. When that happens, you get expensive com-
promises: Every warehouse argues that it’s different,
every plant argues that it’s different, and therefore
should have its own set of systems and processes.
If there’s nobody at the top making the call, the
transformation project gets out of control. When
you see IT-related projects that have grown from
$10 million to $100 million, it’s usually because there
was nobody home at the top. The executives who keep
the IT function close to them are the most successful
transformation players. But again, the people running
the businesses I write about weren’t transforming
them—they were inventing them.
Ambition plays into transformation, but most CIOs
are being dictated to. How can they overcome that?
champy: The cultural tone is always top-down driven.
It’s typically the chief executive who sets the operating
style. In the companies in my book, everybody played: It
wasn’t just the CEO who was important, it was every-
one else, really deep throughout the organization.
It’s very difficult to change a company from the
bottom up. There’s a possibility that you can demon-
strate how IT can add value in some dramatic way. It’ll
happen in some cases; it won’t in others. Some CEOs
have a much different worldview of what’s important
for the business. CIOs should keep trying to demon-
strate that IT brings value to the business and to cus-
tomers, and maybe—maybe—someone at the top will
recognize it.
I’ve been in this business for 30 years, and very little
has changed in our ability to alter the beliefs and man-
agement styles of executives, especially someone who
has been in a business for a long time. I’m not saying
you can’t. But if I look at the companies that have gone
through some major transformation—operationally and
culturally—I could count them on one hand, if that.
We have failed to develop the behavioral-change
skills that companies thirst for. I see companies that
are stuck. I know how to change them, but it would
take five years of hard work—and it would probably
require the change of a few people in the company.
When you go deep into a company, people are not
necessarily risk- or change-averse. Many of them are
actually thirsting for change, because they see that if
there isn’t change, they’re not going to have a job.
But they also see that their job is at risk in a big
change program. Still, they’re much more willing to
change than the people at the top are. The biggest
issues around change at any enterprise have to do with
the people at the top. What is their appetite for change?
What is the nature of their ambition? What’s their skill
level in being able to bring about and execute change?
Whenever a company struggles to execute change,
the problem isn’t in the middle or on the factory
floor—it’s at the top. That’s why you sometimes need a
new team or a new leader. n
Please send questions and comments about this article to
editors@cioinsight.com.
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CIOi_0803_EV_v3_ef.indd 43 3/6/08 12:04:17 PM
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A
pplications that in the
past have not been
considered mission-
critical increasingly must be
accessible 24x7 to meet the de-
mands of today’s global busi-
ness economy. At the same
time, many companies must
support a more mobile and
more geographically dispersed
workforce. Additionally, more
corporate data is now subject
to government and industry
regulations. And many IT bud-
gets are tightening, requiring
IT staffs to do more work with
fewer resources.
The combination of these
factors is altering the way IT
departments support users,
deliver applications, and safe-
guard data. Specifically, there
is a growing trend toward con-
solidating and virtualizing ap-
plications on fewer servers and
centralizing data for security, regulatory,
and cost reasons.
From a cost standpoint, centralizing
applications and data provides a more
efficient use of IT resources and staff.
For instance, running email on local
servers in remote offices requires some-
one to manage the hardware and the
application at each site. Centralizing the
application in one location means fewer
physical servers must be managed and
one person with expertise in a particular
application can support all the users in
the company from one spot.
PerformAnce And Security iS Key
Providing remote and mobile workers
with access to centralized applications
requires that the data passing between
locations be protected. Additionally,
because the communications between
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To that end, Blue Coat offers WAN ap-
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delivery to remote users, accelerating ap-
plications and protecting them from In-
ternet threats.
Blue Coat solutions accelerate any
application—including internally and
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cations. By providing band-
width management, where
IT managers can prioritize
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cols; object caching, where
application objects can be
stored locally; byte caching to
reduce the amount of data sent
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Blue Coat can stop the bad and
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security for any user, anywhere
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Through technology part-
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tion and optimization for the
most commonly used business
applications.
Blue Coat solutions are recognized
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trollers, 2007.” Earlier last year, Blue Coat
was also positioned by Gartner in the
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rant for Secure Web Gateway, 2007.”
Blue Coat’s combination of solu-
tions, expertise, and partnerships give
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COLLABORATION
W
hen collaboration and
work-flow moved up to second
place in our Top Trends Survey
list of the most strategic tech-
nologies late last year, it confirmed what CIOs
and other IT executives
had been telling us
about the field’s growing
importance to their busi-
nesses. Now, with the Ziff
Davis Enterprise 2008 Col-
laboration Survey, we’ve
garnered data from more
than 180 respondents on
the reasons behind the
technologies’ increasing
significance, which tools
are making the greatest
impact and how broadly
they’ve been adopted.
We also tested some
intriguing notions: How
important are Web 2.0
technologies in the workplace, and are young
workers pioneering their use there? We delib-
erately defined collaboration broadly, because
the line between collaboration and communi-
cation is ultra-thin, and we included nearly 30
items under the collaboration umbrella— from
telephony and e-mail to prediction markets
and social networks.
We discovered that about 80 percent of IT
executives believe collaboration and work-
flow technologies deliver on their promise
to boost productivity and decision-making,
and half say they enable and even inspire
strategies that were previously unattain-
able or unimaginable. But while some Web
2.0 technologies sizzle—chat and blogs are
frequently used behind
IT’s back—older, more
commonplace technolo-
gies and tools usually
prove more useful for col-
laboration. IT executives
may undervalue Web 2.0
tools—if the tools weren’t
helpful, they wouldn’t be
so widely used—while
Web 2.0 fans often over-
look other collaboration
technologies.
As is so often the
case with applications,
the biggest obstacles to
successful integration
of collaboration tools
into most companies are a resistant corporate
culture and insufficient support—not prob-
lems with technology or security. Executives, it
turns out, use few collaboration technologies,
relying primarily on e-mail and telephony.
Young people are quick to adopt new technolo-
gies, and they often lead the charge at work.
But don’t rely solely on young employees.
More-seasoned employees do a better job
sniffing out the applications that have the big-
gest business impact.
[RESEARCH I COLLABORATION]
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Collaboration tools have tremendous strategic potential,
but CIOs must separate the sizzle from the steak.
By Allan Alter
Unlocking the
Power of Teams
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N=179
... AND FREQUENTLY BRINGS STRATEGIC CHANGES
1.2 My company has changed its business strategy in the past two years because collaboration
tools have given us new capabilities.
total less than $500 million $500 million or more
!'2%%

$)3!'2%%

!'2%%

$)3!'2%%

!'2%%

$)3!'2%%

N=179
COLLABORATION TECHNOLOGY RECEIVES HIGH MARKS ...
1.1 Use of collaboration tools has had a significant, positive impact on my company’s:
agree less than $500 million $500 million or more
Productivity 84% 83% 87%
Decision-making 78 77 79
N=178
COLLABORATION CAUSES INFRASTRUCTURE SPENDING TO RISE
1.4 In the past two years, we have increased the following, in part to support Web and data
traffic generated by collaboration tools.
agree less than $500 million $500 million or more
IT infrastructure spending 74% 77% 70%
Hosted or managed infrastructure
spending
64 65 61
N=156
1.3 What percent of your 2008 IT budget goes to collaboration systems and support?
less than $500 million $500 million or more
Average 12% 14% 9%
21%
of respondents
devote more
than 20% of
their IT budget
to collaboration
Collaboration Tools Remake Corporate Strategies
Collaboration tools—which allow employees to brainstorm, plan, analyze, share work and make
decisions together—are among the most important technologies of 2008. Organizations will
increase their spending on collaboration software by 14.8 percent in 2008, according to the Ziff
Davis Enterprise February 2008 IT Spending Survey. The reason for all this attention: Companies
find that these products deliver on their promise to improve productivity and decision-making,
although most firms don’t measure the value they receive from these technologies. And half
the respondents have changed strategies because of insights or capabilities the products have
provided. Collaboration tools, for example, have enabled Boeing to change the way its engineers
and subcontractors design and build aircraft, and Reuters uses them to create new products for
traders and portfolio managers. These payoffs explain why CIOs are willing to devote a significant
part of their IT budgets to buy and support collaboration tools and to increase spending on the
infrastructure needed to support them.
finding 1
Just
36%
measure the
financial value and
41%
measure the
nonfinancial
benefits of
collaboration
technologies.
0308_PRINTResearch_v5_ef.indd 47 3/5/08 5:57:47 PM
COLLABORATION
finding 2
Service and Project Teams Are Primary Focus
The top priorities for collaboration investments are linked to the No.1 business priority. Improving
customer service ranked first in Ziff Davis Enterprise’s 2008 Top Trends Survey, so it follows that
companies invest most heavily in collaboration tools to let customer-facing employees share
information. Project teams also benefit in a big way from investments in project, document and
knowledge management systems, and in any tool that helps team members even when they are
oceans apart. Other functions that rely heavily on teamwork—IT organizations and logistics groups
at companies that sell tangible goods, for example—also are near the top of the list. However,
far fewer companies focus their collaboration investments on corporate planning or new product
development—a surprise, considering the importance of these areas for future revenues and
strategic development.
N=181
CUSTOMER SERVICE, PROJECT AND IT MANAGEMENT ARE SPENDING TARGETS
2.1 Which business processes will receive the biggest investment of time/money for new
collaboration tools and upgrades in 2008? (Select up to three.)
rank
total less than $500 million $500 million or more
1 Customer service 44% 46% 41%
2 Project management 35 33 40
3 IT management 26 21 34
4 Education/training 24 28 18
5 Sales 23 20 26
5 Service delivery 23 24 21
7 New product development 19 19 19
8 Marketing 18 17 19
9 Financial operations 14 14 15
10 Planning 13 14 10
11 Human resource management 12 13 10
11 Research and development 12 13 9
13 Logistics 8 8 9
14 Manufacturing 5 5 4
15 Store or branch operations 4 5 3
15 Legal 4 3 6
15 Procurement 4 2 7
18 Other 3 4 1
Project teams
use more kinds
of collaboration
technologies than
any other group
within respondents’
companies.
This increases to
24%
at companies
that sell primarily
tangible goods
rather than services.
How the survey was done: CIO Insight editors designed the 2008 Collaboration Survey with members of the Ziff Davis
Enterprise research staff. IT executives gathered from Ziff Davis Enterprise publication lists were invited to participate in
the study by e-mail. The questions were posted on a password-protected Web site, and responses were collected from
Feb. 3 to Feb. 19, 2008. The respondent base was limited to 188 qualified respondents with titles of IT director or higher
(117 from companies with revenues in calendar 2007 from $5 million to $499 million; 71 from companies with revenues of
$500 million or more). Of these respondents, 48 percent were the top IT executives of their companies; the rest held other
IT executive positions.
Ë
More online: Go to www.cioinsight.com/research for additional survey data and analysis.
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finding 3
E-Mail Is Top Collaboration Tool
Web 2.0 technologies get the attention, but IT executives say other collaboration technologies are
more valuable. Few IT executives rank Web 2.0 technologies—including blogs, RSS, social networks,
tagging and wikis—among the most important collaboration technologies. Instead, they place
great importance on old standbys such as e-mail and telephony, the most widely used collaboration
tools, and a number of other technologies that have been overshadowed by Web 2.0. Shared project
management systems, workflow systems, real-time document collaboration tools and knowledge
management systems are considered more important than any Web 2.0 technology: They are widely
used by project teams and, to a slightly lesser extent, by co-workers engaged in business processes.
Prediction markets and recommendation voting systems are used rarely. IT executives may think other
technologies are more important than Web 2.0 tools, but employees clearly feel differently, given how
many use them—even when IT organizations don’t provide support. This remains a source of tension
between IT managers and users. Adding Web 2.0 features to e-mail could provide a balance.
N=188
MOST USED COLLABORATION
TECHNOLOGIES SUPPORTED BY IT
3.1 Which collaboration technologies are
used in your company with the approval or
support of the IT organization?
rank total
1 E-mail 98%
2 Telephony and voice mail 82
3 Shared calendars 78
4 FTP servers 69
5 Electronic meeting systems 62
6 Instant messaging/online chat 61
7 Videoconferencing systems 54
8 Shared project
management systems
46
9 Record or document
management systems
44
10 Knowledge management systems 41
11 Shareable online spreadsheets and
word processing documents
40
11 Web videoconferencing on desktops 40
13 Workflow systems 36
14 Electronic whiteboards 34
14 Hosted document sharing and storage
(e.g., Google Apps)
34
16 Collaborative product design tools 30
16 Online discussion forums 30
16 Project extranets 30
16 Wikis 30
20 RSS feeds 28
21 Real-time document collaboration 26
22 Blogs 23
23 Integrated workgroup support systems 20
24 Video messaging and sharing 14
25 Recommendation voting systems 13
N=181
MOST USED COLLABORATION
TECHNOLOGIES NOT SUPPORTED BY IT
3.2 To the best of your knowledge, which
collaboration technologies are used in your
company without the approval or support of
the IT organization?
rank total
1 Instant messaging/online chat 45%
2 Blogs 42
3
Social networks (e.g., Facebook and
MySpace)
35
4 RSS feeds 22
4 Wikis 22
6 Online discussion forums 20
7
Hosted document sharing and storage
(e.g., Google Apps)
13
8 E-mail 12
9
Shared/social tagging and
bookmarking
11
10 Electronic meeting systems 6
10 FTP servers 6
N=181
MOST IMPORTANT COLLABORATION TOOLS
3.3 Which collaboration tools do you think
will help your firm the most in achieving its
strategic goals for 2008? (Select up to three.)
rank total
1 E-mail 34%
2 Shared project management systems 23
3 Workflow systems 19
4 Knowledge management systems 17
5 Electronic meeting systems 15
5 Telephony and voice mail 15
7
Record or document
management systems
14
8 Real-time document collaboration 13
9 Integrated workgroup support systems 11
9 Wikis 11
Just
23%
support blogs,
13%
support
recommendation
voting systems
and less than
10%
support social
networks, shared/
social tagging and
prediction markets.
0308_PRINTResearch_v5_ef.indd 49 3/5/08 5:57:57 PM
COLLABORATION
finding 4
Executives Underuse Collaboration Tools
Culture and lack of training, not technical problems or security, are the biggest roadblocks to
the use of collaborative technologies. Security is a concern for IT executives, but it’s not the
primary obstacle—corporate culture and inadequate training are. Lack of executive support is
an underlying issue. Few senior executives surveyed use collaboration tools other than e-mail,
telephony, and the shared calendars found in Microsoft Outlook and other e-mail systems. Of
course, executives may not need the same tools, or as many tools, as project teams. But since
corporate culture is heavily influenced by executive behavior, and support for training and infra-
structure depends in part on management buy-in, the lack of use of these tools by executives
has a dampening effect. When executives set an example of collaboration, other collaboration-
friendly behaviors—providing adequate training, encouraging experimentation and rewarding
employees who collaborate, for instance—are more likely to emerge. CIOs who want to increase
collaboration among employees must encourage executives to set an example by embracing
these tools and technologies.
N=178
CULTURE AND INADEQUATE SUPPORT BLOCK USE OF COLLABORATION TOOLS
4.1 Which is the greatest obstacle to successful adoption of collaboration technologies at your
company?
total less than $500 million $500 million or more
Corporate culture creates barriers
to collaboration
25% 22% 31%
Inadequate training in use of
collaboration tools
21 20 22
Inadequate management support 17 20 13
Inadequate IT infrastructure 11 8 15
Lack of security controls/safeguards 11 10 12
Technical inadequacies of
collaboration tools
8 13 1
Other 7 8 4
While
72%
say the security
risk from these
technologies is
severe or moderate,
only about
14%
have lost customer
or corporate data
due to unauthorized
use of collaboration
tools.
N=178
FEW COMPANIES PROVIDE ADEQUATE TRAINING; JUST HALF REWARD COLLABORATION
4.3 My company …
total
(agree)
senior executives set an example Senior executives do not
set an example
Rewards employees for
collaborating.
56% 65% 46%
Provides adequate training in the
use of collaboration tools.
33 54 11
N=178
ONLY HALF OF EXECUTIVES USE COLLABORATION TOOLS
4.2 Senior executives at my company set an example by using collaboration tools.
total less than $500 million $500 million or more
!'2%%

