IT Industry Overview and Processes

• Edward Lorenz described the butterfly effect as an illustration of chaos theory, in a presentation entitled “Predictability: Does the flap of a Butterfly’s wings in Brazil set off a tornado in Texas?”
  Chaos theory proposes that systems, no matter how complex, rely on an underlying order, and that even small changes in a system can cause complex behaviours or events to occur.
  In many ways the butterfly effect could be used to describe the IT industry today.
• The Ripple Effect: The IT infrastructure is based on a conglomeration of technologies and interactions among complex systems. Even small changes in one technology sector can have unpredictable and dramatic ripple effects on the rest.
• What is IT? IT encompasses the use of hardware, software, networking, telecommunications, and services, to create, store, exchange, and use information in a number of forms including voice, data, and video.
• The IT industry can be broken down into the following segments:
  · Semiconductors
  · Hardware
  · Software
  · Networking and Communications Platforms
  · Systems Integrations and IT solution providers
• The semiconductor segment produces ships - a set of micro miniaturized electronic circuits fabricated on a single piece of semi conducting material – which are a central component of computers and other electronic devices otherwise known as integrated circuits or micro chips, they are often referred to as “silicon chips” since silicon is a commonly used semi conducting material.
• In the IT industry, hardware generally refers to computers and peripherals. Computers are machines that process data according to a set of instructions (software) and peripherals are equipments that can be attached to computers.
• Software tells hardware what activities to perform and how to process data. A set of software instructions is called a program. The two primary categories of software are systems software and application software.
  Systems software is an overall “control” program, often transparent to the user, such as an Operating System (OS).
  Application software is any program that processes data for the user, such as word processor or a spreadsheet.
• The networking and communications platforms segment includes developers of systems that allow control the sharing of data or applications among computers, peripherals, and communication devices.
• Network operating systems are the software control of the network.
• While not a technology in and of itself, the systems integrators & IT solutions providers segment is an important component of the IT industry infrastructure. A system integrator or IT solution provider is an organization that builds systems from a variety of diverse components – hardware, software, networking – providing a complete “solution”.
• The products and services of this segment may vary widely. In general terms, an IT solution provider may bundle software with hardware that best optimize performance for a specific application and deliver it as a single product that requires no customization to use. This is called a “turn key” solution.
• Web services are tools and protocols, which allow different applications to communicate, share data, or issue command with one another over the Internet. This can be accomplished with other internal applications, but one advantage of web services is that it relies on a single standard – basically XML (Extensible Markup Language).
  XML enables the definition, transmission, validation, and interpretation of data between applications and between organizations.
• At one time distributed computing meant individual workstations were able to run their own applications without reliance on a central server to supply them. Today, distributed computing implies grid computing where the computational power of many computers can be combined over a network to solve a single problem or to support a single application.
• Distributed computing will support an infrastructure where processing power is not only shared, but sensitive to flux in demand for resources.
• “The customer is always right”. But it’s sometime difficult to determine just what the customer is right about.
• Determining customer requirements can be tough, and for those in a technical field, it can be especially difficult to align technology with business needs. However, it is critical to have an accurate understanding of what your customers want before allocating precious development resources.
• “Cautious” is the word of choice to describe the IT economic environment today, which is characterized by increased scrutiny of new IT investments and an emphasis on cost-cutting strategies. This has pushed customers toward IT/business alignment.
• IT/business alignment is about ensuring that technology supports overall business processes rather than solving discrete problems in a vacuum. This requires communication between IT departments and business units, which for many organizations is still a relatively new concept.
• A few characteristics of IT/business alignment include:
  · Return of Investment (ROI) analysis of IT investments.
  · Consolidation of management tools.
  · A move toward adaptable IT infrastructure.
• IT buyers are increasingly being asked to demonstrate the ROI of IT purchases, which means evaluating the cost of an IT solution against potential savings or improved operating efficiencies.
• IT customers are looking for ways to cut costs without substantially reducing services. Part of this effort is a push toward limiting the number of suppliers, with hope of getting a better price. Examples of consolidation efforts include those items shown below:
  · Eliminating tools with like functionality: Many companies have several tools installed that serve the same or similar purpose. In cases, where there is no significant advantage for specialized programs, combining applications with “like functionality” could save money, and possibly result in the choice of one vendor.
  · Choosing single server and storage solutions: Since most corporations have data stored on any number of servers, or storage devices, many are looking at solutions that will provide a seamless interface for these repositories. Special purpose applications, such as storage area networks, are being considered.
  · Determining Integration Layers: While a single integration strategy for all management tools may not be feasible for many, customers are beginning to define groupings of functional areas where integration makes sense.
• To match flexible business models, IT managers are also looking for cost – effective ways to adapt, as well as add services to, their infrastructures. Two examples include commodity IT strategies and a requirement for software as service models.
