Is SaaS a threat to CIO control?

Paul Maritz, chief executive of virtualisation software vendor VMware, has a theory about the evolution of the IT department. At any given point, he says, the job of the IT function is defined by the “canonical applications” that it supports.

 Is SaaS a threat to CIO control?

Paul Maritz, chief executive of virtualisation software vendor VMware, has a theory about the evolution of the IT department. At any given point, he says, the job of the IT function is defined by the “canonical applications” that it supports.

In the mainframe era, the canonical applications were bookkeeping systems. “Back then, the CIO typically reported to the CFO,” he told delegates at a recent conference. “That was because the applications that were being run were glorified bookkeeping systems.”

Later, the client-server era gave rise to the customer relationship management (CRM) and enterprise resource planning (ERP) that characterise the legacy enterprise stack of today. This type of application has given the CIO a degree of authority, as they require specialist knowledge to implement and manage.

Today, though, canonical applications are on the move again – into the cloud.

For all the talk of infrastructure as a service, platform as a service and their impact on internal IT development, it is software as a service (SaaS) that will dominate cloud spending in the coming years, at least according to Forrester Research. The analyst company has predicted that SaaS sales will more than quadruple from $21.2 billion this year to $92.8 billion in 2016, by which time they will account for around 16% of the total software market.

SaaS applications have a defining characteristic that is already changing the internal balance of power over technology – they require no infrastructure, and so can be procured by business divisions without the involvement of the IT department.

How CIOs handle that today is likely to have an impact upon their roles and responsibilities in the future. As Jonathan Reichental, CIO of technology publisher O’Reilly Media, recently wrote, “When the dust settles, the provision of computing services in the enterprise will be entirely different. IT leadership had better be prepared.”

Losing the monopoly

For some, the rise of SaaS is one facet of the demise of the IT department’s control over technology selection. In April 2011, Susan Cramm, a former CIO, CFO and business author, wrote in The Wall Street Journal that the IT department should no longer hold a monopoly on IT decision-making.

“For both competitive and technological reasons, funnelling everything through the IT department no longer makes sense,” she asserted. “Instead, business-unit leaders need to start assuming more control over the IT assets that fuel their individual businesses.”

For Cramm, IT should support the transition to a model where business units have absolute control of their IT systems. In her view, IT should be responsible for turning pilot projects into enterprise-ready, battle-hardened systems.

Traditional IT departments are too cumbersome to react swiftly enough to business needs, she argues; business units will only be able to innovate when they have greater control over IT. The role of the CIO will be to define technology and data standards, and to ensure that systems are interoperable, secure and compliant.

This will be anathema to many CIOs, who have spent years fighting against this perceived loss of control. For them, business units – in other words those without deep-rooted technology experience – cannot be trusted to
guide technology strategy without overspending or endangering the integrity of the IT infrastructure.

A case in point is the US government. In August 2011, Jacob Lew, the director of the US Office of Management and Budget, a bean-counting unit with a hotline to the White House, sent out a memo to all US government department and agency chiefs detailing plans for cutting inefficient and wasteful IT spending.

Lew’s solution to years of waste was to give greater responsibility and more control of technology spending to agency CIOs. The aim, said Lew in the memo, was to shift the CIOs’ focus “away from just policy-making and infrastructure maintenance, to encompass true portfolio management for all IT”.

Writ large across the memo was the notion that unless CIOs have absolute control over the technology deployed across the enterprise, the result is likely to be duplication of systems, or worse the proliferation of incompatible technology.

NEXT> How one CIO strikes a balance, and the analyst view

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Isaac Sacolick, CIO for McGraw Hill Construction, the construction data division of professional publisher McGraw-Hill, sits somewhere in between these extremes. In his organisation it is not uncommon for business departments to request their own SaaS applications, and it is an issue his IT department has adapted to.

“If they want to use some SaaS application they have found, provided it gets through our security review then I can’t stop them, and in many cases I don’t want to,” he explains.  

Nevertheless, it is important for business units to consider the consequences of their investments, he says. “Any new system we may bring in will only benefit the organisation in the medium term if it is something we can grow with, something we can build up expertise in and something that we can reuse.”

The secret, he says, is to foster a dialogue with the business, encouraging them at least to consult with the IT department before choosing a SaaS solution. The other side of the coin is that this obliges IT to be extremely responsive to consultation from the business.

“Often they are using these tools because they are quick to set up and can accelerate their time to market,” he explains. “So if I’m expecting them to consult with me before they deploy anything, I’ve got to make sure I can respond as quickly as possible.”

Rather than a formal process involving a business analyst or a project manager, Sacolick says that this consultation is often between executives at an interpersonal level. “Sometimes it’s just an IT director joining up with someone senior in the business organisation and saying, ‘Tell me what you’re thinking about over there.’”

That relies on a healthy relationship between IT and the business, he says. “The relationship has to be seen as consultative – that we’re here to help them get the solution that they want – and I think we’re largely successful at that. Where we get into trouble is when they start sending too many things in our pipelines and we get bottlenecks.”

Analyst views

For Gartner analyst John Mahoney, to suggest that the business units buying their own applications will change the role of the CIO is, for one thing, based on the incorrect assumption that all CIOs have the same role.

Clearly, the work that lands on a CIO’s desk depends upon the technology adoption patterns of the organisation. But it is a mistake to assume that the flourishing of so-called shadow IT will see CIOs shrink into the shadows, Mahoney argues.

“I see a close parallel with the role of the CFO, who typically has responsibility for financial matters but is not responsible for how each department spends their money,” he says.

In fact, says Mahoney, ceding control of technology selection to business units may strengthen, not weaken, the CIO’s position at the executive table. “There really isn’t anybody else on the executive board that has that systematic view of information, business processes and business relationships,” he says.

In order to allow business divisions to innovate, the CIO will have to understand processes across multiple functions and be a master negotiator and influencer in order to cajole colleagues, says Nigel Fenwick, principal analyst at Forrester Research.

They will need to empower others to use technology to solve their problems, he says, so being able to understand what issues business managers care about will be critical. “You will see organisations increasingly putting the emphasis on CIOs who understand the business, not just the technology,” says Fenwick.

In others words, the role of the CIO may be increasingly filled by executives from outside the IT department who have some knowledge of technology but are not die-hard techies.

This trend has already been spotted by Gartner’s Mahoney. “When we ask CIOs about their background, it’s increasingly common to find that they’ve come from outside the IT department,” he says. “In fact, the proportion of CIOs with non-IT backgrounds is higher in Europe than in any other region.”

According to Barbara Dossetter, delivery director for advisory group CIO Connect, the CIO role is becoming increasingly important as the IT infrastructure itself becomes decentralised. Because it gives executives that unique cross-departmental insight into business operations, the job is “now being seen as one of the many roles that high performers need to get under their belt before getting to CEO level”, says Dossetter.

This could prove to be the ultimate irony for today’s IT professionals: the very moment that the top IT role gains the status they crave, the career path becomes overcrowded with non-techies elbowing them out of the way.

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