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The Massive Force Reshaping Global Competitiveness and World Markets Dr. Howard Rubin Professor Emeritus Hunter College Gartner Senior Advisor Founder Rubin Worldwide MIT CISR Associate [email protected] Global Technology Spending $701 per person Bigger than the GDP of 182 countries One PC per person per year National Technology Spending $3,258 $2,942 $5,152 $3,574 Switzerland $21 US $3,028 England, Scotland Australia Japan Zimbabwe Annual Spending per Citizen Technology Balance of Trade $1.00 $0.84 $1.00 $1.70 $1.00 $8.86 Technology Services Exported per $1 Imported Technology Investment Rate of Change 2011 Versus 2009 Technology Investment per Worker Ukraine 95% India 77% Brazil 60% China U.S. 55% 10% The Pace of Change is Accelerating Global Technology Spending for 2009 alone is greater than all of the 1980’s and 1990’s $4,200B $3,200B $800B 1980 1990 2000 2009 Economics Vs Technology Economics? Mainframes in Business 1960 First “Computer” 1942 Tabulating Machine Company 1896 Aristotle 322 BC 0 AD Adam Smith: Wealth of Nations 1776 1000 AD 1800 AD 1600 AD 2000 AD 1500 AD 1700 AD 1900 AD Industrial Revolution Why is Technology Economics Important? 0-6 months Current economic indices are from the Industrial Age. They deliver limited insights, place emphasis on an aging set of drivers, and don’t acknowledge the impact of technology on the global economy 6-12 months Real Consumer Spending Industrial Production & Services Real Capital Spending Stock Market Profits Employment Primary Effect Secondary Effect We need to create a new view that integrates the interaction of technology Why do Today’s Economic Measures Fail? They don’t account for or help explain the patterns of performance we observe in the information age Percent Change Over Period National productivity has accelerated through the “technology era” US Non Farm Business Productivity Change 3.00 2.50 2.00 1.50 1.00 0.50 - 1960-1980 1981-1990 1991-2000 2001-Current The Mainframe Era The Client Server/Distributed Era The PC/Emerging Internet Era The Pervasive Computing/Pervasive Access Era The Financial Services Technology Economy Major banks are increasing applications spending for 2010 but will still be below 2008 levels in total. Infrastructure is still under pressure to reduce cost. Overall 2010 versus 2009 spending will likely be at 2009 levels. Model $5B Total Tech Spend Profile 2008 to 2010 Major banks are increasing applications spending for 2010 but will still be below $6,000 levels in total. Infrastructure is still under pressure to reduce cost. Overall 2010 2008 $5,000 Down 14% versus 2009 spending will likely be at 2009 levels Flat $4,312 $5,000 $4,000 -12% $2,800 +8% $2,464 $3,000 $2,000 $1,000 $4,315 -16% $2,200 $2,608 -10% $1,848 $1,708 2009 2010 $2008 Infrastructure Applications Benchmark model created from data collected from 6 of the 10 largest global banks. The World Isn’t Flat Strategies show little differentiation Company A Reduction in Force (RIFs) Shift to higher percentage of offshore labor Renegotiate vendor contracts Increased virtualization/server utilization Manage down server and storage growth Data Center consolidation Application rationalization Cancel non critical projects Controls on new discretionary spend Assessing desktop virtualization Considering desktop outsourcing Considering email outsourcing Considering the "cloud" Strategic sorucing versus procurement model Planning for year end run rate IT spend reduction of 15%-20% versus 2009 entry B C D E F G H “Playbooks” are quite similar • • • • • • • • • • • • • Capacity shedding Data center expansion versus contraction Shifting CapEx to OpEx Fixed Vs Variable engineering Location strategy for IT and business centers Labor “futures” to lock in long term rates Planning for private cloud New applications organization strategies Proactive/opportunistic sourcing strategies (variation on strategic sourcing) Next generation IT service transparency/Next generation service catalog Considering technology “commons” strategies Starting to embrace “Technology Economics” Moving toward continuous benchmarking as a “market data feed” for IT Location, Location, Location The portfolio view is evolving Technology Investment and Business Performance • Grow Revenue . Revenue or Operating Expense • Protect Revenue • Reduce Cost • Avoid Cost Increase the spread to increase margin Time Net Revenue Operating Expense • Manage Risk Measures are evolving Benchmark Audiences: Business Based Benchmarks • CEO • CFO • LOB Management •Technology