$)3!'2%%

!'2%%

$)3!'2%%

!'2%%

$)3!'2%%

Just three
collaboration
technologies—
e-mail, telephony
and shared
calendars—
are used by at least
one-third of senior
executives at most
companies.
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finding 5
Collaboration Isn’t a Youth Movement
Older and overseas employees have plenty to offer in terms of collaboration. Young people have a
reputation for being more comfortable working in groups and using new technologies. The survey
backs that up: Employees 30 and younger are the fastest to adopt collaboration technologies and
have often served as pioneers for new collaboration tools. Surprisingly, though, it’s employees in
their 30s and 40s, not the 20-somethings, who are most likely to use high-impact collaboration
applications. Employees older than 50 are rarely collaboration trendsetters, however. Anyone lead-
ing a collaboration or emerging technology task force shouldn’t assume the youngest employees
have the best insights into new technologies; they should include members of the middle genera-
tion of workers, who have the experience to see how these technologies can be applied to the
workplace. Nor should they overlook overseas workers: While Americans often export innovative
collaboration practices overseas, one in four companies have found that their foreign-based work-
force can be a source of new ways to use these technologies. Innovation in collaboration is not an
exclusively American phenomenon.
N=171
YOUNG EMPLOYEES ARE COLLABORATION PIONEERS …
5.1 In the past three years, employees of my company ages 18-30 have pioneered ways to
collaborate that are now widely used.
total less than $500 million $500 million or more
!'2%%
50%
$)3!'2%%
50%
!'2%%
52%
$)3!'2%%
48%
!'2%%
46%
$)3!'2%%
54%
N≥179
… BUT MORE EXPERIENCED EMPLOYEES FIND THE MOST USEFUL APPLICATIONS
5.2 Which employees are fastest to adopt collaboration technologies at your company?
Which employees find the most effective business applications for collaboration technologies at
your company?
fastest to adopt find the most effective applications
Employees 18 to 30 years old 55% 28%
Employees 31 to 49 years old 18 44
Employees 50 and older 1 3
There is no difference in adoption between
age groups
26 25
N=171
GOOD IDEAS CAN COME FROM EMPLOYEES OUTSIDE THE UNITED STATES
5.3 In the past three years, my company’s employees outside the United States have pioneered
new ways to collaborate that are now widely used by U.S.-based employees.
total less than $500 million $500 million or more
!'2%%
27%
$)3!'2%%
73%
!'2%%
36%
$)3!'2%%
64%
!'2%%
17%
$)3!'2%%
83%
0308_PRINTResearch_v5_ef.indd 51 3/5/08 5:58:04 PM
S E R V I N G I T G O V E R N A N C E P R O F E S S I O N A L S
Exam Registration: 9 April 2008
Exam Date: 14 June 2008
www.isaca.org/cioinsight
CIOInsight 7.875x10.5 10/17/07 12:18 PM Page 1
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S
MALL AND GROWING BUSINESSES ARE N0T
technology laggards. Midtier com-
panies are more likely than large
companies to be early
and midstream technology adopt-
ers, and they are increasing IT
spending faster, according to past
CIO Insight surveys. But their spend-
ing on collaboration is the excep-
tion to this trend. Companies with
revenues of less than $500 million
use fewer collaboration tools than
larger companies and are increas-
ing spending in this market more slowly.
There’s a case to be made that smaller firms
don’t need these tools as much: They have
fewer employees, locations and processes to
coordinate. But it’s also possible they’re over-
looking factors that argue for more IT sup-
port, including the rise of telecommuting and
a more mobile workforce, and the
power of sharing and storing proj-
ect, process and other kinds of in-
formation these tools offer. The lack
of adequate training for collabora-
tion software already in place also
indicates neglect. In our Top Trends
Survey for 2008, IT executives at
midtier companies rated collabora-
tion and workflow the second most
important technologies of 2008. Given that,
CIOs at these companies should revisit these
technologies, even in today’s cost-constrained
environment.
[MIDMARKET RESEARCH I COLLABORATION]
Midtier firms don’t use collaboration tools as much as larger
companies do. Is that wise? By Allan Alter
Teamwork, But
Less Technology
8.1%
The amount
spending on
collaboration
software
is increasing
at midmarket
companies.
Most Used
Collaboration
Tools
1 E-mail
2
Telephony/
voice mail
3
Shared
calendars
4
FTP servers
5
Instant
messaging/
online chat
A
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COLLABORATION
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finding 2
Investments in Spending and Training Are Low
Midmarket companies invest less time and money than larger firms in collaboration software.
Larger firms are more likely to have global employees who must work together in teams. The
low training figures for midtier firms also indicate that it’s not just a matter of investing less in
collaboration technologies, but also of neglecting investments already made.
finding 1
N=111
FREE AND OPEN-SOURCE TOOLS HAVE NOT DISPLACED PROPRIETARY SOFTWARE
2.1 What impact have approved or supported open-source or free online collaboration tools had on the use of
proprietary collaboration tools and services at your company?
less than $500 million
Open-source and free online collaboration tools are used only occasionally, in
addition to proprietary software and services.
42%
They have replaced some proprietary software and services. 26
They have replaced many or all proprietary software and services. 6
My company does not approve or support open-source or free online
collaboration tools.
25
Numbers do not add up to 100% due to rounding.
N=113
WEB 2.0 USE LAGS BEHIND AT MIDMARKET COMPANIES
2.2 Which of the following Web 2.0 technologies are used in your company, with or without the approval or sup-
port of the IT organization?
less than $500 million
used with
IT support
used without
IT support
top 3 strategic
collaboration
tools
Hosted document sharing and storage
(e.g., Google Apps)
31% 12% 5%
Wikis 28 20 13
RSS feeds 25 15 0
Blogs 20 35 5
Shared/social tagging and bookmarking 7 9 3
Social networks (e.g., Facebook) 5 32 3
Lagging Behind in Web 2.0 and Open Source
Web 2.0 and open-source collaboration tools are only beginning to make inroads in IT organizations.
Midmarket companies are neither willing to cut the cord with proprietary vendors, nor to embrace
Web 2.0 technologies. But given SMBs’ strong interest in open source, and the widespread (albeit
unsupported) use of Web 2.0, more midtier companies are bound to begin adopting these tools.
54
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MIDMARKET FIRMS ARE SPENDING LESS
ON COLLABORATION TOOLS …
1.1 How much is investment in collaboration
software changing from 2007 to 2008?
less than
$500 million
$500 million
or more
Percent increase 8.1% 22%
Source: Ziff Davis Enterprise February 2008 IT Spending Survey
N=178
… AND ON TRAINING TO USE THEM
1.2 My company provides adequate training in the
use of collaboration tools.
less than $500 million $500 million or more
!'2%%

$)3!'2%%

!'2%%

$)3!'2%%

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0308_Midmarket_v4_ef.indd 54 3/6/08 12:13:44 PM
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N=171, 71
3.1 Which of the following collaboration technologies are used in your company, with or without the approval or
support of the IT organization?
used with IT support used without IT support
TECHNOLOGY
less than $500
million
$500 million or
more
less than $500
million
$500 million or
more
1 E-mail 99% 97% 14% 7%
2 Telephony and voice mail 79 86 5 3
3 Shared calendars 73 87 2 9
4 FTP servers 68 69 7 4
5 Instant messaging/online chat 59 63 47 41
6 Electronic meeting systems 52 79 4 9
7 Shareable online spreadsheets and
word processing documents
41 39 2 7
8 Videoconferencing systems 39 79 2 1
9 Record or document management systems 38 52 1 3
10 Shared project management systems 35 65 1 3
10 Web videoconferencing on desktops 35 49 5 4
12 Hosted document sharing and storage
(e.g., Google Apps)
31 39 12 16
12 Knowledge management systems 31 58 0 4
14 Online discussion forums 29 31 19 22
14 Workflow systems 29 48 1 3
16 Wikis 28 34 20 25
17 Collaborative product design tools 26 35 3 6
17 Project extranets 26 35 3 6
19 RSS feeds 25 32 15 32
20 Electronic whiteboards 23 51 3 3
21 Blogs 20 30 35 53
22 Real-time document collaboration 19 38 2 4
23 Integrated workgroup support systems 15 27 2 4
24 Recommendation voting systems 10 17 0 4
25 Video messaging and sharing 9 23 6 1
26 Expertise location and sharing systems 8 15 0 3
27 Shared/social tagging and bookmarking 7 8 9 15
28 Social networks
(e.g., Facebook and MySpace)
5 13 32 40
29 Prediction markets 2 4 0 3
At least
15%
of respondents at
SMBs consider these
tools among those
most likely to help
their firms achieve
strategic goals
in 2008.
finding 3
Use of Collaboration Technologies
Doesn’t Measure Up
Midtier companies are less likely than larger firms to use collaboration tools. These include
videoconferencing, shared project management systems, electronic whiteboards, electronic meeting
systems and knowledge management systems—tools well-suited for connecting global teams and
sharing knowledge in large companies where employees are often unknown to one another.
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S E R V I N G I T G O V E R N A N C E P R O F E S S I O N A L S
www. i s a c a . o r g/ na c a c s
ISACA’s 38
th
Annual North America Computer Audit,
Control and Security (North America CACS
SM
) Conference
The world’s leading conference for IT audit,
control, security and governance professionals
27 April-1 May 2008
Rio All Suites Casino Resort
Las Vegas, Nevada, USA
Register Now!
Conference Tracks
I IT Audit Core Competencies
I IT Audit Tools and Competencies
I IT Audit Techniques for Evaluating Business Practices
I Compliance Issues
I Control Methodologies and IT Governance
I Information Security Practices
I IT Risk Management
NaCACS CIOins 7.875x10.5:NaCACS CIOins 7.875x10.5 2/8/08 9:23 AM Page 1
While not as widely deployed as many entrenched
security technologies, network behavior analysis
is opening many eyes to the true risks permeating
corporate networks. By Bob Violino
The New
Hall Monitor
[STRATEGIC TECHNOLOGY I SECURITY]
d
Opportunity
Businesses have a lot riding on their net-
works. The data moving between devices
and facilities is the lifeblood of an enter-
prise, and if that information is compro-
mised, the results could be disastrous.
One of the keys to protecting networks
and systems is to know exactly what type
of activity is occurring on them. Network
behavior analysis, or NBA, is designed to
give organizations the level of visibility
they need to help ensure that security
threats are identified and remedied.
NBA products analyze network traffic
via data gathered from network devices,
such as IP traffic flow systems, or through
packet analysis. Using a combination of
signature and anomaly detection, they
alert security and network managers to
any suspicious activity, and provide a view
of network activity so administrators can
analyze and respond to the activity quickly,
before there’s extensive damage.
The market for NBA has attracted
mainstream network and security equip-
ment providers and smaller firms. Among
the vendors in the market that focus on
NBA are Arbor Networks, Lancope, Mazu
Networks and Q1 Labs. Companies such
as Cisco Systems, CounterStorm, Internet
Security Systems and Sourcefire also offer
some type of NBA functionality.
NBA detects behaviors that might be
missed by policy-based and signature-
based security technologies, such as intru-
sion detection and prevention systems,
firewalls, and security information and
event management systems, IT advisor
Gartner says. Those technologies might
not detect threats that they’re not specifi-
cally configured to look for.
NBA products are decision-support sys-
tems that help a knowledgeable operator
interpret and react to a variety of network
activities that are deemed suspicious. An
experienced administrator uses the tech-
nology to address threats such as worms,
unauthorized protocols and suspicious con-
nections. Given the ability of NBA to pro-
vide this added layer of defense, Gartner
recommends that organizations deploy
the technology as part of a comprehensive
strategy to protect enterprise networks.
There’s an obvious need for improved
detection of network activity, as the cost of
security breaches continues to rise. Accord-
ing to the 12th annual Computer Secu-
rity Institute Computer Crime and Secu-
rity Survey—which queried 494 U.S. com-
puter security professionals—the aver-
age annual security-related loss increased
from $168,000 the previous year to about
$350,000 in 2007.
Nearly one-fifth of the survey respon-
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dents who suffered one or more security incidents
said they had experienced a targeted attack, which is
defined as a malware attack aimed specifically at an
organization or organizations within a subset of the
general population. Financial fraud was the source
of the greatest financial losses; computer viruses—
which had been the leading cause of loss for seven
consecutive years—came in second. The most preva-
lent security problem was insider abuse of network
access or e-mail, followed by virus incidents.
Network behavior analysis can help organizations
spot these kinds of activities, and demand for this
technology is on the rise after a slow start in 2001,
according to a report released by Gartner in late 2006.
The report said that early NBA technologies evolved
from products such as distributed denial-of-service
protection, and these technologies competed with
signature-based products to address security vulnera-
bilities such as worms.
At that time, vendors had to compete with mar-
keting messages that stressed accuracy, coverage and
automated response, which missed the point and value
of NBA technology—providing network visibility in a
decision-support context—said the report. This led to mar-
ket confusion about NBA, some of which persists today.
One area in which NBA had a clear advantage over
signature-based products was in addressing “zero-day”
vulnerabilities. The Gartner report says NBA systems
can help organizations catch such infections early and
thereby limit their impact.
Now that many organizations have deployed fire-
wall, intrusion detection/prevention, and security
information and event management systems, some
are considering network behavior analysis technol-
ogy. Gartner projected that the NBA market revenue
increased 30 percent in 2007, thanks to the security
functionality and operations visibility these prod-
ucts provide.
“The demand is growing for more visibility into
network behavior to address security and opera-
tional requirements,” says Paul Proctor, research vice
president at Gartner, who authored the report. “This
demand is driven by the recognition that you can’t
completely define every event you may want to know
about and program a box to tell you when something
happens. Organizations need to see what’s going on in
their networks so that they can make good decisions
regarding their level of interest in different events.”
Some behaviors are recognizable only to an expert
with appropriate context and visibility into network
traffic, according to Proctor. “For example,” he says,
“the spread of a worm through the enterprise is not
easily detectable with traditional mechanisms.”
Ask Your CSO or CISO:
dDo current security technologies (firewalls, intru-
sion detection/prevention systems) provide enough
visibility into network activity so the organization is
able to track all security breaches?
Ask Your CFO:
dWill the budget allow for NBA systems that improve
visibility of network activities and enhance security?
d
Strategy
After organizations successfully deploy firewalls and intru-
sion detection/protection systems—with appropriate pro-
cesses for tuning, analysis and remediation—they should
consider using NBA to identify network events and behav-
iors that are not detectable via other techniques.
“Intrusion detection and prevention systems can
only identify behaviors that can be explicitly defined
by a set of known patterns signatures,” Proctor says. In
contrast, NBA “uses a combination of detection mech-
anisms, including deviations from observed behavior
baselines, to detect interesting events that are not eas-
ily defined through signatures.”
Intrusion detection/prevention systems must
be tuned appropriately, “but they are treated by
many organizations essentially as ‘set it and for-
get it’ mechanisms,” Proctor says. “An NBA system
must be configured and analyzed by an expert with
appropriate context to understand and interpret
the information.
“The major challenge is tuning them and establish-
ing appropriate response workflow. The major benefit
is getting information and visibility that you can’t get
through any other toolset.”
d“The spread of a worm through the enterprise is not easily
detectable with traditional mechanisms.”
—Paul Proctor, Gartner
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Failure to fine-tune NBA devices adequately can
result in a lot of false positive readings, which bogs
down network and security managers as they look
into alerts that pose no risks to the organization. How-
ever, when used properly, this technology has a huge
impact on an enterprise’s ability to see what’s really
going on with its networks. Organizations that have
implemented NBA say they are gaining greater visibil-
ity into their networks.
The City University of New York, the largest urban
university system in the United States, began using
the Mazu Profiler NBA system from Mazu in Novem-
ber. Each of 20 college IT operating entities within the
university has installed a combination of the Profiler
and one or more sensors that monitor network traf-
fic and provide statistics to the Profiler appliance for
aggregation and analysis.
The Profiler NBA analyzes network traffic and
behavior in real time, letting CUNY security manag-
ers know exactly what’s happening on the university-
wide network. “Because we operate on a somewhat
open environment and with the requirement of aca-
demic freedom, we didn’t have some of the usage con-
trols that might be in place in the private sector,” says
Carl Cammarata, CUNY’s chief information security
officer. “We thought NBA could provide a level of con-
trol that would help us understand what is going on in
the networks in each of the 20 entities, while not inter-
fering with open research and academic freedom.”
By learning more about network behavior, univer-
sity managers are better able to understand what they
must do to improve security at the individual colleges.
“Once we learned more about the network, we could
help the colleges diagnose and identify security inci-
dents if and when they arose,” Cammarata says.
CUNY’s deployment of NBA, which took place over
six months, was successful largely because Mazu pro-
actively ensured that the university implemented
the technology correctly. “It was truly a collaboration
between Mazu, college CIOs and university adminis-
tration,” Cammarata says. “Mazu worked with us from
an architecture and deployment perspective,” includ-
ing fine-tuning the NBA Profiler appliances to ensure
that they collected the data the university needed and
to avoid false positives.
The NBA technology has helped CUNY cut in half
the time it takes to understand and respond to poten-
tial security situations, Cammarata says. Now the col-
leges have insight into normal and abnormal network
activity—something they never had before—allowing
them to anticipate problems faster than ever.
Although each separate entity at the university
manages its own network data from the NBA systems,
the technology has provided CUNY with some badly
needed security cohesiveness, he says.
“NBA was as much about a technology solution to
a problem as it was about standardizing on some type
of security technology and increasing awareness of
security concepts at the university,” Cammarata says.
“For years, most of the entities operated indepen-
dently, and there was no formal security community,
no cohesive security plan and very little standardiza-
tion. NBA has helped us significantly in forming this
security community.”
Ask your CSO or CISO:
dWill an NBA system work well with our existing fire-
walls and intrusion detection/prevention systems?
Ask your operations team:
dHow quickly can we set up training programs for
users of NBA systems?
d
Implementation
XanGo, a Lehi, Utah, maker of health beverage products,
is another company that has boosted its network security
with an NBA implementation. About 18 months ago, the
privately owned company began using Sourcefire’s 3D
enterprise threat management suite. Components of the
suite include intrusion prevention, vulnerability manage-
ment, network access control and NBA.
Sourcefire’s intrusion protection software pro-
vides vulnerability-based intrusion prevention built
on Snort, a standard intrusion protection tool. It uses
a rules-based language—a combination of signature,
protocol and anomaly-based inspection methods—to
examine packets for attacks such as worms, Trojans,
port scans, buffer overflow attacks, spyware, denial-of-
service attacks and zero-day attacks.
Another component, real network awareness, pro-
vides NBA, network access control and vulnerability
assessment capabilities. Real network awareness deliv-
ers a continuous, real-time view of what’s happen-
ing on a network and identifies potential vulnerabili-
ties on network devices. It monitors communications
behavior among endpoints on a network, baselining
traffic, watching for deviances from typical traffic lev-
els or connection patterns and alerting administrators
to these changes, according to Sourcefire.
One of the primary drivers for adopting the security
technologies was to meet the requirements of the Pay-
ment Card Industry Data Security Standard, or PCI DSS,
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because many XanGo customers purchase products
over the Internet using credit cards. (PCI DSS is a set
of standards created by the PCI Security Standards
Council to provide guidelines that help companies
prevent credit card fraud and identity theft.)
Aside from helping with standards compliance,
managers at XanGo thought NBA could enhance
overall security at the company. “We also wanted to
adopt good business practices and do what we could
to protect company information and the personal
information of our consumers,” says Brandon Green-
wood, manager of network operations and security.
XanGo has deployed NBA sen-
sors at its main office in Lehi and
two remote offices, and it plans to
install more sensors later this year.
Greenwood says NBA gives the
company more insight into net-
work activity than it had before.
“We have seen instances where a
user might be infected with a bot-
net” that could trigger a denial-of-
service attack, Greenwood says.
“NBA will allow us to see certain
activities that say there’s obvi-
ously something going on with
the network.” As a result, XanGo
has been able to prevent security
breaches on its network.
Regulatory compliance and a
desire to improve network secu-
rity drove another organization,
the Weill Cornell Medical College
in New York, to adopt NBA technology. The center,
which is a health-care and teaching facility, deployed
an NBA system called Peakflow X from Arbor Net-
works in 2006.
Weill Cornell wanted to improve its network vis-
ibility, boost security and ensure compliance with
regulations such as the Health Insurance Portabil-
ity and Accountability Act. “NBA gives us a peek
into the network that we never had before,” says
Benjamin Nathan, associate director of security
and identity management.
The network is accessed by some 20,000 users,
including medical students and health-care profes-
sionals. It provides access to the Internet, e-mail, voice
over IP telephony, video and other applications.
Peakflow X leverages IP flow technology embedded
in routers and switches to provide visibility into the
network on a real-time, historical basis. Using IP flow
data, the system conducts network analyses to deter-
mine normal behavior and automatically alerts managers
to any abnormalities. The system provides a granular
view into what hosts are doing on the network.
Prior to using NBA, Weill Cornell managers had
extremely limited visibility into network activity and
were reactive in dealing with network vulnerabilities.
Weill Cornell used packet analyzers in multiple loca-
tions, but they didn’t provide adequate views of net-
work behavior. Not only was it difficult to provide
robust security against the latest vulnerabilities, but
there was no reliable way to perform historical analy-
ses of network activity or plan net-
work capacity.
With greater visibility into
network behavior, Weill Cornell
reduced network problem resolu-
tion times from days to minutes.
The medical college also reduced
bandwidth upgrade costs by elim-
inating noncritical traffic on wide
area network circuits.
Using NBA let Weill Cornell
detect three times the number of
unauthorized network intrusions
and attempted intrusions than
it was able to detect prior to the
implementation. Now, when Weill
Cornell security managers detect
suspicious network behavior, they
can block it quickly. “We investi-
gate everything that could poten-
tially be malicious,” Nathan says.
One big advantage of the NBA system is that it can
be updated to track the latest security threats. Arbor
Networks added a new packet inspection feature to
Peakflow X after the initial implementation, which
gave Weill Cornell the more granular view of network
usage that it wanted.
The biggest challenge of using the NBA system was
tweaking the rules to reduce the number of false pos-
itives. “That’s a manual process and it’s time-consum-
ing,” Nathan says. But the effort was worthwhile, as it
resulted in essential security improvements.
Ask your IT director:
dHow many network users are there in all locations
in the organization, including remote offices?
Ask your CSO
dCan we gather data to show the ROI of NBA systems?
Implementation Tips
dBefore considering NBA, deploy
firewalls and intrusion detec-
tion/prevention systems with
appropriate processes for tun-
ing, analysis and remediation.
dWork closely with the NBA ven-
dor and make sure that any
technical network architecture
issues are addressed up front.
dEnsure that the people who will
use the system and interpret
the data are properly trained.
dTake the time to adequately
tune the systems to gather rele-
vant network data and help cut
down on false positives.
CIOi_0803_StratTech_v3_ef.indd 60 3/6/08 12:23:15 PM
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“In theory, there is no difference between theory
and practice. In practice, there is.” —Yogi Berra
I’ve heard a lot over the past decade about
the war for talent and how to win it. It’s a com-
mon presumption that we are short of critical
technical skills and that we must seek out and
retain the skills we need wherever they are.
This is one of the trends that have driven the
globalization of labor since the early 1990s. I’ve
been a proponent of the theory for most of that
time and worked hard to make it effective. I still
have no problem with the theory, but the prac-
tice has turned out to be more challenging.
Global labor cost arbitrage opportunities
are steadily eroding. In other words, the total
cost of operation after factoring in the process
costs and infrastructure investments needed
to maintain productivity levels still favors off-
shore resources, but the gap has been narrow-
ing over the past decade. So, it’s time to revisit
some of the basic principles of human capital
management in software engineering.
It’s always been the case that co-location is
the best option for a software engineering team.
The creative process works best when there is
plenty of ad hoc sharing, casual interaction and
instant issue resolution available. Co-location
obviously doesn’t guarantee success (plenty of
dysfunctional behaviors happen in close proxim-
ity), but it does seem to be a good place to start.
The more distributed the team gets—even
with good communications, common pro-
cesses, good managers and effective support
infrastructure—the bigger the productivity
tax that the overall development process has
to pay. As long as the raw labor cost difference
between dispersed locations was significant,
that tax didn’t matter; you still came out way
ahead overall. As cost differentials narrow, it
gets harder to justify the additional overhead.
Over the years, I’ve looked at several power-
ful counterexamples where distributed teams
matched or bettered the performance of co-
located teams, but none of the examples seem
to be very scalable, persistent or easily gener-
alized. What else can we do if we don’t want,
or can’t have, all our developers in one place?
One possibility is having the teams in dif-
ferent locations each be dedicated to a specific
project or product. At first glance, this looks
like a pretty good model, but it will incur some
program- and portfolio-level coordination and
management costs. Maintaining a uniform
cultural model will be a challenge.
Another issue with distributed develop-
ment is the potential for the engineers and
their managers to become separated from the
day-to-day concerns of the business. A kind of
organizational entropy develops in dispersed
organizations. Unless managers work hard to
keep alignment going, the more distant parts
of the engineering organization seem to lose
their focus over time. This can be fixed, but it
requires time and constant communication.
Hence, I’m back to preferring co-location
of engineering resources, as well as of IT and
the business. Inevitably, there’s the poten-
tial of missing out on some talent that cannot
be co-located with others on the team. That’s
another difficult trade-off—one that will be
increasingly difficult to balance out over the
coming decade, as the local workforce becomes
less willingly mobile and more demanding of
a dispersed organizational style.
All of us are going to have to get together to
solve these issues, and it isn’t going to be easy. n
john parkinson is the chief technology officer of a global
credit and information management company. Please send
questions and comments to editors@cioinsight.com.
‘Wherever’ Doesn’t Work Anymore
Executives
enhance the
creative
process by
having
developers
work side by
side rather
than remotely.
STRONG SIGNALS
by john parkinson
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CIOi_0803_parkinson_v3_ef.indd Sec2:64 3/4/08 6:01:56 PM
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THOUGHTS ON THE CONNECTED ENTERPRISE

