CIOs just don't get it

Mteto Nyati, Microsoft SA, says that as IT workloads move to the cloud, local solution providers must find new ways to add value to existing cloud services.

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A show of hands at the most recent CIO Council of South Africa's quarterly meeting indicated that most delegates seemed to be ill-prepared and ill-equipped to deal with a 'third era of IT' - digitalisation.

In delivering the keynote address, Gartner analyst George Ambler said the first era revolved around IT geeks doing their own thing in basements and not deigning to speak to the business part of the enterprise. This lasted up to Y2K, and was followed by the second decade-long era of IT industrialisation, where - through the lens of business processes - IT was used to automate the business, making it more efficient, effective and robust.

The third era of enterprise IT sees digital issues pervading all aspects of the business, and this is where pressure comes to bear on IT leaders.

"The challenge is that IT finds itself stuck halfway between the second era of industrialisation and the third era of digital business," said Ambler. "Like One Direction at a teenage party, CIOs and IT organisations find themselves pulled in all directions - having to cut costs, grow, be agile and fast, all at the same time as remaining stable and reliable. In an era of professionalisation and industrialisation, great IT management was enough. In today's era of digital business, strong leadership based on a digital vision for the business is critical."

But, he added, based on feedback at the meeting, many CIOs 'just don't get it', a worrying trend underscored by Gartner's local research, which found that 63 percent of IT leaders say they've been engulfed by digitisation and cannot respond timeously.

"Digital is threatening our business and we're acting like it's business as usual," said Ambler. "This is compounded by a concern among CIOs that the biggest IT names - including Microsoft, SAP, Oracle, Intel, VMWare, Cisco and IBM - have not been bringing enough innovation to the market. CIOs thus see the future, especially in the digital space, in the 'long tail' of smaller, more agile and innovative technology and service providers."

Besides agility and innovation, other current pain points include pricing and price structure, service quality, and scale. For these reasons, Gartner research found that 85 percent of local companies report they will change their technology and sourcing relationships in the next two to three years.

In today era of digital business, strong leadership, based on a digital vision for the business is critical.

George Ambler, Gartner

This new reality will result in numerous casualties, said Mteto Nyati, Microsoft South Africa MD, who delivered the opening address.

"Industry players, which have to re-invent themselves while continuing to run yesterday's business, are adopting various survival strategies," he said. "Many are divesting from low-margin businesses while looking for opportunities to invest in those businesses that can deliver high margins. Companies like IBM have executed this strategy successfully, more especially during the reign of Lou Gerstner Jr, who managed to transform Big Blue from a predominantly hardware company into an IT services giant. Sam Palmisano then transformed IBM into a software and IT services company. Recently, we've seen the current IBM CEO Ginni Rometty opting to sell the low-margin server business to Lenovo."

And - with cloud computing becoming the preferred vehicle for addressing enterprise needs - share prices of 'born in the cloud' companies like Saleforce.com, Google and Amazon Web Services have surged.

"The cloud is also disintermediating local solution providers, which employ thousands of people who today design, implement and support on-premise IT solutions," he stated. "As IT workloads move to the cloud, these local providers must find ways to add value on top of the generic cloud services offered by companies like Salesforce.com, Google, Amazon Web Services and Microsoft."

The shift to the cloud is happening too soon for many companies, Nyati said. While some bury their heads, others have accepted this new reality in three key ways:

* Mergers and acquisitions have increased, with - for example - IBM acquiring SoftLayer.

* Staff reduction is the order of the day. In its last earnings report, HP announced it will retrench an additional 16 000 employees.

* The emergence of strange bedfellows: Salesforce.com, SAP and Oracle have signed strategic partnerships with Microsoft. Apple is now using Microsoft's Bing to power Siri. Nokia has built smartphones running Android. Microsoft released Office for iPad.

"In South Africa, there are signs that similar trends are emerging too," Nyati added. "Telkom announced its intention to acquire the Business Connexion Group in a R2.4 billion deal. It's been reported that Telkom intends slashing its costs by R1 billion per year for the next five years in an effort to unlock shareholder value and turn around its financial performance."

For the past two years, Gijima has been in intensive care. "The company posted a massive R210.8- million loss for its 2013 financial year," Nyati said. "However, Gijima has reduced losses in the first six months of this financial year, which indicates some recovery. What is troubling, though, is the company's decline in top line revenue growth, which again indicates a change in the buying behaviour of customers."

First published in the July 2014 issue of ITWeb Brainstorm magazine.