Selling to Optimal-Edge CIOs

OPINION - (exerpt from SandHill.com Feb 14, 05)
Toby Redshaw, Corporate VP of I.T., Motorola
Today’s enterprise buyers are a whole new breed. Here’s how to speak their language.


I want to buy your software. But I want to be able to implement it in a few weeks, loosely couple it to my architecture and throw it away in 4 or 5 years if the next generation of software leapfrogs yours.That’s what it is going to take for my company to stay competitive.

Like many I.T. buyers, I’m done with living on the leading edge – or bleeding edge – of technology adoption. Too often, enterprises were burned investing in new technology too quickly in areas that simply did not matter to the P&L. Today enterprise buyers are focused on “optimal-edge” I.T. strategies: Leveraging new technology to our company’s competitive advantage. We think and buy differently - and want to work with vendors who understand us. Part of our mission is to shrink spend in areas that just keep the lights on or maintain status quo. We want to move that money to where it can impact shareholder value, grow market share and make the company more competitive.

Not Your Father’s CIOThe CIO profile and thereby the I.T. organization’s profile has changed a lot in the past 10 years – a relatively short period of time considering the CIO position is not much older than that. CIOs used to be executives who came up through the technology ranks, usually from the programming side. In the early to mid 1990s as the business processing reengineering “trend” took off, companies realized most I.T. leaders did not understand the business well and could not readily communicate across the business. That’s when more business-savvy CIOs became fashionable.Today’s optimal-edge CIOs are different. The I.T. leadership role is one of collaborative catalyst driving change under an umbrella of serving the business and delivering a competitive advantage. These leaders possess three key characteristics:

1. Deep technical awareness, especially around emerging architecture, evolving software and how that matters to the business
2. Real business experience and profit-loss leadership
3. Change management, controls and communications skills

In 5 years, this CIO profile will be commonplace. Today, it is still rare. In most companies, the CIO has a seat at the “big table” but he or she still stands behind the make-and-sell components of the business. That’s probably how it should be today. But as the experience and service components of GDP continue to grow, the digital parts of the enterprise will become more important.I.T.’s Improving ReputationInformation technology is emerging from an era of anger and distrust within the enterprise. During the post-Y2K and Internet spending hangover, the business leaders were saying, “We gave you all this money and what did we get?” The I.T. project failure rate was significant. The business response was to get I.T. more supervision. Now, I.T. operates with strict financial oversight. In fact, at many firms, squeezing I.T. costs is 80 percent of the game.

Optimal-edge companies are done pointing fingers at the business-I.T. gap and starting to point them at something new: the potential of today’s emerging technology. We are at an in inflection point in technology history. We’re moving toward a state of ubiquitous and accelerating IP networks. The huge growth layers are the layers below the desktop PC: mobile devices, mobile computing, appliances, sensor nets – all have tremendous potential.New I.T. DriversThe convergence of new technology and new leadership is leading to new drivers within enterprises.

• A nimble environment. The era of giant ERP-type implementations is fading away. Enterprises can achieve a competitive advantage if they leverage I.T. in ways that matter to the P&L and market share. Today’s technology presents the real potential for your competitor to leapfrog over you. For example, if you bought supply chain technology four years ago, today’s solutions are radically superior. Your competitor could have been asleep at the wheel for the past decade but he awoke yesterday and bought a solution that is better than yours. The good news for optimal-edge enterprises is that a services-oriented architecture world means new solutions can be implemented quickly and can be added to legacy systems. So even if a new solution is needed to stay competitive, there should not be huge rip and replace costs.
• Increased responsibility. In addition to I.T. having financial oversight, there is a critical mass developing with corporate boards having active I.T. committees. For the first time, top-down I.T.-savvy oversight will become the norm.
• Do more with less. If you really do believe in an architected stack and I.T. efficiency and reusable components and Web services, I.T. organizations should be able to do more with less. There are Fortune100 companies that have been spending $1 billion on I.T. for 10 years. There has got to be savings in both shutting down legacy and better leveraging the remainder across the enterprise via Web services, smart governance and standards. Governance should be about optimization not about being the “hall monitor.” This mandate means you won’t see application people doing deals anymore. Procurement people and deal professionals do deals. It is the culmination of the era of distrust, as well as the leap forward in architecture and technology: We need to take money out of maintenance and put it into value-add initiatives for the business. Selling to Optimal-Edge CustomersChange is actually happening in software vendor behavior.

There have been many threats to large vendors:

• the crop of new, smaller vendors providing effective solutions;
• the increased fiscal responsibility and supervision of I.T. in the enterprise;
• the drive to do more with less I.T. spending.

My vendors are starting to realize that when I’m competing inside my large company for software dollars, I’m not just competing against other software projects. I’m competing against all the other projects in the company. These trends are forcing vendors to take a different approach.

The smart software vendors are moving towards a more customer-focused orientation. Smart vendors talk in terms of a compressed-delivery cycle.

• They put more skin in the game, more flexibility in their pricing models.
• Vendors are finally talking in terms of my business needs, saying, “We’ll save you money in this area – and we’ll commit to that.” Vendors really have no choice.
• In a services-oriented architecture world, it is much easier to sew together “best-of-value” solutions without the integration costs which would here-to-fore have pushed you toward big suites of applications.
• Our average integration costs have gone from $80,000 to $3,000 over the last three years.

Admittedly, we’re pretty leading-edge in that area but even if you‘ve got a quarter of that savings, the old vendor scare tactic, “You have to buy this big giant suite or your integration costs will be huge,” is no more.We have a place in our technology arsenal for both big and small vendors – provided they can deliver a competitive advantage. Here’s my advice to each.

Advice for Small Vendors

• Get a “big brother.”
• Sign a reference-able account to help out early in the product lifecycle.
• Obtain a real dollar proof statement of value from the client.
• Manage cash flow and margins.
• If you cannot fund significant R&D, you will get trumped or beaten.
• You need to look good to potential clients on a 2-3 year basis, not scrape by waging a 2 -3 quarter battle to fund R&D.
• Understand the time-value of a deal.
• Dancing around a deal for 9 or 12 months is the road to destruction for a small company. It will lead to a cost of sales that is prohibitive.
• Management needs to filter out deals that are sponges for time even if they seem like a good opportunity with a name brand, Fortune 100 potential client.

Advice for Large Vendors

• Understand my business. There is a trend towards having a conversation about my business and my business results rather than the features of the vendor’s product suite. I had a conversation with a large supply chain company this morning. The vendor said, “Look, I don’t want to sell you anything more. I want to help you solve your problem and I think we can solve it with products you already have…” Three years ago, you’d could not imagine that said. Now, my vendors are more in touch with my business needs. They’re focused on the long-term relationship.
• Do more M&A. Partnering and incorporating a smaller software vendor is a very clever way to get more entrenched with my company. It also allows vendors to achieve more functional adjacencies in their portfolio faster than the build-it approach.
• Avoid shortcuts to account management. For one big company working with another big company, the best account management is to dedicate a seasoned professional to my account. Someone who has a 5-10 year horizon rather than the old method of promoting reps off of accounts and into management because they have been successful. We need to maintain long term relationships.
• Constant VigilanceThe I.T. lifecycle changes in an services-oriented architecture, loosely-coupled world. The time to implement and leverage any modern software solution should be measured in weeks. That is a short cycle. Then leverage the solution with a low friction, new release path for up to 4 years. In the future, the economics of just unplugging software after 4 years may well be the most competitive model which enables the I.T. group to continually stay on the optimal edge.

Toby Redshaw is the corporate VP of IT strategy, architecture and e-business at Motorola.