I’m convinced technology can help us drive innovation. But how do we get there?

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Strategies for IT Business Leaders

March 2008 I No. 91

TRENDS

Virtual Environments Companies can profit in synthetic worlds.
EXPERT VOICES

Jim Champy The reengineering guru discusses IT’s power.
RESEARCH

Taming The Cloud
This emerging computing model threatens the CIO’s autonomy. Can you maintain control?

Collaboration Find out which tools increase productivity.
STRATEGIC TECHNOLOGY

Security Network behavior analysis identifies risks.
PERSPECTIVES

Allan Alter
CIOs Gripe Too Much

Larry Downes
Hollywood and IT Values

John Parkinson
Remote Team Woes
www.cioinsight.com

.

com ® .MICROSOFT SYSTEM CENTER. That’s big. See Nissan and other case studies at DesignedForBig.500 PCs on three continents with System Center. DESIGNED FOR BIG. Microsoft System Center is a family of IT management solutions (including Operations Manager and Systems Management Server) designed to help you manage your missioncritical enterprise systems and applications. Nissan manages 56.

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And IT can be a change leader in the evolving business environment. Plus: Midmarket firms don’t go quite as gaga over collaboration software. .1 “IT will have little left to do once the bulk of business computing shifts out of private data centers and into the cloud. research cover illustration: randy lyhus Collaboration Software | 46 Unlocking the Power of Teams By Allan Alter Collaboration tools have tremendous strategic potential. Find out if your company can benefit by establishing a presence in a virtual environment.” page 26 randy lyhus trends Cloud Computing | 26 Taming the Cloud By Tony Kontzer Cloud computing has the potential to transform the role of the IT organization by letting enterprises rent access to IT infrastructure and applications that reside on the Internet and pay for them on a subscription or per-use basis.” IT contrarian Nicholas Carr from “taming the cloud. as a growing number of enterprises use synthetic worlds to connect with customers or interact with employees. expert voices Jim Champy | 40 Corporate Darwinism By Brian P.MARCH 2008 NUMBER 91 CONTENTS. the tools making the biggest inroads and how Web 2. Our data and analysis reveal the reasons behind the technology’s growth.0 is being used in the workplace—and by whom. Virtual Environments | 35 Synthetic Worlds By Kamales Lardi-Nadarajan There is real business going on in virtual environments. Watson The best-selling author and consultant says there’s nothing new in management but plenty new in business. though CIOs must invest wisely.

and which to keep. it helps to know which projects to cut first. authors Peter Skarzynski and Rowan Gibson mash up W. “You get a lot of interest in innovation and a lot of noise. Forrester Research see “innovation. CIO Insight Asks | 16 Which formerly trendy tech practices does your company still follow? What’s Next | 18 The virtual world depends on some very concrete investments.MARCH 2008 NUMBER 91 CONTENTS. Research Central | 24 Stop Griping About Skills Deficit By Allan Alter The real problem behind the IT skills shortage is that many companies don’t keep IT professionals for the long stretch. Bobby Cameron Vice President and Principal Analyst. Edwards Deming and Web 2. inclusive innovation strategy. Strong Signals | 64 ‘Wherever’ Doesn’t Work Anymore By John Parkinson Executives enhance the creative process by having developers work side by side rather than remotely. or lack thereof. CIOs have as much at stake as Hollywood studios do. .2 strategic technology Network Behavior Analysis | 57 The New Hall Monitor By Bob Violino Though sometimes lost amid the jumble of security technologies.” FOREWORD Budget Triage for Hard Times | 15 As IT budgets shrink.” page 16 Q&A: Bobby Cameron | 16 Innovation. Book Excerpt | 20 In Innovation to the Core: A Blueprint for Transforming the Way Your Company Innovates. or lack thereof: A conversation with Forrester’s principal analyst about why CIOs don’t drive innovation. network behavior analysis gives companies a clear view into the true risks of network intrusions.0 to prescribe a new. it’s not there. departments Editorial | 11 Feedback | 12 Legal Jungle | 23 A Virtual Battle for Value By Larry Downes When it comes to determining how to pay for intellectual property. but in reality.

XO Communications built a state-of-the-art IP network from the ground up with business customers in mind. XO AND THE XO DESIGN LOGO ARE REGISTERED TRADEMARKS OF XO COMMUNICATIONS. © COPYRIGHT 2008 XO COMMUNICATIONS. LLC. we’ve put a decade of successful business experience into building an enterprise-grade IP product suite. helping meet your business objectives with a network built around you. Now. ALL RIGHTS RESERVED. most flexible communications solutions…created and delivered with unmatched customer focus. XO is in the places your enterprise needs to be. www.718.VOICE DATA & INTERNET NETWORK TRANSPORT CONVERGED & VOIP MANAGED SERVICES Enterprise Networking Built Around You.000-route-mile intercity network.7595. an 18. visit our website or call 888. And we’ve assembled an Enterprise Solutions Group to bring you the best. and more than 900 central office collocations. To learn more about XO Enterprise Solutions. Let us build a solution around you.com/ builtaroundyou .xo. Enterprise ready: • State-of-the-art IP network • Metro and national fiber network reaches 75 markets • Converged enterprise networking • Customized communications solutions • End-to-end security & reliability • Unmatched support and responsiveness With more than one million metro fiber miles.

....... Richmond Hill.............415-547-8477 FUJITSU COMPUTER SYSTEMS CORPORATION 39 District Sales Manager...A. 28 East 28th Street.212-503-5641 Executive Director.............. East Coast Jessica Koch... Box 503... face-to-face events Beatrice Olivas.........................S. is $25......................MARCH 2008 NUMBER 91 CONTENTS........212-503-5788 Circulation Director Steven Hutchinson . But technology combined with the business idea is more strategic than ever..........415-547-8881 Associate Publisher AVAYA 19 BLUECOAT 44-45 BROCADE C4 ad sales DELL 2 Lori DeJesu ...............Y..... 56 JUNIPER 17 LED 14 csg sales director executive sales director... 10016.........O.... including postage.... 13 IBM 29..................... the ubiquity of technology is what makes it strategic...” Jim Champy Reengineering Guru see “corporate darwinism........................ N............” page 40 AD INDEX AMERICAN POWER CONVERSION 25 SALES publishing Matthew Merkin ..415-547-8476 MICROSOFT C2-1....... RPO West Beaver Creek...... PRINTED IN THE U................. Canada $395 and foreign $495..... P......... 212-503-6060 Senior Production Manager Christopher DeNiscia........... West Coast Gena Grossberg .. Publications Mail Agreement No......Y............. 40009221..... 212-503-5776 Research Director SUN C3 production TRIGEO 34 Pauline Birmingham ..... 10......... 31 sales assistants east Thomas Tammaro....... Return undeliverable Canadian addresses to P.. POSTMASTER: For change of address and other subscription inquiries........ 865286033... 212-503-5762 Ad Sales Coordinator XO COMMUNICATIONS 5 CIO Insight (ISSN 1535-0096) is published monthly by Ziff Davis Enterprise.. N............ New York........ Single-copy price.............................. 7 NOVELL 22 research STERLING 21 Guy Currier .......................... Brand Marketing Jeff Cracolice ...........212-503-5769 Circulation Coordinator ... Ill. Northbrook....... ON L4B 4R6..... 212-503-5779 Chief Audience Officer Kelsey Voss . Audience Jeff Smith .. $295...S........................... Box 3459.. and additional mailing offices.. please write to: CIO Insight............. 212-503-5647 East Coast Account Executive HEWLETT-PACKARD 9......................415-547-8659 ISACA 52.......O...... 60062-3459 or call 877-797-7304.. 212-503-5637 District Sales Manager...3 “Technology on its own isn’t strategic.......... Periodicals postage paid at New York..... Canadian GST Registration No............. In fact........ One-year subscription rates (prepaid only) are: U..212-503-5636 west Ashley Golokow ...............................

even your phones.k. Contrary to what they might say. VoIP isn’t synonymous with “starting over” (a. Microsoft Exchange Server. and your PBX. Now you can keep your hardware—your PBX. Software that . Maximize your current PBX investment and make it part of your new software-based VoIP solution from Microsoft. That’s because it’s no longer about hardware. integrates with Active Directory® Microsoft® Office. Learn more at microsoft.a. your gateways.Don’t touch it. Move to VoIP with software. ripping and replacing). It’s actually about software. Don’t move it. You’re much closer to VoIP than you realize.com/voip .

’ IT lacks a critical one: a standard for educating future CIOs and defining career tracks for younger workers. and charting career paths for staff members also figures in.com/offshore We explore the strengths and weaknesses of the most popular countries for outsourcing IT.com/serviceproviders Our research reveals the role CIOs play in choosing business partners. Watson CIO Insight Online Editor go.cioinsight. Statement of Ownership .com/challenges What’s keeping IT chiefs up at night? Recruiting. and which technologies and functions are most likely to be farmed out.cioinsight.cioinsight. d Read these stories and more at www.cioinsight.cioinsight.com. Blogs Parallax View by Eric Chabrow CIO Insight Editor go.com/ parallaxview Excerpt: “Google bolsters its position as a key insurgent in a guerrilla war against CIOs that could give employees control over what IT applications companies will use.” Where to Offshore IT go.0 by Brian P.com/ biztech3 Excerpt: “For a profession that talks a lot about ‘best practices.” go.cioinsight.cioinsight.ONLINE Content Top Challenges for CIOs What CIOs Look for in Service Providers MARCH 2008 NUMBER 91 Video CIO Insight Weekly Report go. go. Biztech 3.com/weeklyreport CIO Insight editors weigh in on current trends and research to help IT and business leaders make wise decisions. training and retaining talent rank high.

and Xeon Inside are trademarks or registered trademarks of Intel Corporation in the U. All the technology of our larger BladeSystem in an efficient.com/go/nocompromise3 1-888-751-2364 1. compact. L. . Take away the so-called “normal” energy requirements and maintenance. Xeon. Intel.S. The information contained herein is subject to change without notice. Visit hp. © 2008 Hewlett-Packard Development Company. the Intel logo. Technology for better business outcomes. What do you have? Introducing the HP BladeSystem c3000. affordable package.Alternative Thinking About Server Rooms: ADDITION THROUGH Take away the jungle of cables.P. and other countries. SUBTRACTION. Powered by the Quad-Core Intel® Xeon® Processor1 See how less is more.

P. Call it utopia. Intel logo. Technology for better business outcomes. Powered by the Dual-Core Intel® Xeon® Processor1 Experience a utopian world of storage. check with software provider to determine suitability. or just plain easy. straightforward and virtually effortless. in a language you already know. Dual-Core is a new technology designed to improve performance of multithreaded software products and hardware-aware multitasking operating systems and may require appropriate operating system software for full benefi t. Imagine a storage environment that’s simple. Microsoft and Windows are registered trademarks of Microsoft Corporation in the United States and/or other countries. Visit hp. not all customers or software applications will necessarily benefi t from use of this technology. ©2007 Hewlett-Packard Development Company. Intel Inside.com/go/storageutopia8 1-800-888-5907 1. Intel Inside logo and Intel Xeon are trademarks or registered trademarks of Intel Corporation or its subsidiaries in the United States and other countries. . nirvana. The information contained herein is subject to change without notice. Intel. Intel’s numbering is not a measurement of higher performance. The HP StorageWorks 1200 All-in-One Storage System lets you manage your ever-growing data using a simple Windows® application.Alternative Thinking About Storage: STORAGE UTOPIA IS NOT A MYTH.P. L. L.

making them easier to implement. “As with stock portfolios. No. The American approach of spending mostly to bolster older systems could hurt productivity. NY 10016 Phone: 212-503-5900 To subscribe: Phone: 847-559-7304 Web: subscribe. 15 percent among European and 19 percent among Chinese IT leaders. Fax: 630-983-0997. PO Box 3459.com or editors@cioinsight. heart transplant procedures occur without complications 95 percent of the time. John Parkinson Amy Lipton Contributing Editor ZI FF DAVIS ENTERPRISE EDITORIAL Michael Vizard Senior Vice President and Editorial Director Allen E.” — Eric R. Chabrow Eileen Feretic Andrew C. Global Alignment Solutions Matthew Merkin Executive Director. employee growth outpaced the rise in revenue and profit among S&P 500 companies. have become followers rather than leaders. New York. “Today. Alter Director of Editorial Research Scot Petersen Director of Editorial Operations Stephen Anderson Group Art Director ZI FF DAVIS ENTERPRISE M ANAGEMENT Steve Weitzner Chairman and Chief Executive Officer Eric Berk Chief Financial Officer Thomas Rousseau President of Sales Dave Colford Senior Vice President.” Suh writes in a just-published online article. Only 6 percent of American CIOs surveyed responded that they wanted to be leaders in adopting new technologies vs.S. companies to regain their leadership in productivity by investing in new technologies rather than window-dressing legacy systems.S. “Taking no action. Brand Marketing ZI FF DAVIS ENTERPRISE 28 East 28th Street.” Suh says U. integrate and change. Or visit kganz@fostereprints.last name @ziffdavisenterprise.com Copyright © 2008 Ziff Davis Enterprise. and European rates. Reproduction in whole or in part without permission is prohibited. If systems projects were as predictable as heart surgery.2008 Follow the Leader Editor Managing Editor Art Director Senior Writer Online Editor Production Editor Designer Columnists Eric R.cioinsight. far more capital would pour into technology. is far more palatable to undergoing a procedure that could deliver a 66 percent chance of sudden death. Watson Michael Wirtz Joan Dorney Larry Downes.cioinsight. Why are American CIOs so gun-shy in adopting new technologies? Suh reckons that some CIOs are waiting for the returns promised from an earlier spending wave on Internet technologies. For article reprints and e-prints. compared with 44 percent in Europe and 27 percent in China. All rights reserved. We’re losing our leadership in corporate adoption of new technologies to drive productivity and earnings growth. contact Kelly Ganz at FosteReprints. “New systems will simply outperform refurbished ones for two reasons: Technologies have improved substantially in five years. productivity growth is more than triple the U. IL 60065-3459 For editorial information: 212-503-5784 For advertising information: 212-503-5647 To access us online: www. Suh reached that conclusion after reviewing results of a survey of more than 500 global CIOs that the business advisory firm conducted late last year. Suh analogizes CIOs’ reluctance to build new systems to patients who avoided heart surgery 30 years ago.” It’s not too late for U. driving levels of productivity. Printed in the U. In China. not because of the damage the Iraq war or the plummeting dollar have done to our global reputation.” Suh says. Ogilvie Edward Cone Brian P.A.EDITORIAL 11 CIOINSIGHT | 03. with a 100 percent chance of gradual death.S. Others recall the damage failed projects have had on their careers. But 54 percent of American CIOs said they would rather be followers in adopting technology. American CIOs.S. By comparison. he says. Northbrook.com to obtain quotes and order reprints online. Tel: 800-382-0808. Between 2001 and 2005.com Contact staff via e-mail using first name. “cutting your losses and redeploying the capital to fresh investments is often a better strategy than thinking the stock owes you a return. the S&P European 350 companies have kept revenue and profit growth above employee growth. says Accenture Chief Technology Strategist Bob Suh.com Mail: CIO Insight. Chabrow www. productivity is weakening. “As a result. CIO Insight is a trademark of Ziff Davis Publishing Holdings Inc.com .cioinsight. more business processes will be online.” he says. America’s standing as a world leader is under attack.