• To increase the flexibility of IT infrastructure to match changing business requirements, customers are looking at off-the-shelf, standard – based products, which can be easily absorbed and quickly utilized without costly integration efforts. This approach is called Commodity IT Strategy.
• Rather than full – out investments in new applications which may be used on a variable on short term basics, customers are looking for the ability to “rent” software of services based on usage. This is called Software as Service model.
• Three specific characteristics of IT/business alignment are: the need for ROI analysis of IT investments, consolidation of management tools, and a move toward adaptable IT infrastructures.
• The trend toward IT/business alignment has become the driver for a new approach to acquiring IT products and services. IT providers who are prepared to communicate how their solutions fit with each customer’s individual business strategy will have an edge over the competition.
• A cautious economic environment and the fact that big IT buyers are leaving toward consolidation of vendors have helped fuel merger and acquisition activity.
• Merging with or acquiring another company is no easy task, and each enterprise will have a myriad of business rotaionales to justify such a major understanding.
• The primary reasons one company might decide to merge or acquire another would be to:
  · Thin out competition
  · Expand services to customers in a new market niche
  · Acquire core tools and synergetic technologies.
• In crowded market sectors where products differentiation is difficult to achieve, thinning out the competition by joining with a competitor could be considered a necessary survival tactic. One company might get lost in the shuffle, but a combined entity may have a better chance standing out.
• Combining the best of two product lines can make a single company more attractive to customers and result in an overall larger market share. However, antitrust regulations – designed to ensure fair competition in the marketplace – must be considered in any merger or acquisition.
  Activities that are seen to limit customer choices, provide vendors with undue influence on pricing, or create a monopoly in a market sector will be subject to scrutiny under antitrust laws.
  Some IT vendors are looking at mergers or acquisitions not as a means of thinning out competition, but as a way to expand services to customers in an additional market niche.
• Mergers or acquisitions can also be driven by a desire to own a synergistic technology that could speed up internal product development or get unique products to market more quickly.
• Not all mergers and acquisitions are aimed at competitors. The ability to offer additional services without sacrificing an existing product line is an important driver.
• Acquiring a new or synergistic technology can help get products to market ahead of competitors by limiting access to others or speeding internal product development processes.
• Thinning out the competition is a driver for successful mergers and acquisitions because a combined entity may be better able to differentiate it’s products in a crowded market.
• A cautious economic environment, tightening budgets, and a trend toward consolidation of IT vendors within business IT infrastructures are all likely factors in the flurry of merger and acquisition activity. Keeping an eye on these is an important component for determining your competitive strategy.
• New government regulations that affect data retention, information security, tracking, and reporting are having a profound effect on businesses, and in turn on IT. This has an impact not only on the IT industry itself, but on the way IT and businesses in general treat customer data, privacy, and security.
• Two examples of legislation having a significant impact on businesses are the USA Patriot Act and the Sarbanes-Oxley Act (SOX).
  · USA Patriot Act: For companies, who hold customer information, the procedures for interception of information transmitted over the Internet and other rapidly evolving technologies have raised privacy concerns.
  · SOX: SOX has had an impact on tightening reporting requirements for all public companies of particular interest in Section 404, which requires a self-assessment of risks for business processes that will affect financial reporting.
• The challenge of regulatory compliance, regardless of what industry you serve, share common problems. Just a few of these include:
  · Data retention, storage, and security.
  · Aligning integration efforts with compliance.
  · Balancing offer unclear compliance guidelines with business goals.
• Advances in IT itself is an explosion of data – in most businesses, an estimated 80% of business information is typically in unstructured formats like e-mail, video, audio, and graphics. New regulations require that much of its information be retained.
• Companies must not only find ways of storing vast amounts of data, they must find ways of retrieving this information in a meaningful way in order to satisfy reporting requirements.
• In addition security and access control is critical to avoid tampering or destruction of potentially important data. At the same time, employees must have access to the necessary data to do their jobs.
• Since integration of data, applications, and businesses processes is the key to cost effective conformance to government regulations, every new application or technology must be evaluated in light of how it can be integrated with existing applications.
  As web based business processes and transactions become more commonplace, customer and partner systems may also have to be included a part of integration efforts to ensure compliance.
• There are a few clear guidelines on how to balance new regulatory requirements with common-sense business goals. Left unchecked, data storage, retention, and reporting efforts as a result of government oversight could overwhelm core business activities. There is no doubt; the challenge of solving this problem will fall more and more on the shoulders of IT.
• Aligning integration efforts with compliances refers to ensuring new applications support regulatory requirements such as reporting. New software that facilitates data sharing but does not support this requirement represents a problem.
• Data retention, storage, and security include control of what and how user access data. A common problem with password authentication protocols is that users often forget them.
• Unclear compliance guidelines can result in implementation that conflict with business goals. Storage and maintenance of unnecessary data is one problem area when data retention guidelines are unclear.