Cost of Goods •Technology Value of Goods •Technology Innovation Value •Technology Agility • CIO • IT Directors – Applications and Operations • Procurement • Portfolio Managers • Procurement • Sourcing Oversight • HR Measures that “connect the dots” of your technology economy Catalog -Based Benchmark •Unit Costs •Service Levels •Service Coverage •Service Organization Total Technology Spend/Financial Benchmarks IT Financial vs. Business Financial /Volume Benchmarks IT Spend IT Spend in LOB. Head Counts New Measures Driver-Based (Causal) Benchmarks •Productivity/Support Ratios •Quality • Process •Reliability • Procurement/ •Process External Costs Service Delivery and Service Quality Benchmarks •Availability •Satisfaction •Applications/ Components/S ervices Business transparency is being recast Measures that connect the dots – IT Cost of Goods $250 Per US Citizen Per Year $57,717 $0.17 Per Patent Per Mile $0.07 $8,036 Per Passenger Mile Per Year per Soldier $2.63 Per Megawatt $65 Per Hospital Bed Per Day Expense dynamics are being managed IT has a high fixed cost and fixed capacity history Model Company Tech Spend % Variable Today % Variable Future State Model Total Tech Spend 36% 60% Compensation 50% 70% Contractors and Sourcing 100% 100% Hardware Depreciation 0% 33% Hardware Maintenance 25% 50% Software Expense 25% 50% Software Capitalization 0% 50% Telecommunications 25% 60% T&E 50% 50% Recruiting 100% 100% Facilities/Rent 10% 33% At best companies today can compress IT costs by 36%.. The rest is fixed cost – IT cannot move at the “speed of business” Metrics are being used in new ways Use Forensics to Assess and Optimize Performance • Cascades from few strategic key measures to form initial hypotheses to a larger set where opportunities might be evident. • Has a strong focus on a side by side view of technology, operations, and business performance. • Follows the “evidence”, formulating hypotheses about opportunities and collecting facts to identify the ones that will produce high yield results. = Scientific techniques used for investigation and hypothesis formulation The questions are changing Can you answer these questions? • Is IT “sized to your business”? • Are your IT commodity costs competitive? • Are you moving at the speed of your competitors? • Are you leveraging the marketplace? • Can you compete at your scale? • Does your IT economic model offer the agility you need? • Are you getting an appropriate return on your technology investment? • Are you investing in the right new technologies at the right time? • Are you managing your technology economy or it is managing you? Make Technology Economics Work For You • Optimize and Resize • Consider “The Commons” • Realign, reclaim, and reinvest • Enable agility • Leverage the supply chain • Fund IT forward and “follow the money” • Strategically engage the business and become an IT Savvy enterprise • Engage in aggressive technology scanning and innovation More importantly Chart and Calibrate YOUR Technology Economy Synthesis Technology economic principles are clearly a critical aspect of the global economic engine. Synthesis An understanding (and foresight) into technology economics is a driver of a nation's competitiveness and ability to enable quality of life for its citizens. Synthesis In the near future the way we look at the economy and forecast its performance will change Technology Economy Index / IT GDP Technology Leadership Index Technology Consumer Confidence Index Technology CPI / Market Basket Index Synthesis Companies that are technology leaders – those that successfully can optimize technology for operational leverage, technology for growth, technology to empower its workforce and technology as an investment for innovation – are the business leaders. Technology Economics The companies that will be the leaders in the future are those than can harness the global technology economy through leverage of location and resources, through operational technology and technology innovation, through effective deployment and sourcing, and through powerful predictive models that couple insight and data. Final Words The most opportunistic time for technology investment is during an economic downturn; it is the only area in which investment can change the operating profile of an organization – doing so effectively can create an insurmountable competitive gap. Bad IT economics will put you on the wrong side of this gap and may even be creating advantage for your competitors. IT Does Matter – It is strategic and meaningful if managed wisely. - Howard Rubin