N.cioinsight. But while the fit with traditional corporate practice may not be a comfortable one. I fear that this will become yet another example of IT being out of step with business trends. cioinsight. Instead. Charles Araujo President.J. Getting IT Value Wrong Re: “The Cost of Bad IT Economics” (go. letter writers express their own views and not necessarily those of their employers. bar none.cioinsight. reorganize. Unless noted. sadly. I have seen large IT organizations struggle time and again with efforts to improve processes.J. The focus on cost rather than service and value is the roadblock that keeps IT from operating at a truly strategic level. rare birds.com/crossroads): It is refreshing to see this brief article grounded in the reality of the CIO’s role. find one person for each role and put your efforts into selecting two people who can work harmoniously together. Don’t attempt to find the rare IT leader who can achieve strategic and tactical goals. Letters may be edited for space requirements. sales and marketing should also be there. I find it surprising that anyone would propose that financial control of the IT budget is better met by putting the CIO under the CFO. This logic says that manufacturing. secure global service.com/likeit): There are real issues that need to be solved before social computing can be an effective corporate tool. The concerns of IT about security are real ones. com. how IT was paid for. an IT leader who can deliver reliable services and innovative business applications will prosper. CastlePointe LLC Temecula.com/Rubin): This interview is dead on.D. Please send letters to editors@cioinsight. Empowering the CIO Re: “Should CIOs Report to CEOs or CFOs?” (go. For the majority of IT leaders the logic is clear.0 Re: “Try It. Bernard Abramson Retired CIO from Edison Properties. d Create competitive advantage when the strategic capability of IT is not something that most business management has any interest in. it is essential that corporations explore social computing. thus reducing operational excellence. Innovation is essential but necessarily entails change. The underlying cause of all of these struggles was www. but invest to enable the rest of the business to reduce its costs. Let’s hope that CIOs everywhere are listening. Keeping systems available and information secure is the highest priority. then they are only looking at the cost of business—not its ability to generate revenues.cioinsight. Calif CIOs Using Web 2. but simultaneously support the latest IT innovations. Clearly. Regis Betsch. d Continuously reduce IT costs. The CIO makes more decisions on crossfunctional revenue operations than anyone else in the business. Del. I can’t agree more with what Howard Rubin has to say. Velocity Pointe Wilmington. Cognetics Princeton Junction. We must: dProvide a robust. But unless CIOs start to pay attention to social computing. Businesses that spend more time controlling costs rather than optimizing revenue are doomed to failure in our competitive economy. The reason is that smaller companies can use this technology to level the playing field and compete with their larger and better-established competitors. You’ll Like It” (go. and changing the machinery will increase failure rates. Ph.cioinsight.com . and drive efficiency and quality.com/cioreport): If one looks at the structure of a business. N. Such folk are. If one is asking whether a function this important should report through the CFO. Business management carries several self-contradictory expectations for IT. Charlie Kreitzberg CEO and Founder.12 CIOINSIGHT | FEEDBACK FEEDBACK Getting IT Right Re: “CIOs at the Crossroads” (go. Merck and Hooper Holmes Princeton. then it quickly becomes apparent that the CIO controls the handoff between the functional silos more than any member of the senior executive team. All letters to the editor become the property of CIO Insight.

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published in the February 2008 issue: Asked which tactics will provide the greatest IT savings. Whether it’s server virtualization. managing vice president at Gartner.” says Chris Curran. they become even more challenging. and vendors and consultants can muddy the plan. and that means taking a hard look at current investment priorities.” And sometimes things are hard just because they are hard. emerging IT investments are the first to go at budget-cutting time. The advisory laid out guidelines on how to plan for costcutting. points to what he calls IT modernization—the idea that architecture needs to be attacked strategically. It’s no wonder that CIOs lose sleep over these projects.cioinsight. Our take is that smart CIOs will fight to protect the least-sexy. And it scares the hell out of them. according to CIO Insight’s annual IT spending survey. David Cappuccio. storage. “It’s not a project—it’s something that needs to be part of the DNA. February 2008) points out. When budget cuts hamper consolidation efforts. failure to spend up front on major IT initiatives can cost many times more in catch-up mode.15 CIOINSIGHT | 03. chief technology officer for Diamond Management & Technology Consultants. ongoing projects. most frustrating investments around: big infrastructure integration and consolidation projects. The hard work pays off. not piece by piece. IT executives. but didn’t specify what to cut. he says. alignment and data integrity. it can lead to a domino effect: Change one piece. That’s a decision CIOs will have to make. “IT and CIOs have to look at it as a longterm project. As IT benchmarking guru Howard Rubin (Expert Voices. the consolidation equation is growing more BRAD GOODELL/GETTY IMAGES www. spend too much time talking to vendors and not enough working with architects. Gartner’s advisory reflects an increasing pessimism among tech sages about the impact of an economic downturn on corporate IT budgets. If CIOs view each piece as a project. So the architecture-based discussions about service levels. Knitting together a company’s infrastructure requires CIOs to mess with their favorite toys—servers. critical applications—and the bigger strategic concerns of cost management.” Cappuccio says. announcing in late February that CIOs should start cutting costs. too. These endeavors often seem to take as long as building a pyramid and tend to cause severe headaches for IT managers along the way. One reason integration is hard for CIOs: “They don’t approach it as an architectural problem—they approach it as a utility problem. and others begin to topple. usage and growth patterns are not happening often enough.2008 FORE WORD [infrastructure consolidation] Budget Triage for Hard Times G artner finally dropped the bomb that every one saw coming. Funding can run out. Traditionally. the demands of green IT or storage innovations like data deduplication.com . six of 10 IT executives pointed to infrastructure consolidation. followed by staff cuts and. finally.

N=188 In use by company 36% 35% 33% 29% 24% 21% 18% 16% 9% 7% 17% [q&a: bobby cameron] Innovation. says Bobby Cameron. say. before someone else takes control of their budget for them. vice president and principal analyst at Forrester Research. For CIOs. This has serious implications. IBM found that innovation is at the top of the CEO’s charter.16 CIOINSIGHT I FOREWORD FORE WORD complex. CIO Insight’s online editor. companies are falling behind global competitors in IT leadership. especially at larger companies. but there hasn’t been a clear indication that costs will have to be cut. That means boning up on the newest developments in the space. partially because of infrastructure decisions. Old trends never die. as well as hiring (and retaining) specialists. that requires not only greater technical proficiency. CIOs need to recognize that cutting back on a major element of the consolidation project could have a bigger downside than. They just become one color on the palette of modern management practice. doling out funds for a test-run on an emerging technology— unless those new investments can yield formidable paybacks in a timely fashion. but also greater leadership in selecting technologies and implementing them efficiently. Cameron spoke recently with Brian P. Watson [cio insight asks] Old Trends Never Die It’s happened plenty of times in the past two decades. Newer systems are easier to implement and integrate. A new idea in the world of management captures the imagination of executives. Not everyone’s predicting gloom and doom for IT budgets: Our IT spending survey found that IT spending is down. That boosts productivity—and outperforms refurbished systems. cio insight: How can you tell if CIOs and CEOs truly want innovation? cameron: By watching where the money goes and trying to understand the criteria executives set out. chief technology strategist for Accenture. consolidation is a problem without definitive solutions. Unfortunately for CIOs. —Brian P. says U. Things do seem to be heading that way. The first is to get ahead on emerging and innovative technologies in servers and storage. Technological advances over the last few years have made integral elements like servers and storage even more intricate. In any case.cioinsight. companies. 2008. Suh says. Feb. Watson. Bob Suh.com .”) But do these ideas and practices really disappear? Our recent survey of nearly 200 IT executives reveals that reengineering. Various other reports show spending forecasts shrinking. invest in strengthening existing systems. CIOs need to take control of their consolidation projects and their own budget logic. benchmarking. www. But there are a few things they can do. Maybe things won’t get as bad as some predict. but not out. on the other hand.S. this is an edited. Management trend or practice Business process reengineering Benchmarking Change management programs Balanced scorecards Core competency strategies Six Sigma Activity-based management Total quality management Scenario planning Mass customization None of the above Source: Ziff Davis Enterprise Editorial Research. Suh says. condensed version of their conversation. If they do. change management and other once-hot management practices remain widely employed. which helps move more business processes online.S. U. European and Asian businesses tend to build from the ground up with newer technologies. becomes the rage on the conference circuit and then appears to die down. or Lack Thereof B usiness executives talk about IT innovation more often than they achieve it. but look at how these executives execute. who backs up his statement with a Forrester report released in late February. (Gartner calls this the “hype cycle. though.

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—Edward Cone www. So you get a lot of interest in innovation and a lot of noise about it. The implications of this activity would be familiar to any company from the era of the Industrial Revolution: construction costs. Its rivals also are building huge facilities to house the machines that power their service offerings. physical security. Global Transit. not our concept of what IT is. and Microsoft. research director of the firm TeleGeography. They don’t track the business impact of infrastructure and operations. making predictions of traffic jams at the Internet’s core less likely to come true. but not to improve business results. it’s not on innovation—it’s on operations and efficiency. but they don’t try to make their internal organization produce or don’t expect it to produce.” In those experiences. but if you want to play a bigger role. There’s a lot of innovative stuff being done in IT shops to improve efficiency. which in the days of the dot-com bubble taught the world that e-commerce required real-world logistics. where reality is virtual and computing power increasingly comes from a cloud. They don’t rotate senior managers into the business functions to see what they do. CIOs say innovation is at the top of their list. Consumers of Internet services can fancy themselves as connoisseurs of the incorporeal. KDDI. which is planning a data center complex in Siberia. I say to them. Are they clueless? cameron: Those of us who help CIOs understand what’s possible are at fault for not making it really clear that there’s not just one CIO job: The job fits the business requirement for IT. The latest example: Google’s share in an undersea telecommunications cable. So you’re saying that CIOs aren’t getting any respect from the business? cameron: The cynical angle is that a lot of these CIOs are accurately perceived. IT shops don’t measure the business impact of what they’ve done in a business cycle. I’m trying to move things forward. It seems like a lot of these CIOs aren’t getting it.com .18 CIOINSIGHT I FOREWORD FORE WORD And McKinsey found that only about one-third of executives listed innovation as a top item on their agenda.cioinsight. “Help me get some respect. [what’s next] Let’s Get Physical Metaphors of insubstantiality define the digital economy. But Google’s immersion in the physical world is anything but a one-off: The search giant has purchased dark fiber-optic capacity and has made enormous investments in data centers to support its Internet ambitions. When you ask someone who’s an operational kingpin to drive something new and different. but for the providers. It’s probable that CIOs see more opportunity for technology-based business innovation than businesspeople do. it’s not there. to have a realistic view of where our companies are going—and not beat our heads against the wall. This inside-out point of view limits the ability to be innovative because it’s trying to solve parochial problems. says he doesn’t expect other non-telecoms to follow suit anytime soon. But it’s important for us. Not all CIOs should be partners. and Alan Mauldin. access to water sources and so on. Pacnet and SingTel—to build it. Google is the first non-telecommunications company to buy its own piece of an undersea cable. A lot of executives say innovation is important to them. The $300 million Unity cable will run beneath the Pacific Ocean between the United States and Japan. the business retains some very concrete elements. but when you look at where they’re focusing. “You tell me where I’m wrong. not because of them personally. what we might call activitybased costing. Is that because they’re not strategic enough? cameron: A lot of CIOs are where they are because they’re good at operational work. the CIOs were unable to recognize the difference between their world and the world of their peers. That includes Amazon. it’s sometimes difficult. you need to find a job with another company. but in reality. The truth? Not all IT shops should be alike. it’s because of the company’s business model. but they’re treating me like an order-taker. fuel costs. It’s not uncommon for me to get a call from a CIO saying. but the players behind the scenes are investing heavily in some very tangible things.” Often. Google is partnering with five telecoms—Bharti Airtel. The cable is one of four new trans-Pacific projects that will more than double available capacity beneath our largest ocean in the future. as IT leaders.

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Set a specific goal. product development staff and so on.0 in prescribing a new. written by Peter Skarzynski. the tools and the space they need to exercise their innovation muscles. commit to tripling it over the next 12 months—not by hiring more innovation specialists. in most organizations. the time.cioinsight. Identify the people in your company who have an innovation role: R&D personnel. inclusive innovation strategy. too many senior executives continue to view innovation as the exclusive province of one or two specialized departments. We called them “inspecproving that they are capable of amazing creativity. Before the Japanese introduced us to the processes and methods for making quality everyone’s job. but by involving existing employees in innovation processes and events. Then give them the training. and we find that a similar prejudice was hindering most American and European companies from achieving dramatically higher levels of quality. Excerpted from Innovation to the Core: A Blueprint for Transforming the Way Your Company Innovates. They rarely ask all their people to get involved in imagining new markets or new growth strategies. Instead of tapping into the huge potential for creativity that is latent throughout their organization.com . For every department and business unit. Reprinted by permission of Harvard Business School Press. Edwards Deming and others came along and said that management should teach firstlevel employees about statistical process control—that they should unleash people’s discretionary decision-making power—and that doing so would deliver a positive return on investment. your innovation yields will soar. The greater the number of employees who regard themselves as innovators. quality was the responsibility of a very small group of people. that unleashes the power of their imaginations and that supports their innovation efforts in appropriate ways. but only if your organization is willing to develop a social architecture that teaches and encourages them to be innovators. Armed with new. Give everyone in your company the opportunity to innovate. That’s the turf carved out by Innovation to the Core: A Blueprint for Transforming the Way Your Company Innovates. benchmark the percentage of employees who have submitted ideas or participated in innovation events. Then W. most employees never had the tools or opportunities to unleash their creativity. many still limit the use of that brainpower to initiatives aimed at improving operational efficiency. all rights reserved.20 CIOINSIGHT I FOREWORD FORE WORD [book excerpt] Tapping Into Employee Creativity Everyone talks about the importance of innovation to business. why has it taken us so long to figure out that innovation should be approached the same way? In the past. How many of your employees do you regard as innovators? How many regard themselves as innovators? What percentage would tell you that they are fully deploying their creativity on the job every day? While most companies tell their employees to bring their brains to work. Edwards Deming and Web 2. workers are www. If you do. Thus. Go back a few decades. In this excerpt. 2008 tors. the greater the innovation yield. and Rowan Gibson. So-called ordinary employees are the ones who can make innovation happen. such as R&D or new product development. The problem is rooted in the widespread notion that “ordinary” employees are unlikely to be a source of wealth-creating innovation. Copyright © 2008 Peter Skarzynski and Rowan Gibson. W Innovation to the Core: A Blueprint for Transforming the Way Your Company Innovates By Peter Skarzynski and Rowan Gibson HARVARD BUSINESS SCHOOL PRESS. Send your employees the message that you expect them to generate new ideas—that innovation is at least part of their job. hat companies seldom seem to recognize is that one of the best ways to get more ideas into the innovation pipeline is to ask for them. the quality movement was born. the authors mash-up W. If the answer to quality was tapping into the problem-solving skills of rank-and-file employees. Now they do. a business strategist and author of the best-seller Rethinking the Future. CEO of the Strategos consulting firm.” and quality was their job. easy-touse software tools. but actual nuts-and-bolts primers on how to innovate are not so common. If this group represents less than 10 percent of the employee base.

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They may even be worth fighting for. dService agreements with client-based software vendors often permit the vendor to consolidate data of different—often competing—companies passing through its systems and sell the results back as marketing data. when negotiating with a software supplier. if so. iPhone) or how users will use and misuse them even in the short term (YouTube. that it’s worthless. Before 1976. the background rules themselves are changing. The writers demanded a fixed percentage of any revenue generated in the future from Internet-based content distribution.com. sell or consolidate with that of our business partners? Should our compensation be based at all on the usefulness of the applications we develop and. there was no copyright protection for source code. maybe you should start paying closer attention. dThe default rule under patent law is that employees retain rights to inventions made even during work hours. and when you factor in the uncertainty of emerging new media (iPod. Please send questions and comments to editors@cioinsight.2008 LEGAL JUNGLE by larry downes A Virtual Battle for Value When it comes to determining how to pay for intellectual property. In both cases. these intangibles could have significant value—if not today. As the writers’ strike suggests. or even if they should have spent as much capital—financial and otherwise—duking it out. CIOs have a similar problem. Though the industry is in the very early stages of figuring out the right models. how do we calculate that worth? It’s hard to say whether the parties in the writers’ strike got the answers right. the client failed to notice that the vendor retained the right to charge more if the client’s profitability improved from use of the software—without any indication of how the improvement was to be measured. Before 1981.cioinsight. the writers risked everything on an unknown future value.23 CIOINSIGHT | 03. chaos theory quickly takes over. the opposite rule applies in copyright. there was no patent protection for applications. Don’t think that just because valuating intellectual property is difficult. deciding the terms of your own or an employee’s compensation or developing a joint application with a business partner. CIOs have as much at stake as Hollywood studios do.com . the three-month-long work stoppage came down to a single issue: how to value and allocate intellectual property rights for emerging and new media. The tools for valuing intellectual property are lousy to begin with. with no compensation to the originators. If you haven’t. n larry downes is a Fellow with the Stanford Law School Center for Internet and Society. It’s like predicting the weather … for next year. Tivo). In some sense. How much is software worth? Is it better to pay for a lifetime license or simply pay as you go? How do we value data we buy. or even indeterminate. your company could lose out on inventions it paid employees to develop. Without proper assignments. Here are some intellectual-property “gotchas” I’ve noted in recent client work: dIn a complicated licensing agreement with a major software vendor. Aside from missing some favorite shows. For IT products and services. and their direction is unclear. our valuation problem is even tougher than the entertainment industry’s. than perhaps in the near future. why should CIOs care about the recently settled strike by the Writers Guild of America? Remarkably. the current level of protection is being challenged as both too generous and too stingy. No doubt you’ve faced problems of valuation like these before. JOHN KASCHT www.

compared with more than half of firms between $5 million and $99 million. n ALLAN ALTER is editorial research director of Ziff Davis Enterprise. spending on external training is merely inching up at most large companies. While our February 2008 IT Spending Survey found that companies with revenues below $500 million increased spending on tech training services by 7. Send questions and comments on this article to editors@cioinsight. But that’s a controllable risk: If a company is a wellmanaged.com ILLUSTRATION BY JOHN KASCHT . Many billion-dollar corporations pay little attention to career issues: Just 42 percent of these large organizations do a good job of creating specific career paths for members of their IT organizations. The real issue is that many companies aren’t interested in keeping IT professionals for a long stretch of time. but then drop these workers when they’re no longer needed. If companies were serious about ending the skills shortage. larger companies increased it by only 2. Many IT executives gripe that universities are not producing a stream of IT graduates who are prepared to function in the business world. be willing to interview capable IT professionals. our research reveals. Two. CIOs keep complaining that they can’t find workers with the skills they need. most technical workers will be content to stay. Some worry about the unflattering image of technical professionals as socially awkward. be willing to provide new hires with technical training. interesting place to work. The reality is that IT executives are creating the skills shortage they grumble about. the less likely it is to follow this approach: The June 2007 CIO Insight survey on recruitment and retention discovered that only around one-quarter of companies with revenue topping $1 billion take this approach. Information systems professors Thomas Ferratt of the University of Dayton and Ritu Agarwal of the University of Maryland have found that companies follow different IT HR strategies. 1 issue. broaden your searches and start creating the skilled workforce your company needs. many large companies regard IT workers as disposable: They’re willing to pay top dollar for talent. Why are large companies loath to make the needed investments? For one thing.24 CIOINSIGHT RESEARCH CENTRAL by allan alter Stop Griping About Skills Deficit The real problem behind the skills shortage is that many companies don’t keep IT professionals for the long stretch. So stop griping about the skill shortage.cioinsight. Companies that follow this approach are more likely to have adequate IT staffing levels and lower turnover rates. no matter how the economy affects your firm. the number is around 60 percent. In fact. when recruiting from outside your company. www. Instead. But the larger the company is. there’s the risk that employees could accept training and then take jobs at other companies. even if their skills aren’t a perfect match for the job.8 percent. emphasizing career development and commitment to employees. increase training for employees. two recent surveys on top issues among IT executives—one from the Society for Information Management and another by Robert Half Associates—rank finding skilled IT professionals as the No.com. At smaller firms. especially those at large companies. they would make more investments in IT training. One approach is to develop IT staff members for the long term. However. But no one is more to blame for the skills shortage than CIOs. A new CompTIA survey of technology managers on skills gaps in the IT workforce found that sending employees for external professional training is the most frequently cited way to enhance IT employees’ skills.2 percent. There’s a three-part solution to the skill shortage: One. Three.

FREE Applications. e-mail: esupport@apc. efficient system: more power. your first step is knowing where you stand. You have to stretch every bit of both as far as you can. 50% of today’s data centers will have insufficient power and cooling capacity to meet the demands of high-density equipment. Take the online Enterprise Efficiency Audit to see how you can reap the benefits of a smart. Right-sized “pay as you grow” components mean no more wasting power with oversized legacy systems. Managing capacity. integrated. Legacy systems work fine for brute-force cooling the entire room. power and cooling waste may actually prevent you from purchasing much-needed new IT equipment. West Kingston. Our innovative InRow™ architecture allows more efficient. simple solution. All rights reserved.com/promo Key Code a663w • Call 888. on average. Our system reimburses you Whether you’re building a new data center or analyzing the efficiency of existing systems.2797 ©2008 American Power Conversion Corporation and MGE UPS Systems. but skyrocketing energy costs make them fiscally irresponsible and their fundamentally oversized design makes them incapable of meeting today’s high-density challenges.. Simple problem.. targeted cooling by shortening the distance between heat generation and heat removal. capacity management so that you know where to put your next server.apc. ™ What you need is the APC Efficient Enterprise. Inc. FREE Storage. simply by switching from room to row-oriented cooling. 31% of your electrical costs. The APC solution offers modular scalability so that you pay only for what you use. Containing the heat. Gartner Research predicts that by 2008. Your budget limits the amount of money.FREE Servers.788. The Efficient Enterprise™ makes cooling predictable and reduces operational expenses by. Employing close-coupled cooling. Intelligent. you will save. FREE Man-hours. All APC trademarks are property of APC-MGE. Our Hot Aisle Containment System reduces hot spots by preventing hot exhaust air from mixing with cool air in the room. There’s only so much power and money to go around Your service panel limits the amount of power available. Cut your power and cooling costs and use the savings to buy the IT equipment you need. Even worse. How efficient is your enterprise system? See exactly where you stand — take our online Enterprise Efficiency Audit today! Visit www. and dedicated in-row and heat-containment systems that improve cooling and thermal predictability. For example. FREE Power. Introducing the revolutionary enterprise architecture that finally pays you back. more control. FREE Floor space. more profits. Utilizing right-sized components.. RI 02892 USA EE2A7EF-US . An Efficient Enterprise earns you money through the pre-planned elimination of waste. Power and/or cooling issues are now the single largest problem facing data center managers..com • 132 Fairgrounds Road. integrated capacity management software gives you real-time data on your power and cooling demands.APCC x9392 • Fax 401.289.

as companies that rely on Amazon. It has the potential to transform the role of IT within the business. Thanks to the phenomenon known as cloud computing. hold promise for transforming the role of IT within the business.com RANDY LYHUS RANDY LYHUS . storage and bandwidth. After more than a decade of refining the Internet as a marketplace. By Tony Kontzer Taming the Cloud A huge cloud hangs over the future of IT. pay for them on a subscription or per-use basis and provide employees with access to information from anywhere at any time with nothing more than a connected device. But theory isn’t reality. Like all technological advances. Cloud computing also may prove to be an ideal strategy for reaping the full benefit of mobile devices by allowing companies to essentially push their IT environment out to employees. it sounds great. Of course. not anytime soon. And the days of having to expand data centers to make room for additional racks of servers to support a growing business? Gone. In theory.26 CIOINSIGHT | TRENDS The promise of cloud computing goes far beyond simply providing software updates and dealing with growing server and storage requirements. the promise of cloud computing goes far beyond providing solutions to such headaches. The potential to one day subscribe to systems as a service could mean an end to wrangling with infrastructure decisions by letting a service provider sweat issues like server capacity. and just because cloud computing holds promise doesn’t mean that’s going to translate into practical solutions for real business technology challenges—at least. And reliability concerns arise whenever you depend on a third party’s systems to be up and running 24/7. there are security risks related to commingling your data with that of other companies. Cloud computing serves as a reminder that computing models constantly change. rather than employees having to get access to the IT environment. For instance.cioinsight. the business world is grappling with the uneasy reality that companies can run almost every information system they rely on without owning any tech equipment. businesses can rent access to applications and IT infrastructure that reside on the Internet.com’s fledgling www. they’ll be forced to adapt to evolving computing models to remain competitive. in fact. No more wrangling with software updates or growing storage requirements. As businesses face increasing pressures to be as agile as possible. It may. cloud computing isn’t without risk.

2008 .27 CIOINSIGHT | 03.

“In the long run.cioinsight. without the need for legions of technical specialists. an initiative that lets IT departments benefit from cloud computing technologies within their own data infrastructure. fluffy cumulus. why we’re never invited.W. CIO of H&R Block. which provide storage and excess server computing capacity. IBM will roll out Blue Cloud. quality assurance testing and business analysis rather than on traditional coding and development skills. hotels and car rental companies. Figure out how to spur growth. Still. to date. IBM and Google. The Big Switch: Rewiring the World.” In other words. The tech industry’s old and new guards. or SaaS. the former Harvard Business Review executive editor and current roughtype. designed for use by consumers and small businesses. “CIOs are always talking about why we’re never at the table. “Cloud computing may be new and may not be at telephone reliability. By turning to cloud computing.” he writes. “but Internet hosting as a utility is a trend that’s well on its way. the IT department is unlikely to survive. Instead. or S3.” wrote the S3 user. Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. chief technology officer for the Blue Cloud initiative. IBM and Google announced a research initiative in which they’ll invest $30 million to develop a joint infrastructure cloud for universities that want to provide remote programming and research capabilities for their students. This spring.” Google.com blogger who earned fame—and generated controversy—with his 2004 book.” says Sue Powers. you’ll never be there. CIOs need to do whatever is necessary to avoid being considered a commodity.” West says. businesses will continue to need technologists. cloud computing at its best offers corporate IT executives the perfect opportunity to break out of their technology shackles and raise their boardroom profile by allowing them to shift their attention from mundane technology matters to issues more strategic to the business. stormy mass signaling the end of corporate IT as we know it? The truth probably lies somewhere in-between. as indicated by one online poster who chimed in on The Wall Street Journal Web site after reading of the Amazon outage. such as e-mail and word processing.” says Dennis Quan. a suite of Web-based productivity and collaboration tools. CIO of Travelport. respectively. On-demand application providers such as Salesforce. allowing IT to transform from a perceived technology cost center into a strategic business asset? Or will it become a dark.28 CIOINSIGHT | TRENDS Simple Storage Service. Carr all but declares the pending death of IT. have been met with great enthusiasm. “However. Others believe that regardless of where the technology resides. you’ll be hard-pressed to find a CIO who shares the views of Nicholas Carr. configuration and communication with the IT service provider. As IT becomes less of a market differentiator. they need to focus their efforts on articulating how to extract the most business value from each new technology. From Edison to Google (W. it’s not enough for CIOs to oversee effective rollouts. as utility services. integrations and development projects. with large companies likely to apply a hybrid model in which they use cloud computing for noncritical systems and applications.” www. meanwhile. In his follow-up book. our customers are telling us that’s not what they want today. also have made strategic commitments to cloud computing. sees it. IT folks seem willing to put up with the glitches in exchange for the potential benefits. And last year.com .” There’s plenty of evidence to back up such statements. “You still need IT for acceptance testing.com and NetSuite have proven that there’s a market for so-called software as a service. The way Marc West. Eventually. “What they want are the benefits of cloud computing to maximize their infrastructures and control the rapid growth in their data centers. this effort could allow IT departments to build internal clouds that will link to the larger public cloud or to other private clouds. which runs one of several reservations systems used by airlines. CIOs at large companies have been reluctant to venture too far into the cloud. 2008). has been building a head of steam for its Google Apps. Norton. they must be convinced that cloud computing holds value for them. learned when the service went down for two hours last month. while keeping sensitive apps and data on in-house networks.’ Business units and even individual employees will be able to control the processing of information directly. and. “IT still needs to be involved. separately and in tandem. Predicting the Weather What does cloud computing mean for the future of large-scale corporate IT? Will cloud computing evolve into a big. Before that can happen. Amazon’s S3 and Elastic Compute Cloud offerings. “If you’re waiting to be invited. they can begin to shed themselves of some of the technological burdens that weigh them down. “It will have little left to do once the bulk of business computing shifts out of private data centers and into ‘the cloud.” In any case. not just deploy software. at least in its familiar form. The difference will be that IT departments will place higher value on skills like project management.

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SMBs are more likely to want to put their IT operations in someone else’s hands so they can focus on their core business. But the CIO would be more gung-ho about cloud software if Salesforce.com who built his company on the slogan “No software.” West says. . internationally accessible system that’s reliable and highly available? I think we aren’t far away from a similar view toward data and applications. This allows NetSuite to maintain more control over the level of service being offered. But customers want true self-service..” To be fair. access to a marketing expert who could help organize sales initiatives and provide advice on how to get the most out of the software. includes unlimited round-the-clock access to tax experts. and www.” Benioff said in an e-mail interview. comparing cloud computing service providers to the banking industry. it could become a bit of a crapshoot when it comes to the quality of those services. Marc Benioff. the CEO of Salesforce. “Why isn’t that money in a secure. Benioff has reason to promote such a mindset.” Looking for the Personal Touch H&R Block’s West goes against the grain by not mentioning security or reliability among his primary misgivings about cloud computing. that a time when IT departments no longer exist as they do today is probably 20 years off. “It works great for us. Salesforce’s Successforce services let customers add a professional services element that allows them to connect with either a Salesforce consultant or one of the company’s partners.” says the distress over the perceived lack of security of the “multitenant” model—in which multiple companies’ application instances are stored on the same servers—is overblown.30 CIOINSIGHT | TRENDS Carr admits. they can expect cloud computing providers to beef up the main areas of concern: security and reliability. He believes there’s a more critical element missing from cloud computing software offerings that he’d like to see added: professional services supplied by a person rather than a machine. that’s one thing. not just deploy software.cioinsight. H&R Block took precisely that approach in designing Tango. for example. you’d That’s why West suggests that on-demand application providers cut deals with professional services firms. At the very least.” says CEO Zack Nelson. such as Accenture or Deloitte. why we’re never invited.000 tax professionals. gets his wish..com .” —Marc West. NetSuite..’ If I give someone the toolbox. West’s company has subscriptions to Salesforce.com’s on-demand customer relationship management app for isolated groups within H&R Block and has integrated it with an on-demand analytics tool from British software firm Datapoint. In the case of NetSuite’s on-demand accounting application. vice president of TTI Instruments.” West says. “If you met a CFO who insisted on keeping the company treasury in a safe in the basement. “It’s called ‘Do it with me. Granted.” “CIOs are always talking about why we’re never at the table. for $70. a 30-person firm in Williston. H&R Block think that he or she were nuts. but his company’s needs are quite different from those of small and medium businesses. is the cloud. but the analogy he uses. West believes that bundling it with 24/7 access to 5. say. “Otherwise. who supports more than 100. that sells industrial instrumentation. its consumer online tax-preparation service. has merit. Of more concern to IT executives is what to expect over the next five to 10 years.com were packaged with. allowing them to offer premium subscriptions that would include access to real-time expert advice. which. however. Salesforce and NetSuite have been tackling this area in varied ways. Vt. allows partners to build their expertise into a complimentary offering by turning their services into software. to me. “We’re running our whole company on cloud computing. Figure out how to spur growth. “The problem with the SaaS model is that it still isn’t helping the buyer get the value out of the technology.” says Brian Leffler. Minding the Store It probably won’t be long before West. Even as his firm contends with those issues. “That. for its part.000 H&R Block accounting professionals would make it immensely more compelling for larger companies that need to do more than reduce their software costs in order to justify the switch from a client-server application to a cloud-style alternative. “It’s just a different way of paying for it.

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that line will be blurred. Leffler sees the IT staff at General Electric. Leffler expects one of the traditional assumptions of IT—that having an IT department is a detriment to small businesses while larger companies need internal IT units—to face serious challenges in the future. committing to a five-year $100. what it boiled down to was. keeping highly customized apps in-house. Travelport falls into that group. “When we made the decision. rather than on upgrading and patching applications. As a result. and the ascension of Linux and open-source software has made it much more doable and much more in demand. and even big companies will be embracing cloud computing. which provides customers with a programmable user interface they can use to tweak the look and feel of a Salesforce app. And early this year. she believes that over time. cloud-friendly applications that include customer relationship management. the ability of cloud software providers to make their products more configurable—meaning IT folks can tweak the functionality to match their business processes—will fuel growth in cloud computing. Among the constraints holding back big companies are incredibly complex business processes that have taken years to refine and often require highly customized applications to support them. well-stocked data center to support its reservations service has Powers thinking about turning Travelport into a cloud infrastructure provider. struggle to make use of new technologies because of the sheer scale of any upgrades. giving customers tools that let them ensure their own custom code is compatible with the NetSuite framework. What is the application we’re talking about?” recalls Powers. the standardization of infrastructure technologies. She’s looking at whether it will eventually make sense to rent out Travelport’s excess data center capacity during off-peak hours to IT departments seeking temporary access to computing power for short-term projects. In addition to Amazon’s S3 service.000 contract to run the entire business. Larger companies that have been willing to try ondemand applications delivered via the cloud generally have limited their use to systems that aren’t core to their businesses.com . NetSuite introduced a business operating system to its on-demand lineup.000 over the same period. The fact that Travelport must maintain a sophisticated. their IT departments will be able to focus on matching application functionality to business processes. or writing custom code. These apps don’t provide a competitive advantage and don’t represent things that Powers feels are distractions from more core activities. Jockeying for Position This kind of service has been offered by companies with excess data center capacity over the past decade. but the cost of licensing the software. and CIO Powers says categorizing the company’s apps along those lines was a critical part of the on-demand strategy it embarked on a little more than a year ago. which essentially lets small businesses rent out unused space on the company’s vast storage network. human resources and financials. In fact. As a result.000-person organization. then cloud software won’t work for you. She settled on a list of vanilla.” he says. one of the biggest benefits of cloud applications—the ability to exploit best practices without having to wrestle with customization—is also one of its biggest limitations. Leffler opted to switch to NetSuite’s integrated on-demand applications. “Over time. “It saves us money every day we use it. Great Plains would have cost TTI about $110. but the maturation of the Internet. However. Last fall. one of his biggest customers. Today. as big companies become more willing to bring cloud computing into the mix. that you have to use your way. provisioning servers and acquiring complementary software for niche tasks such as lead management became excessive. back them up. That’s not to say traditional IT will disappear. “When you’re running IT for a 300. In comparison. Salesforce. as companies like Amazon and IBM jockey for position.cioinsight.” he says. Salesforce added a service called Visual Force. all 30 TTI employees spend pretty much all day accessing their NetSuite environment using nothing more than a Web browser. plus the cost of the staff resources needed to administer the servers. In fact. It lets us concentrate on the most important things. install updates and handle any other maintenance tasks. Rather.” Leffler’s experience underscores just how great a match cloud computing and small business are: TTI had been running its operation on Microsoft’s Great Plains enterprise resource planning software for small business. the online retail giant is www. the field for providing cloud computing infrastructure is likely to become a bit crowded. you’ve got a lot of constraints.32 CIOINSIGHT | TRENDS it’s a tremendous competitive advantage. payroll processing. Leffler has become a believer in the promise of the cloud.” Powers wasn’t about to cede control of Travelport’s core reservations system.” he says.com and NetSuite have been steadily adding customization capabilities into their products over the past year or two. expense reporting. “If it’s something that’s highly customizable.

companies using EC2 get an invoice that looks strikingly similar to an electric bill. It works great for us. That’s an ideal reflection of the potential cloud computing holds for corporate IT departments. That’s a huge “We’re running our whole company on cloud computing. and it’s a tremendous competitive advantage.” Quan says. Red Hat’s chief computing resources the way consumers book hotel rooms on the Internet.” If the proponents of cloud computing are to be believed. “It’s about business agility. “Cloud computing will completely change the role of IT departments. IBM committed to rolling out a series of cloud computing components under the handle Blue Cloud.” Salesforce.com. and provide “keys” that would allow employees to log in and do their work with only a Web browser. “It could be used to offer SaaS to your clients or to have a remote data center. server provisioning.” Whereas Amazon evolved into a cloud computing provider as a way to maximize the value of its own IT resources. automatically provision needed software.2008 beta testing a product it calls the Elastic Compute Cloud. it’s no wonder that growing numbers of CIOs have their heads in the cloud. according to Brian Stevens. Driving the need for such flexible computing resources are challenges such as escalating energy costs and scarce data center space. IBM intends to offer an integrated stack of software. which he describes as a layer down from SaaS offerings like Salesforce. with virtualization and automated provisioning. The first of these products. with CIOs having to commit the lion’s share of their resources to software updates.” —Brian Leffler. These challenges are getting in the way of innovation. That could position just about any company not just to benefit from cloud computing. namely by tapping it for software development projects that need server capacity beyond what’s available on the company’s internal network. Eventually. we can get that up and running in a matter of minutes. “We believe in the cloud model. as companies have to wait on—or completely forego—adding IT resources. is to provide systems as a service.com’s Benioff says. hardware and management capabilities packaged in a self-service Web 2. A CIO could reserve server time. that’s where the greatest promise of the technology lies: in spurring innovation. allowing CIOs to subscribe to on-demand IT offerings and letting service providers take on those headaches. with charges based on minutes of server access and quantities of data moved and stored. EC2 operates like S3. Adding to the potential for the service. data center expansions and general maintenance of IT resources. Red Hat also is exploring ways in which its own IT department can put the Amazon cloud to work.” The irony is that evolution has been occurring as the ability of IT departments to innovate has been shrinking. “We don’t think it’s where everything goes.” he says. n Please send questions and comments about this article to editors@cioinsight. “In order to get new projects off the ground quickly. running in their own data centers. companies rent out server capacity. As IT budgets have been challenged by the economic tightening of the past couple of years.com enabler of innovation. Cloud computing could change all that by making those IT budget mainstays an afterthought. expected to be available this spring.33 CIOINSIGHT | 03. . That would allow CIOs to commit funds to new development projects and even tap those on-demand resources as temporary development environments. development projects have been hardest hit. Linux software distributor Red Hat is beta testing a version of its enterprise Linux operating system that can be purchased as a subscription service in conjunction with EC2. and is designed to allow companies to essentially build their own clouds. but we’re going to learn from it. That would allow companies to book www. but also to contribute to it.” Stevens says. adjusting it up or down depending on their needs.com.0 portal.cioinsight. except that instead of storage space. “The IT department is evolving from being information technology to being innovation technology. includes a package of blade servers and IBM’s Tivoli management software. The idea. Given such potential. Instead of sweating over the costs of infrastructure investments and server deployments. says Blue Cloud CTO Quan. TTI Instruments technology officer.

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com S Though more than 50 individual synthetic worlds exist. with rules such as gravity. Its service provider. according to VirtualWorldNews. topography. known as avatars. that have set up virtual stores to market products and test prototypes.35 CIOINSIGHT | 03.cioinsight. New Business Horizons. Synthetic worlds are computer-based simulated environments that allow multiple users to inhabit and interact with each other through two.2008 JOSHUA GORCHOV Synthetic Worlds This step-by-step approach helps companies make an informed decision on whether or not to establish a presence in virtual environments.or threedimensional graphical representations of humanoids and other forms. A growing number of companies use synthetic worlds to connect with customers or interact with . By Kamales Lardi-Nadarajan ynthetic worlds are big news these days. numerous large and midsize companies have explored synthetic worlds. real-time actions and communication. counts scores of businesses and retailers. Many people believe synthetic worlds are elaborate games. though many eventually abandoned them. www. These virtual environments resemble the real world. a social virtual environment called Second Life has gained a lot of attention during the past year.com. but there is real business going on in Second Life. And INSEAD. In addition. an international business school with real-world classes in France and Singapore. such as Coca-Cola and Sears. with visitors to these so-called virtual environments coming from a wide range of backgrounds—including presidential candidates and movie stars. has built a virtual campus and classrooms in Second Life to supplement in-person learning. locomotion.

Despite getting some negative press. according to GAX Technologies. synthetic worlds are starting to change the way companies communicate with their customer groups. The Working Worlds fair. www. we used this environment to host our 2007 Global Excellence Awards ceremony. which faces significant recruitment difficulties due to an insufficient number of job candidates. This shortterm view has resulted in what media critic Mark Glaser characterizes as a hype-and-backlash cycle. For the most part. when a large number of Internetbased companies were formed after the explosive popularity of the Internet. effectively generating value for their business. Switzerland. thereby significantly reducing business travel time and expenses.000 visitors who conducted more than 300 job interviews. even though there have been consistent increases in the number of registered users. Virtual world consultancy K Zero estimates that synthetic worlds have registered close to 174 million users. bringing together professionals from 45 countries worldwide.” as Second Life. virtual environments such as Second Life can have a huge impact by quickly redefining personal and business interhosted its first virtual job fair. online synthetic worlds will play an increasingly vital role in business-to-consumer relationships. burning through their venture capital—often without ever making a net profit. Though surrounded by controversy. However. some enterprises have identified a key factor that’s necessary to successfully establish a virtual presence. thousands of these startups failed. In December. It provided virtual interviews and discussion forums with key attendees.36 CIOINSIGHT | TRENDS employees. the emerging social computing networks—online communities of people who share interests and activities—are predicted to redefine customer relationship management and business relationships within the next five years. In fact.com . allowing employees from around the world to “attend” the event. Luxembourg “Over time. Understanding the Virtual Market Skeptics may find it hard to understand all the fuss about virtual environments. which differentiated itself through a business model that was tailored to suit the new market environment. Over time. This trend is gradually moving toward immersive 3-D environments.cioinsight. building customer loyalty.” Unfortunately. hosted in Second Life. Within the next five years. Communicating With Customers In the last year. In order to do that. Learning from the dot-com experience. welcomed 2. with more than 50 of the candidates invited to Luxembourg for face-to-face meetings. which has cast doubt over the potential business value of synthetic worlds. The phenomenon is reminiscent of the dot-com era of the late 1990s. synthetic worlds will dominate and drive brand building in major companies. has used this method to open the recruitment market internationally—with no travel expenses and low operating costs. where there has been a tremendous increase in the number of synthetic world users. Second Life covered the 2008 World Economic Forum in Davos. companies must first understand the virtual market and its users. either for business or marketing reasons. these areas were set up by corporations that used them for a one-time media blitz and then abandoned them. Luxembourg. the IT services firm that organized the event. More recently. At Deloitte Consulting. as media reports of enterprises that have abandoned their virtual businesses have cast doubt on the value and potential of synthetic worlds. including Amazon. Some companies have developed innovative ways to integrate synthetic world technologies into their business model. executives in many companies have had to decide whether to venture into virtual environments. especially when they find large deserted areas in synthetic worlds such actions. whether for marketing purposes or commercial gain: Develop a strategy specifically suited to consumers of this new environment. for example. These enterprises dismissed standard business models and focused on the common goal of “getting big fast. for example. It’s not an easy decision. building customer loyalty through time and commitment. some companies did make it through the dot-bomb. online synthetic worlds will play an increasingly vital role in business-to-consumer relationships.

my colleagues and I developed an approach that takes a long-term strategic view of synthetic worlds as a new route to the emerging online consumer market. entering the virtual environment to develop new products and marketing concepts might be a good move. in a February 2001 Harvard Business Review article. “New ideas don’t drop from the sky. companies should take an experimental approach. “The process should not only identify several new ideas. many companies view new or emerging technologies as a way to cut costs.” Realizing the challenge executives face when assessing the potential benefits and risks of having a virtual presence. an authority on the management of technology and product innovation. Phase 1: Understanding the Current Environment The first phase is the most critical. For instance. but also help narrow the number of ideas and pursue the most viable option for experimentation.2008 That will give a competitive edge to enterprises already established in these interactive environments. At this stage. while also identifying the customer group to be targeted in order to gauge its openness to and expectations of synthetic business environments. These indicators would likely include the number of weekly customer visits to the virtual site. Focus on describing the options from the perspective of the target audience. as well Source: Deloitte Consulting www.” wrote Harvard Business School professor Stefan Thomke.cioinsight. a company must first determine the strategic objective of entering a virtual environment and decide whether this move is in alignment with the firm’s overall strategic direction. When deciding whether to enter the virtual environment. if the enterprise has a specific focus on sustainable growth and innovation. the user’s experience and the functions provided. the number of media mentions and even the impact rating compared to other customer channels.37 CIOINSIGHT | 03. focusing on long-term added value. In addition. but are developed through an analytical experimental process. To initiate this process. companies need to develop a clear understanding of this technology’s potential by keeping up to date on trends and predictions concerning synthetic worlds. The strategic objectives must be accompanied by measurable business outcomes—key indicators that would allow the company to measure and track the impact or outcome of the approach. The subsequent step involves identifying all relevant possibilities for entering the virtual environment and potential operating models. as it ensures that a thorough assessment of the virtual environment is conducted. they should assess their competitors’ perspectives and reactions to synthetic worlds. This three-phase approach encourages experimentation in the virtual environment. forgetting the added value of innovation and new market development.com . Unfortunately.

As the consumer environment changes. If the customer response to the virtual presence has been positive.com . That’s essential. n Kamales Lardi-Nadarajan is a manager with the Technology Integration division of Deloitte Consulting GmbH in Zürich. services and products to be offered.cioinsight. Taking a long-term strategic approach to assessing the pros and cons of virtual environments ensures that enterprises decide to venture into this environment based on a thorough assessment of its possibilities and risks. Please send questions and comments about this article to editors@cioinsight. Phase 2: Launching a Test Environment The experimentation process may be carried out as part of a pilot implementation of the selected option. Companies that explore and understand these environments today will win consumer buy-in and loyalty tomorrow. Synthetic worlds have created a new way for people to socialize. as well as resources and cost requirements. In a virtual environment. Throughout the duration of phase 1. Phase 3: Full Implementation and Continuing Operations Following a three. because the risks and investments involved will have been thoroughly assessed. describing the customer experiences. In this new virtual environment. www. self-organized consumer communities offer lucrative opportunities and present grave new threats to business.to six-month pilot launch. innovate and transact business. During the pilot phase. particularly when it involves experimenting with new technology. virtual environments offer a new route to market—one that traditional business models are unable to cope with. This can be a daunting reality for many companies. organizations have little power over the impact of their message on the consumer.38 CIOINSIGHT | TRENDS as alignment with the initial strategic objectives. there may be a good case to conduct a full launch of the site. These indicators include the number of existing customers visiting the virtual site. as most to conduct a full implementation based on the key indicator data collected. This is an iterative process. Once the virtual presence has been launched. Of course. the most viable option should be selected for further design. enterprises should thoroughly assess the risks posed by virtual environments—including the collateral effects that could impact their brand and image— before making a decision to proceed. The selected synthetic world entry option should be developed into a scenario. Once the initial assessments have been conducted. as well as the functions. Since a synthetic world is a consumer-controlled environment. entertain.” executives shy away from venturing into unknown territory. Then identify the related costs. innovate and transact business. the options and subsequent assessments need to be shared with key internal stakeholders. as the authors of Wikinomics note. companies should track key indicators to determine the success rate of the virtual presences. since traditional inward-focused business models will not have long-term sustainability. the cost of establishing a functioning pilot business environment can range from inexpensive to exorbitant. Therefore. Other factors that need to be considered include the continuing operational model of the virtual presence. which should be conducted continuously until a satisfactory assessment has been developed. As with the implementation of any new technology or media. timeline and technology infrastructure required. This can be a daunting reality for many companies. the costs of technology and experimentation—as well as the risks—during the pilot implementation phase are far lower than they would be in a real-world environment.com. as well as the number of new customers gained through the virtual presence. depending on how elaborate the service scope is. entertain. A strategic approach such as this will establish a strong foundation for conversations with executives. resources. a decision should be made on whether or not those marketing and branding must deal with online. Switzerland. Virtual environments face risks that are similar to “Synthetic worlds have created a new way for people to socialize. The inevitable changes brought about by virtual environments will redefine the way businesses interact with their customers. it’s vitally important to measure and track the business outcomes on a continuous basis. Then a collective decision on whether to continue with a pilot implementation can be made. it is critical to have the full support of key stakeholders to ensure success.

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40 JIM CHAMPY CIOINSIGHT | EXPERT VOICES .

How so? champy: Executives know the fundamentals of management but don’t always practice them. but plenty new in business. What he produced is a collection of crisp case studies on the most innovative. cio insight: You say there’s not much new in management.000 companies with double. he co-authored the best-selling Reengineering the Corporation: A Manifesto for Business Revolution in 1994 and followed up two years later with Reengineering Management: The Mandate for New Leadership. who condensed and edited the following transcript. chairman of Perot Systems’ consulting practice.41 CIOINSIGHT | 03. ambition and calculated risk—mixed with a strong IT strategy— can transform companies from has-beens to market leaders.2008 Management expert Jim Champy sees IT as a game-changer in gaining a competitive advantage. In today’s business environment. growth-charged business models he found. Jim Champy chronicles the success of companies that reengineered their business models to transform both their organizations and their industries. Champy looked at more than 1. Corporate Darwinism n his new book. a combination of innovation. With Michael Hammer. Watson. Outsmart! How to Do What Your Competitors Can’t (FT Press. It’s not that we shouldn’t be teaching good management practice—I just felt there wasn’t much new I could contribute about what’s new in management.to triple-digit growth. 2008). Managers today ask the same questions about how to change as they did 20 years ago. The keys to success? Looking at IT as a strategic asset and adapting management to meet the changing dynamics of business. In his research. Champy spoke recently with CIO Insight online editor Brian P. The common thread: These companies all drew on IT to produce substantial competitive advantages. jason gr ow . The concept of change and transformation is nothing new to Champy. Every new manager is still discovering this stuff.

” The dangerous extension of that argument is that an exec- In many of the companies I wrote about. champy It’s smart to always have a little skepticism of what’s possible. to be wrong in their decisions and to change what they might be doing if it didn’t work. In those firms. The dot-com bust taught us that traditional thinking isn’t such a bad thing. it was much different than what I’d find at larger companies. IT was very central to the business model.42 CIOINSIGHT | EXPERT VOICES JIM CHAMPY But doesn’t management have to evolve to handle change in business and customer strategies? champy: Management does evolve.com . Someone who’s been in the business for 50 years doesn’t know more about how to use the Internet than I know. in some instances. some of www. It’s the great leveler. In the last bubble. But technology. Almost all the leaders and founders of the companies I wrote about were very open and transparent in what they thought or said with their people and their customers. it was critically important to the executives and the founders to understand not just how IT was working inside their company. because the extension of that argument is that because it’s ubiquitous and no longer strategic. in some large companies. One young entrepreneur I interviewed said. isn’t strategic. in terms of business models and long-term viability. That’s contrary to the notion that IT is no longer strategic because it’s ubiquitous. And there are. “IT doesn’t matter. They were open and transparent to a point where they were prepared to be vulnerable. it can be relegated deep into the organization. but really change the nature of the business. but what it could do. Therefore. the ubiquity of technology is what makes it strategic. In the industry today. Even if the companies weren’t IT-based. SonicBids’ CEO has the opportunity to create a trustworthy bank to change the way the industry operates. is more strategic than ever. in combination with the business idea.” to be truly strategic in enabling some dramatic change in the way the company operates. What from your research makes you disagree with Nicholas Carr’s thesis that most IT isn’t strategic and will increasingly become a commodity? champy: If I went to the founders of the companies in my new book and said. “The utive or manager doesn’t have to pay attention to it. the IT operation is viewed as a business function. an entertainer—even a bigname entertainer—gets paid [some of the fee] in advance and the balance in cash at the end of the performance. The argument that IT isn’t important is an over-intellectualization of what’s going on. At every one of these companies I’ve written about. That’s the way the industry operates. the right sensibilities about what IT can do to change the business—not make it more efficient. In many of the companies I wrote about. it’s one of the companies featured in Outsmart!] He will eventually get to change the way entertainers are paid. IT was very strategic and enabled them to adapt and develop new business models. He couldn’t do that without technology. [SonicBids is an online marketplace that connects music promoters with aspiring musicians. and how it allows me to operate and change some of the fundamentals of my industry. The CIOs were very front and center in the design of the business. It’s changing the fundamentals of how that end of the industry operates. We use the Internet as well as an established business uses the Internet. The CEO of SonicBids is changing a $15 billion industry. how are IT units and CIOs viewed? champy: Particularly in larger companies. It lacks a complete understanding of what’s going on in business today.” they’d say: “What? Look at how central IT is to my business. because no one trusts anyone in the industry. on its own. and look at how it allows me to invent a wholly new business model. IT was absolutely central to the business model. That’s a very dangerous argument. and. It was a very open management style and leadership style that many executives in larger companies would not adopt. The CIOs were very front and center in the design of the business. It’s viewed more importantly today than it was 10 years ago.” Technology. there was a sense of IT as the great enabler that allows them to do much of what they do. but there’s a great deal of variability about whether IT is considered Internet is the level playing ground for entrepreneurs in their 20s. Management style is adapting and changing. or would be fearful of adopting.cioinsight. In fact.

but most CIOs are being dictated to. The biggest issues around change at any enterprise have to do with the people at the top. It’s typically the chief executive who sets the operating style. Many of them are actually thirsting for change. I see companies that are stuck. every plant argues that it’s different. especially someone who has been in a business for a long time.com. . We have failed to develop the behavioral-change skills that companies thirst for.or change-averse. and they were spending money very foolishly.com was nobody home at the top. What’s different about these companies is that the executives are hands-on managers. It’s important to keep asking yourself. and can I scale it? Having a little skepticism is good. really deep throughout the organization. I’m not saying you can’t. in half of all companies. and therefore should have its own set of systems and processes. The Internet is a great enabler for testing ideas and maintaining a bit of skepticism. CIOs should keep trying to demonstrate that IT brings value to the business and to customers. people are not necessarily risk. They just didn’t have enough staying power to perfect the business model. in the other half. it won’t in others. they were quick to realize how and why it wasn’t working. the CIO reports to the CFO. you get expensive compromises: Every warehouse argues that it’s different. Is this a business model that will have staying power. CEOs haven’t delegated the important operating decisions deep into the organization. There’s a possibility that you can demonstrate how IT can add value in some dramatic way. The best-run transformational programs have the CIO reporting to the top executive. When you see IT-related projects that have grown from $10 million to $100 million. they’re not going to have a job. When you go deep into a company. the problem isn’t in the middle or on the factory floor—it’s at the top. they’re much more willing to change than the people at the top are. if that. In the companies in my book. Operational excellence is about making operational change happen. The executives who keep the IT function close to them are the most successful transformation players. How can they overcome that? champy: The cultural tone is always top-down driven. and you can’t have that without a strong CIO who’s integral to the program. In the companies I’ve written about. it was everyone else. When that happens. I’ve been in this business for 30 years. In the companies you cover. everybody played: It wasn’t just the CEO who was important. That’s why you sometimes need a new team or a new leader. the CIOs report to the people at the top. another firm featured in OutSmart!] launched a product for dogs not long after they had their engine going for horses. Ambition plays into transformation. I know how to change them. The dog business didn’t work initially because there were some issues with the product and how they would deliver it. not to the CFO. But they also see that their job is at risk in a big change program. n Please send questions and comments about this article to editors@cioinsight. the people running the businesses I write about weren’t transforming them—they were inventing them. The folks at SmartPak [a prescription service for horses that used innovative IT to expand its product and service offerings. If there’s nobody at the top making the call.cioinsight. They’re making a lot of the decisions about how the company will operate. it’s usually because there www. But if I look at the companies that have gone through some major transformation—operationally and culturally—I could count them on one hand. But again. and very little has changed in our ability to alter the beliefs and management styles of executives. the CIO reports right to the top. The people I interviewed had a mix of ambition and a willingness to test ideas. But because they were using an Internet channel. Some CEOs have a much different worldview of what’s important for the business. It’s very difficult to change a company from the bottom up. and maybe—maybe—someone at the top will recognize it. What is their appetite for change? What is the nature of their ambition? What’s their skill level in being able to bring about and execute change? Whenever a company struggles to execute change. You can put a product or service out there and test it very quickly to see if customers will bite. so they want the CIO at their side. It’ll happen in some cases.43 CIOINSIGHT | 03. Still. the transformation project gets out of control. because they see that if there isn’t change. where did the CIO fit in the business strategy? champy: Traditionally. The companies that get in trouble with big transformation programs have the CEO delegating a lot of the systems application decisions too deep into the company. but it would take five years of hard work—and it would probably require the change of a few people in the company.2008 the companies that were trying to build marketplaces had some very interesting business models—models that I thought were quite sound.

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To take application delivery all the way to the endpoint. requiring IT staffs to do more work with fewer resources.com/Zd . viSit www. and safeguard data. Centralizing the application in one location means fewer physical servers must be managed and one person with expertise in a particular application can support all the users in the company from one spot. For instance. many companies must support a more mobile and more geographically dispersed workforce. Specifically. deliver applications.bluecoAt. Through technology partnerships with companies including Microsoft. Blue Coat solutions accelerate any application—including internally and externally hosted and encrypted appli- cations. Blue Coat can stop the bad and accelerate the good. running email on local servers in remote offices requires someone to manage the hardware and the application at each site. And many IT budgets are tightening. more corporate data is now subject to government and industry regulations. n for more informAtion. From a cost standpoint. In late 2007. centralizing applications and data provides a more efficient use of IT resources and staff. The combination of these factors is altering the way IT departments support users. PerformAnce And Security iS Key Providing remote and mobile workers with access to centralized applications requires that the data passing between locations be protected. positioned Blue Coat in the “Leaders” quadrant of its “Magic Quadrant for WAN Optimization Controllers.” Earlier last year. object caching. which must be addressed before business applications can be reliably hosted. expertise. Blue Coat solutions are recognized for their innovation and maturity. and SAP. Oracle. Blue Coat offers application-specific acceleration and optimization for the most commonly used business applications. Gartner Inc. anywhere across a distributed enterprise. driving application performance and security for any user. because the communications between a user’s computer and server run over a wide-area network (frequently the public Internet). To that end. where IT managers can prioritize data traffic by application. Additionally. or transaction. By providing bandwidth management. where application objects can be stored locally. all while protecting data so that employees can conduct business in today’s more decentralized corporate world. Blue Coat ProxyClient extends applications delivery to remote users. The Blue Coat ProxySG appliances can scale to support a small branch office or a large data center. there may be transmission delays. Blue Coat was also positioned by Gartner in the “Leaders” quadrant of the “Magic Quadrant for Secure Web Gateway. Blue Coat offers WAN application delivery solutions that combine easy-to-manage appliances and client software to accelerate applications and secure data. protocol optimization for TCP and other application protocols. At the same time. there is a growing trend toward consolidating and virtualizing applications on fewer servers and centralizing data for security.SPECIAL ADVERTISING SECTION Secure and accelerate applicationS over the Wan A pplications that in the past have not been considered missioncritical increasingly must be accessible 24x7 to meet the demands of today’s global business economy.” Blue Coat’s combination of solutions. user. and partnerships give organizations a way to deliver applications to remote and mobile workers reliably and efficiently. Additionally. and cost reasons. accelerating applications and protecting them from Internet threats. regulatory. byte caching to reduce the amount of data sent over a WAN. 2007. and compression. 2007.

and we included nearly 30 items under the collaboration umbrella— from telephony and e-mail to prediction markets and social networks. We also tested some intriguing notions: How important are Web 2. Executives.0 fans often overlook other collaboration technologies. As is so often the case with applications. But while some Web 2.0 technologies in the workplace. and they often lead the charge at work. the biggest obstacles to successful integration of collaboration tools into most companies are a resistant corporate culture and insufficient support—not problems with technology or security. . But don’t rely solely on young employees. relying primarily on e-mail and telephony.com JOHN BERRY/GETTY IMAGES to boost productivity and decision-making. More-seasoned employees do a better job sniffing out the applications that have the biggest business impact. because the line between collaboration and communication is ultra-thin. with the Ziff Davis Enterprise 2008 Collaboration Survey. and half say they enable and even inspire strategies that were previously unattainable or unimaginable.cioinsight. more commonplace technologies and tools usually prove more useful for collaboration. they wouldn’t be so widely used—while Web 2.46 COLLABORATION CIOINSIGHT | RESEARCH [RESEARCH I COLLABORATION] Unlocking the Power of Teams Collaboration tools have tremendous strategic potential. Now.0 technologies sizzle—chat and blogs are frequently used behind IT’s back—older. and are young workers pioneering their use there? We deliberately defined collaboration broadly. use few collaboration technologies. IT executives may undervalue Web 2. it turns out. but CIOs must separate the sizzle from the steak. which tools are making the greatest impact and how broadly they’ve been adopted. By Allan Alter hen collaboration and work-flow moved up to second place in our Top Trends Survey list of the most strategic technologies late last year. it confirmed what CIOs and other IT executives had been telling us about the field’s growing importance to their businesses. We discovered that about 80 percent of IT executives believe collaboration and workflow technologies deliver on their promise W www.0 tools—if the tools weren’t helpful. Young people are quick to adopt new technologies. we’ve garnered data from more than 180 respondents on the reasons behind the technologies’ increasing significance.

for example.. and Reuters uses them to create new products for traders and portfolio managers..2 My company has changed its business strategy in the past two years because collaboration tools have given us new capabilities.1 Use of collaboration tools has had a significant. share work and make decisions together—are among the most important technologies of 2008.8 percent in 2008.. And half the respondents have changed strategies because of insights or capabilities the products have provided. we have increased the following. total less than $500 million $500 million or more N=156 21% of respondents devote more than 20% of their IT budget to collaboration 1.com .47 CIOINSIGHT | 03. analyze. Productivity Decision-making 84% 83% 87% 78 77 79 N=179 .4 In the past two years.2008 finding 1 Collaboration Tools Remake Corporate Strategies Collaboration tools—which allow employees to brainstorm. in part to support Web and data traffic generated by collaboration tools. Just N=179 COLLABORATION TECHNOLOGY RECEIVES HIGH MARKS . The reason for all this attention: Companies find that these products deliver on their promise to improve productivity and decision-making. Collaboration tools.3 What percent of your 2008 IT budget goes to collaboration systems and support? less than $500 million $500 million or more Average 12% 14% 9% N=178 COLLABORATION CAUSES INFRASTRUCTURE SPENDING TO RISE 1. 36% measure the financial value and 1. positive impact on my company’s: agree less than $500 million $500 million or more 41% measure the nonfinancial benefits of collaboration technologies. have enabled Boeing to change the way its engineers and subcontractors design and build aircraft.cioinsight. plan. according to the Ziff Davis Enterprise February 2008 IT Spending Survey. agree less than $500 million $500 million or more IT infrastructure spending Hosted or managed infrastructure spending 74% 77% 70% 64 65 61 www. although most firms don’t measure the value they receive from these technologies. Organizations will increase their spending on collaboration software by 14.. AND FREQUENTLY BRINGS STRATEGIC CHANGES 1. These payoffs explain why CIOs are willing to devote a significant part of their IT budgets to buy and support collaboration tools and to increase spending on the infrastructure needed to support them.

How the survey was done: CIO Insight editors designed the 2008 Collaboration Survey with members of the Ziff Davis Enterprise research staff. the rest held other IT executive positions. www.1 Which business processes will receive the biggest investment of time/money for new collaboration tools and upgrades in 2008? (Select up to three. and responses were collected from Feb. PROJECT AND IT MANAGEMENT ARE SPENDING TARGETS 2. 19. The respondent base was limited to 188 qualified respondents with titles of IT director or higher (117 from companies with revenues in calendar 2007 from $5 million to $499 million. 3 to Feb.com/research for additional survey data and analysis. This increases to finding 2 Service and Project Teams Are Primary Focus The top priorities for collaboration investments are linked to the No.cioinsight. 71 from companies with revenues of $500 million or more).com . for example—also are near the top of the list. Project teams also benefit in a big way from investments in project. considering the importance of these areas for future revenues and strategic development. 48 percent were the top IT executives of their companies. The questions were posted on a password-protected Web site. Improving customer service ranked first in Ziff Davis Enterprise’s 2008 Top Trends Survey.cioinsight. 2008. Of these respondents. document and knowledge management systems.48 COLLABORATION CIOINSIGHT | RESEARCH Project teams use more kinds of collaboration technologies than any other group within respondents’ companies. However. far fewer companies focus their collaboration investments on corporate planning or new product development—a surprise.1 business priority. N=181 CUSTOMER SERVICE. Other functions that rely heavily on teamwork—IT organizations and logistics groups at companies that sell tangible goods. IT executives gathered from Ziff Davis Enterprise publication lists were invited to participate in the study by e-mail. and in any tool that helps team members even when they are oceans apart. Ë More online: Go to www.) rank total less than $500 million $500 million or more 1 2 3 4 5 5 7 8 9 10 11 11 13 14 15 15 15 18 Customer service Project management IT management Education/training Sales Service delivery New product development Marketing Financial operations Planning Human resource management Research and development Logistics Manufacturing Store or branch operations Legal Procurement Other 44% 35 26 24 23 23 19 18 14 13 12 12 8 5 4 4 4 3 46% 33 21 28 20 24 19 17 14 14 13 13 8 5 5 3 2 4 41% 40 34 18 26 21 19 19 15 10 10 9 9 4 3 6 7 1 24% at companies that sell primarily tangible goods rather than services. so it follows that companies invest most heavily in collaboration tools to let customer-facing employees share information.

workflow systems. to a slightly lesser extent. which collaboration technologies are used in your company without the approval or support of the IT organization? rank total Just 1 2 E-mail Telephony and voice mail Shared calendars FTP servers Electronic meeting systems Instant messaging/online chat Videoconferencing systems Shared project management systems Record or document management systems Knowledge management systems Shareable online spreadsheets and word processing documents Web videoconferencing on desktops Workflow systems Electronic whiteboards Hosted document sharing and storage (e.1 Which collaboration technologies are used in your company with the approval or support of the IT organization? rank total 3.g. real-time document collaboration tools and knowledge management systems are considered more important than any Web 2..3 Which collaboration tools do you think will help your firm the most in achieving its strategic goals for 2008? (Select up to three. E-mail Shared/social tagging and bookmarking Electronic meeting systems FTP servers 41 40 40 36 34 34 30 30 30 30 28 26 23 20 10 10 MOST IMPORTANT COLLABORATION TOOLS 3. by co-workers engaged in business processes.2008 finding 3 E-Mail Is Top Collaboration Tool Web 2. given how many use them—even when IT organizations don’t provide support. Google Apps) 10% support social networks. tagging and wikis—among the most important collaboration technologies. N=188 N=181 MOST USED COLLABORATION TECHNOLOGIES SUPPORTED BY IT MOST USED COLLABORATION TECHNOLOGIES NOT SUPPORTED BY IT 3. RSS.com .0 features to e-mail could provide a balance.49 CIOINSIGHT | 03.0 tools. social networks. Prediction markets and recommendation voting systems are used rarely..0. but IT executives say other collaboration technologies are more valuable. they place great importance on old standbys such as e-mail and telephony.0 technologies—including blogs. Instead. but employees clearly feel differently. the most widely used collaboration tools. IT executives may think other technologies are more important than Web 2. This remains a source of tension between IT managers and users. 3 4 5 6 7 8 9 10 11 11 13 14 14 16 16 16 16 20 21 22 23 24 25 13% support recommendation voting systems and less than RSS feeds Wikis Online discussion forums Hosted document sharing and storage (e. Facebook and MySpace) 45% 42 35 22 22 20 13 12 11 6 6 N=181 23% support blogs.g. Shared project management systems.2 To the best of your knowledge. Few IT executives rank Web 2. and a number of other technologies that have been overshadowed by Web 2. Adding Web 2.g. shared/ social tagging and prediction markets.cioinsight. Google Apps) 98% 82 78 69 62 61 54 46 44 1 2 3 4 4 6 7 8 9 Instant messaging/online chat Blogs Social networks (e.0 technology: They are widely used by project teams and.0 technologies get the attention..) rank total Collaborative product design tools Online discussion forums Project extranets Wikis RSS feeds Real-time document collaboration Blogs Integrated workgroup support systems Video messaging and sharing Recommendation voting systems 1 2 3 4 5 5 7 8 E-mail Shared project management systems Workflow systems Knowledge management systems Electronic meeting systems Telephony and voice mail Record or document management systems Real-time document collaboration Integrated workgroup support systems Wikis 34% 23 19 17 15 15 14 13 11 11 14 13 9 9 www.

and support for training and infrastructure depends in part on management buy-in. other collaborationfriendly behaviors—providing adequate training. N=178 ONLY HALF OF EXECUTIVES USE COLLABORATION TOOLS 4. but it’s not the primary obstacle—corporate culture and inadequate training are.com . total less than $500 million $500 million or more N=178 FEW COMPANIES PROVIDE ADEQUATE TRAINING.1 Which is the greatest obstacle to successful adoption of collaboration technologies at your company? total less than $500 million $500 million or more Corporate culture creates barriers to collaboration Inadequate training in use of collaboration tools Inadequate management support Inadequate IT infrastructure Lack of security controls/safeguards Technical inadequacies of collaboration tools Other 25% 22% 31% 21 17 11 11 8 7 20 20 8 10 13 8 22 13 15 12 1 4 72% say the security risk from these technologies is severe or moderate. telephony. executives may not need the same tools. for instance—are more likely to emerge. 56% 65% 46% 33 54 11 www. Of course. as project teams. encouraging experimentation and rewarding employees who collaborate.cioinsight. telephony and shared calendars— are used by at least one-third of senior executives at most companies. Provides adequate training in the use of collaboration tools. not technical problems or security. or as many tools. N=178 CULTURE AND INADEQUATE SUPPORT BLOCK USE OF COLLABORATION TOOLS 4. and the shared calendars found in Microsoft Outlook and other e-mail systems. Security is a concern for IT executives. Just three collaboration technologies— e-mail. Few senior executives surveyed use collaboration tools other than e-mail. the lack of use of these tools by executives has a dampening effect.3 My company … total (agree) senior executives set an example Senior executives do not set an example Rewards employees for collaborating. JUST HALF REWARD COLLABORATION 4. are the biggest roadblocks to the use of collaborative technologies. only about 14% have lost customer or corporate data due to unauthorized use of collaboration tools. CIOs who want to increase collaboration among employees must encourage executives to set an example by embracing these tools and technologies. Lack of executive support is an underlying issue.50 COLLABORATION CIOINSIGHT | RESEARCH While finding 4 Executives Underuse Collaboration Tools Culture and lack of training. When executives set an example of collaboration.2 Senior executives at my company set an example by using collaboration tools. But since corporate culture is heavily influenced by executive behavior.

Innovation in collaboration is not an exclusively American phenomenon. Surprisingly. it’s employees in their 30s and 40s. one in four companies have found that their foreign-based workforce can be a source of new ways to use these technologies. not the 20-somethings. employees of my company ages 18-30 have pioneered ways to collaborate that are now widely used.51 CIOINSIGHT | 03. total less than $500 million $500 million or more www. Nor should they overlook overseas workers: While Americans often export innovative collaboration practices overseas.S.2008 finding 5 Collaboration Isn’t a Youth Movement Older and overseas employees have plenty to offer in terms of collaboration.3 In the past three years. though. Young people have a reputation for being more comfortable working in groups and using new technologies. they should include members of the middle generation of workers.2 Which employees are fastest to adopt collaboration technologies at your company? Which employees find the most effective business applications for collaboration technologies at your company? fastest to adopt find the most effective applications Employees 18 to 30 years old Employees 31 to 49 years old Employees 50 and older There is no difference in adoption between age groups 55% 18 1 26 28% 44 3 25 N=171 GOOD IDEAS CAN COME FROM EMPLOYEES OUTSIDE THE UNITED STATES 5.cioinsight.com . N=171 YOUNG EMPLOYEES ARE COLLABORATION PIONEERS … 5.1 In the past three years. however. total less than $500 million $500 million or more N≥179 … BUT MORE EXPERIENCED EMPLOYEES FIND THE MOST USEFUL APPLICATIONS 5. my company’s employees outside the United States have pioneered new ways to collaborate that are now widely used by U. The survey backs that up: Employees 30 and younger are the fastest to adopt collaboration technologies and have often served as pioneers for new collaboration tools.-based employees. Anyone leading a collaboration or emerging technology task force shouldn’t assume the youngest employees have the best insights into new technologies. who have the experience to see how these technologies can be applied to the workplace. who are most likely to use high-impact collaboration applications. Employees older than 50 are rarely collaboration trendsetters.

S E R V I N G I T G O V E R N A N C E P R O F E S S I O N A L S Exam Registration: 9 April 2008 Exam Date: 14 June 2008 www.isaca.org/cioinsight .

according to past formation these tools offer. But Less Technology Midtier firms don’t use collaboration tools as much as larger companies do. locations and processes to environment. and the and midstream technology adoptpower of sharing and storing projers. There’s a case to be made that smaller fi rms CIOs at these companies should revisit these don’t need these tools as much: They have technologies. IT executives at use fewer collaboration tools than midtier companies rated collaboracompanies. Given that. In our Top Trends is increasing revenues of less than $500 million at midmarket Survey for 2008. larger companies and are increastion and workflow the second most ing spending in this market more slowly. including the rise of telecommuting and companies to be early a more mobile workforce. even in today’s cost-constrained fewer employees. process and other kinds of inThe amount spending faster. and they are increasing IT ect.cioinsight.1% ANDY ZITO/GETTY IMAGES www. But it’s also possible they’re overtechnology laggards. Companies with indicates neglect. Midtier comlooking factors that argue for more IT suppanies are more likely than large port.53 CIOINSIGHT I 03. 1 2 3 4 5 E-mail Telephony/ voice mail Shared calendars FTP servers Instant messaging/ online chat S MALL AND GROWING BUSINESSES ARE N0T 8. important technologies of 2008. The lack spending on CIO Insight surveys. Is that wise? By Allan Alter Most Used Collaboration Tools coordinate.com . But their spendof adequate training for collaboracollaboration ing on collaboration is the exception software already in place also software tion to this trend.2008 [MIDMARKET RESEARCH I COLLABORATION] Teamwork.

54
CIOINSIGHT | MIDMARKET RESEARCH

COLLABORATION

finding 1

Investments in Spending and Training Are Low
Midmarket companies invest less time and money than larger firms in collaboration software. Larger firms are more likely to have global employees who must work together in teams. The low training figures for midtier firms also indicate that it’s not just a matter of investing less in collaboration technologies, but also of neglecting investments already made.
N=110 N=178

MIDMARKET FIRMS ARE SPENDING LESS ON COLLABORATION TOOLS …

… AND ON TRAINING TO USE THEM
My company provides adequate training in the use of collaboration tools.
less than $500 million $500 million or more

1.2

1.1 How much is investment in collaboration
software changing from 2007 to 2008?
less than $500 million $500 million or more

Percent increase 8.1%

22%

Source: Ziff Davis Enterprise February 2008 IT Spending Survey

finding 2

Lagging Behind in Web 2.0 and Open Source
Web 2.0 and open-source collaboration tools are only beginning to make inroads in IT organizations. Midmarket companies are neither willing to cut the cord with proprietary vendors, nor to embrace Web 2.0 technologies. But given SMBs’ strong interest in open source, and the widespread (albeit unsupported) use of Web 2.0, more midtier companies are bound to begin adopting these tools.
N=111

FREE AND OPEN-SOURCE TOOLS HAVE NOT DISPLACED PROPRIETARY SOFTWARE
What impact have approved or supported open-source or free online collaboration tools had on the use of proprietary collaboration tools and services at your company?
less than $500 million

2.1

Open-source and free online collaboration tools are used only occasionally, in addition to proprietary software and services. They have replaced some proprietary software and services. They have replaced many or all proprietary software and services. My company does not approve or support open-source or free online collaboration tools.
Numbers do not add up to 100% due to rounding.

42% 26 6 25

N=113

WEB 2.0 USE LAGS BEHIND AT MIDMARKET COMPANIES
Which of the following Web 2.0 technologies are used in your company, with or without the approval or support of the IT organization?
less than $500 million used with IT support used without IT support top 3 strategic collaboration tools

2.2

Hosted document sharing and storage
(e.g., Google Apps)

31% 28 25 20 7 5

12% 20 15 35 9 32

5% 13 0 5 3 3

Wikis RSS feeds Blogs Shared/social tagging and bookmarking Social networks (e.g., Facebook)

www.cioinsight.com

55
CIOINSIGHT I 03.2008

finding 3

Use of Collaboration Technologies Doesn’t Measure Up
Midtier companies are less likely than larger firms to use collaboration tools. These include videoconferencing, shared project management systems, electronic whiteboards, electronic meeting systems and knowledge management systems—tools well-suited for connecting global teams and sharing knowledge in large companies where employees are often unknown to one another.
N=171, 71

Which of the following collaboration technologies are used in your company, with or without the approval or support of the IT organization?
used with IT support used without IT support

3.1

TECHNOLOGY

less than $500 million

$500 million or more

less than $500 million

$500 million or more

At least

1 2

E-mail Telephony and voice mail Shared calendars FTP servers Instant messaging/online chat Electronic meeting systems Shareable online spreadsheets and word processing documents Videoconferencing systems Record or document management systems Shared project management systems Web videoconferencing on desktops Hosted document sharing and storage
(e.g., Google Apps)

99% 79 73 68 59 52 41 39 38 35 35 31 31 29 29 28 26 26 25 23 20 19 15 10 9 8 7 5 2

97% 86 87 69 63 79 39 79 52 65 49 39 58 31 48 34 35 35 32 51 30 38 27 17 23 15 8 13 4

14% 5 2 7 47 4 2 2 1 1 5 12 0 19 1 20 3 3 15 3 35 2 2 0 6 0 9 32 0

7% 3 9 4 41 9 7 1 3 3 4 16 4 22 3 25 6 6 32 3 53 4 4 4 1 3 15 40 3

15%
of respondents at SMBs consider these tools among those most likely to help their firms achieve strategic goals in 2008.

3 4 5 6 7 8 9 10 10 12 12 14 14 16 17 17 19 20 21 22 23 24 25 26 27 28 29

Knowledge management systems Online discussion forums Workflow systems Wikis Collaborative product design tools Project extranets RSS feeds Electronic whiteboards Blogs Real-time document collaboration Integrated workgroup support systems Recommendation voting systems Video messaging and sharing Expertise location and sharing systems Shared/social tagging and bookmarking Social networks
(e.g., Facebook and MySpace)

Prediction markets

www.cioinsight.com

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Companies such as Cisco Systems. Among the vendors in the market that focus on NBA are Arbor Networks.com NBA detects behaviors that might be missed by policy-based and signaturebased security technologies. Nearly one-fifth of the survey respon- .2008 [STRATEGIC TECHNOLOGY I SECURITY] The New Hall Monitor While not as widely deployed as many entrenched security technologies. NBA products analyze network traffic via data gathered from network devices. as the cost of security breaches continues to rise. NBA products are decision-support systems that help a knowledgeable operator interpret and react to a variety of network activities that are deemed suspicious. or through packet analysis. Mazu Networks and Q1 Labs.000 the previous year to about $350. and provide a view of network activity so administrators can analyze and respond to the activity quickly. and if that information is compromised. they alert security and network managers to any suspicious activity. There’s an obvious need for improved detection of network activity.000 in 2007. such as IP traffic flow systems. The market for NBA has attracted mainstream network and security equipment providers and smaller firms. before there’s extensive damage. network behavior analysis is opening many eyes to the true risks permeating corporate networks. firewalls. or NBA. is designed to give organizations the level of visibility they need to help ensure that security threats are identified and remedied.57 CIOINSIGHT | 03. Using a combination of signature and anomaly detection. such as intrusion detection and prevention systems. Given the ability of NBA to provide this added layer of defense. Those technologies might not detect threats that they’re not specifically configured to look for. Network behavior analysis. One of the keys to protecting networks and systems is to know exactly what type of activity is occurring on them. Lancope. unauthorized protocols and suspicious connections. Internet Security Systems and Sourcefire also offer some type of NBA functionality. IT advisor Gartner says. By Bob Violino dOpportunity Businesses have a lot riding on their networks. According to the 12th annual Computer Security Institute Computer Crime and Security Survey—which queried 494 U. Gartner recommends that organizations deploy the technology as part of a comprehensive strategy to protect enterprise networks. CounterStorm.cioinsight. www. computer security professionals—the average annual security-related loss increased from $168.S. the results could be disastrous. The data moving between devices and facilities is the lifeblood of an enterprise. An experienced administrator uses the technology to address threats such as worms. and security information and event management systems.

and demand for this technology is on the rise after a slow start in 2001.58 CIOINSIGHT I STRATEGIC TECHNOLOGY dents who suffered one or more security incidents said they had experienced a targeted attack. “An NBA system must be configured and analyzed by an expert with appropriate context to understand and interpret the information.” Proctor says. “This demand is driven by the recognition that you can’t completely define every event you may want to know Ask Your CSO or CISO: dDo current security technologies (firewalls. “The major challenge is tuning them and establishing appropriate response workflow. “but they are treated by many organizations essentially as ‘set it and forget it’ mechanisms.” Some behaviors are recognizable only to an expert with appropriate context and visibility into network traffic. Gartner projected that the NBA market revenue increased 30 percent in 2007.cioinsight. The report said that early NBA technologies evolved from products such as distributed denial-of-service protection. The Gartner report says NBA systems can help organizations catch such infections early and thereby limit their impact. coverage and automated response.” www. about and program a box to tell you when something happens. In contrast. which is defined as a malware attack aimed specifically at an organization or organizations within a subset of the general population. intrusion detection/prevention. computer viruses— which had been the leading cause of loss for seven consecutive years—came in second. who authored the report. Gartner Network behavior analysis can help organizations spot these kinds of activities. according to Proctor.” says Paul Proctor. and these technologies competed with signature-based products to address security vulnerabilities such as worms. “Intrusion detection and prevention systems can only identify behaviors that can be explicitly defined by a set of known patterns signatures.” d“The spread of a worm through the enterprise is not easily detectable with traditional mechanisms. followed by virus incidents.” Intrusion detection/prevention systems must be tuned appropriately. Organizations need to see what’s going on in their networks so that they can make good decisions regarding their level of interest in different events. some of which persists today. This led to market confusion about NBA.com . analysis and remediation—they should consider using NBA to identify network events and behaviors that are not detectable via other techniques. Financial fraud was the source of the greatest financial losses. The major benefit is getting information and visibility that you can’t get through any other toolset. thanks to the security functionality and operations visibility these products provide. “the spread of a worm through the enterprise is not easily detectable with traditional mechanisms. The most prevalent security problem was insider abuse of network access or e-mail. and security information and event management systems. including deviations from observed behavior baselines. intrusion detection/prevention systems) provide enough visibility into network activity so the organization is able to track all security breaches? Ask Your CFO: dWill the budget allow for NBA systems that improve visibility of network activities and enhance security? dStrategy After organizations successfully deploy firewalls and intrusion detection/protection systems—with appropriate processes for tuning. to detect interesting events that are not easily defined through signatures. which missed the point and value of NBA technology—providing network visibility in a decision-support context—said the report. NBA “uses a combination of detection mechanisms. “The demand is growing for more visibility into network behavior to address security and operational requirements. some are considering network behavior analysis technology.” —Paul Proctor. vendors had to compete with marketing messages that stressed accuracy.” Proctor says.” he says. according to a report released by Gartner in late 2006. At that time. Now that many organizations have deployed firewall. “For example. One area in which NBA had a clear advantage over signature-based products was in addressing “zero-day” vulnerabilities. research vice president at Gartner.

” including fine-tuning the NBA Profiler appliances to ensure that they collected the data the university needed and to avoid false positives. CUNY’s chief information security officer. began using the Mazu Profiler NBA system from Mazu in November. a Lehi. according to Sourcefire.2008 Failure to fine-tune NBA devices adequately can result in a lot of false positive readings. “Mazu worked with us from an architecture and deployment perspective. university managers are better able to understand what they must do to improve security at the individual colleges. watching for deviances from typical traffic levels or connection patterns and alerting administrators to these changes. CUNY’s deployment of NBA. It monitors communications behavior among endpoints on a network. Sourcefire’s intrusion protection software provides vulnerability-based intrusion prevention built on Snort. Now the colleges have insight into normal and abnormal network activity—something they never had before—allowing them to anticipate problems faster than ever. One of the primary drivers for adopting the security technologies was to meet the requirements of the Payment Card Industry Data Security Standard. college CIOs and university administration. the largest urban university system in the United States. “NBA was as much about a technology solution to a problem as it was about standardizing on some type of security technology and increasing awareness of security concepts at the university. port scans. letting CUNY security managers know exactly what’s happening on the universitywide network. Trojans. and there was no formal security community.cioinsight. spyware. network access control and NBA.” says Carl Cammarata. he says.” Cammarata says. is another company that has boosted its network security with an NBA implementation. most of the entities operated independently. baselining traffic. Real network awareness delivers a continuous. or PCI DSS.” Ask your CSO or CISO: dWill an NBA system work well with our existing firewalls and intrusion detection/prevention systems? Ask your operations team: dHow quickly can we set up training programs for users of NBA systems? dImplementation XanGo.59 CIOINSIGHT | 03. real-time view of what’s happening on a network and identifies potential vulnerabilities on network devices. Another component. “Because we operate on a somewhat open environment and with the requirement of academic freedom. The Profiler NBA analyzes network traffic and behavior in real time.com Although each separate entity at the university manages its own network data from the NBA systems. “We thought NBA could provide a level of control that would help us understand what is going on in the networks in each of the 20 entities. The City University of New York. the technology has provided CUNY with some badly needed security cohesiveness. network access control and vulnerability assessment capabilities. a standard intrusion protection tool. About 18 months ago. the privately owned company began using Sourcefire’s 3D enterprise threat management suite. which bogs down network and security managers as they look into alerts that pose no risks to the organization. “For years. provides NBA. NBA has helped us significantly in forming this security community. Organizations that have implemented NBA say they are gaining greater visibility into their networks. when used properly. we could help the colleges diagnose and identify security incidents if and when they arose. real network awareness. However. It uses a rules-based language—a combination of signature. “Once we learned more about the network. The NBA technology has helped CUNY cut in half the time it takes to understand and respond to potential security situations. we didn’t have some of the usage controls that might be in place in the private sector. which took place over six months. Components of the suite include intrusion prevention. protocol and anomaly-based inspection methods—to examine packets for attacks such as worms.” Cammarata says. this technology has a huge impact on an enterprise’s ability to see what’s really going on with its networks. Each of 20 college IT operating entities within the university has installed a combination of the Profiler and one or more sensors that monitor network traffic and provide statistics to the Profiler appliance for aggregation and analysis.” By learning more about network behavior. while not interfering with open research and academic freedom.” Cammarata says. “It was truly a collaboration between Mazu. Cammarata says. www. denial-ofservice attacks and zero-day attacks. Utah. . maker of health beverage products. no cohesive security plan and very little standardization. vulnerability management. was successful largely because Mazu proactively ensured that the university implemented the technology correctly. buffer overflow attacks.

when Weill dTake the time to adequately breaches on its network. “We have seen instances where a bandwidth upgrade costs by elimdWork closely with the NBA venuser might be infected with a botinating noncritical traffic on wide dor and make sure that any net” that could trigger a denial-ofarea network circuits. Peakflow X after the initial implementation.” As a result. but they didn’t provide adequate views of netto protect company information and the personal work behavior. network behavior. to adopt NBA technology. the system conducts network analyses to deterover the Internet using credit cards.” Nathan says. appropriate processes for tunwork activity than it had before. deployed be updated to track the latest security threats. “NBA will allow us to see certain detect three times the number of activities that say there’s obviunauthorized network intrusions dEnsure that the people who will ously something going on with and attempted intrusions than use the system and interpret the network. rity drove another organization. Cornell security managers detect tune the systems to gather releRegulatory compliance and a suspicious network behavior.) Prior to using NBA. manager of network operations and security. Now. but wood. regulations such as the Health Insurance PortabilThe biggest challenge of using the NBA system was ity and Accountability Act.cioinsight. deploy install more sensors later this year.” says itives. overall security at the company. e-mail. analysis and remediation. in New York. Ask your IT director: including medical students and health-care profesdHow many network users are there in all locations sionals. The center.60 CIOINSIGHT I STRATEGIC TECHNOLOGY because many XanGo customers purchase products data. and it plans to With greater visibility into dBefore considering NBA. Weill Cornell firewalls and intrusion detecGreenwood says NBA gives the reduced network problem resolution/prevention systems with company more insight into nettion times from days to minutes. resulted in essential security improvements. as it and identity management. associate director of security ing. video and other applications. prevent credit card fraud and identity theft. But the effort was worthwhile. including remote offices? over IP telephony.” says Brandon Greenrobust security against the latest vulnerabilities. extremely limited visibility into network activity and managers at XanGo thought NBA could enhance were reactive in dealing with network vulnerabilities. It provides access to the Internet. Implementation Tips two remote offices.” Nathan says. there was no reliable way to perform historical analyXanGo has deployed NBA senses of network activity or plan netsors at its main office in Lehi and work capacity. voice in the organization. “NBA gives us a peek tweaking the rules to reduce the number of false posinto the network that we never had before. Peakflow X leverages IP flow technology embedded Ask your CSO in routers and switches to provide visibility into the dCan we gather data to show the ROI of NBA systems? network on a real-time. gate everything that could potenthe Weill Cornell Medical College tially be malicious. “That’s a manual process and it’s time-consumBenjamin Nathan. The system provides a granular Council to provide guidelines that help companies view into what hosts are doing on the network. Not only was it difficult to provide information of our consumers. The network is accessed by some 20. Greenwood says. Weill Cornell managers had Aside from helping with standards compliance. The medical college also reduced ing.com . they vant network data and help cut desire to improve network secucan block it quickly. Arbor an NBA system called Peakflow X from Arbor NetNetworks added a new packet inspection feature to works in 2006. One big advantage of the NBA system is that it can which is a health-care and teaching facility. which Weill Cornell wanted to improve its network visgave Weill Cornell the more granular view of network ibility. XanGo it was able to detect prior to the the data are properly trained. historical basis. Using IP flow www. “We investidown on false positives. (PCI DSS is a set mine normal behavior and automatically alerts managers of standards created by the PCI Security Standards to any abnormalities. has been able to prevent security implementation. “We also wanted to Weill Cornell used packet analyzers in multiple locaadopt good business practices and do what we could tions. technical network architecture service attack. Using NBA let Weill Cornell issues are addressed up front. boost security and ensure compliance with usage that it wanted.000 users.

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Co-location obviously doesn’t guarantee success (plenty of dysfunctional behaviors happen in close proximity). and it isn’t going to be easy. Unless managers work hard to keep alignment going. this looks like a pretty good model. So. This can be fixed. All of us are going to have to get together to solve these issues. As cost differentials narrow. casual interaction and instant issue resolution available. as the local workforce becomes less willingly mobile and more demanding of a dispersed organizational style. The more distributed the team gets—even with good communications. but none of the examples seem to be very scalable. persistent or easily generalized. The creative process works best when there is plenty of ad hoc sharing. common processes. there is no difference between theory and practice.64 CIOINSIGHT STRONG SIGNALS by john parkinson ‘Wherever’ Doesn’t Work Anymore Executives enhance the creative process by having developers work side by side rather than remotely. it’s time to revisit some of the basic principles of human capital management in software engineering. I’ve looked at several powerful counterexamples where distributed teams matched or bettered the performance of colocated teams. as well as of IT and the business. This is one of the trends that have driven the globalization of labor since the early 1990s. In other words. I still have no problem with the theory.com. the more distant parts of the engineering organization seem to lose their focus over time.com . I’m back to preferring co-location of engineering resources. good managers and effective support infrastructure—the bigger the productivity tax that the overall development process has to pay. or can’t have. there is. there’s the potential of missing out on some talent that cannot be co-located with others on the team. Another issue with distributed development is the potential for the engineers and their managers to become separated from the day-to-day concerns of the business. As long as the raw labor cost difference between dispersed locations was significant. but it requires time and constant communication. That’s another difficult trade-off—one that will be increasingly difficult to balance out over the coming decade. but it will incur some program.” —Yogi Berra I’ve heard a lot over the past decade about the war for talent and how to win it. “In theory. At first glance. In practice. but it does seem to be a good place to start.cioinsight. you still came out way ahead overall. I’ve been a proponent of the theory for most of that time and worked hard to make it effective. www. Hence. It’s a common presumption that we are short of critical technical skills and that we must seek out and retain the skills we need wherever they are. Inevitably. A kind of organizational entropy develops in dispersed organizations. Over the years. Global labor cost arbitrage opportunities are steadily eroding. all our developers in one place? One possibility is having the teams in different locations each be dedicated to a specific project or product. n john parkinson is the chief technology officer of a global credit and information management company. it gets harder to justify the additional overhead. but the gap has been narrowing over the past decade. What else can we do if we don’t want. but the practice has turned out to be more challenging. that tax didn’t matter. Please send questions and comments to editors@cioinsight.and portfolio-level coordination and management costs. Maintaining a uniform cultural model will be a challenge. the total cost of operation after factoring in the process costs and infrastructure investments needed to maintain productivity levels still favors offshore resources. It’s always been the case that co-location is the best option for a software engineering team.

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