• Information security, utilization of open source, utility computing, and standards efforts are growing trends in an industry where customers are demanding global interconnectivity and flexibility in their IT implementations. Each of these trends presents a number of leadership opportunities and strategic challenges for the IT industry.
• Interconnectivity provides opportunities for IT vendors to emerge as industry leaders by spearheading collaborative efforts. Products that work in any IT infrastructure may improve market share and enable flexible implementation.
• Opportunities for niche providers who develop bridging are also growing in the IT market. However, the challenges – both from a technological and management perspective – should not be underestimated. It can be difficult to determine what strategies will prove beneficial in the long run. Understanding the hurdles IT vendors face can help you evaluate approaches that make sense from a business perspective.
• A big challenge is to develop a comprehensive, system-wide approach for securing IT infrastructures. There are two aspects to this challenge, the first being external. External threats include outside agents gaining unauthorized access to sensitive company data and the introduction of malicious code-viruses or worms – via email or the Internet. Internal threats include deliberate theft of information by company employees or unintentional exposure due to a lack of awareness of appropriate security protocols.
• Both internal and external threats must be considered in any security risk management program. Just a few of the information security challenges facing the IT industry today include:
  · Balancing security requirements with business imperatives.
  · Supporting technological solutions with management policies and usage guidelines.
  · Managing a response program and investigate methodology.
  · Integrating security standards across applications and communications platforms.
• The concept of open source software was originally created for the Interned infrastructure and is now gaining popularity and acceptance in business applications. The basic premise is that by allowing programmers to read, modify and redistribute source code for a piece of software, innovations and improvements can be made quickly. In theory, this would benefit the development community as a whole.
• Proprietary software means software that has been developed by and is owned by a certain company. Typically, software is licensed for use, access to the code is restricted, and customization or distribution of the code is forbidden without express permission from the vendor.
• The following phrases describe general characteristics of open source:
  · Multi-vendor
  · Access to support and service may be limited or scattered
  · “flexible” licensing schemes
  · Easy to customize without participation of original developer
  · Enables rapid innovation
• The following phrases describe general characteristics of proprietary solutions:
  · Single vendor
  · Easy and centralized access to support and services
  · “strict” licensing schemes
  · Customization is dependent on the vendor
  · Innovation is dependent on the developer.
• The concept of flexible access to resources with flexible pricing models is exciting and close to being a reality today. However, utility computing still faces several major hurdles.
  · Customers are skeptical
  · Traditional licensing schemes must be revamped
  · Business models are as yet undefined to support this concept
  · Standards must be defined multiple vendors can interoperate to offer end-to-end management solutions.
• Standards must be defined before multiple vendors can interoperate to offer end-to-end management solutions. This means that ideally, all applications and platforms within an organization should sun on a utility model. To accomplish this, vendors must be willing to work together. This challenge is so important that even competitors have joined together to form the “Distributed Management Task Force”, of which the utility computing working group is a part.
• The ideal goal of standards efforts in IT is to allow diverse technologies and applications to “talk” to one another. You might call them “universal translators”. Standards can be defacto or dejure.
  · DeFacto: Widely used and generally accepted but not necessarily sanctioned by a standards organization. Microsoft and Intel have created such standards.
  · DeJure: Sanctioned by a standards organization such as IEEE and ANSI that support testing programs and offer certification to ensure conformance.
• Customers demand – even expect – interoperability. Given the number of platforms running in most IT infrastructures today, standards efforts are more important than ever.
• To satisfy this demand, industry leaders are collaborating to ensure that their products will operate with one another. However, there are a number of challenges facing standards efforts in the IT industry.
  · Competing, and often incompatible, standardization efforts: There are many standards efforts driven by special interest groups heavily invested in their own approaches. Many IT vendors face a difficult choice when it comes to which standards to adopt or endorse.
  · The need of competitive factors with standards efforts: While standardization is important, protecting a truly unique product is also part of competitive success. Balancing participation in standards efforts with the desire to protect proprietary approaches is an ongoing challenge for the IT providers.
  · Fast-paced innovation that may make costly investment in standards conformance use development moot: Early adoption of a new standard may undermine revenues and make costly development efforts moot.
  · Converging technologies and requirements for merged standards: With the ongoing convergence of technology, an emerging need for standards to integrate disparate communications technologies, such as voice, data, video, and graphics, will be ongoing challenge for the IT industry.
• There are a variety of groups driving standards initiatives. These groups include:
  · Industry consortia, which are typically made up of independent commercial organizations.
  · Trade organizations, which are non-profit groups devoted to a specific industry sector.
  · Non-regulatory government agencies such as the National Institute of Standards and Technology (NIST).
• IT providers are looking at innovative licensing models to meet customer demand for flexible pricing, as well as to increase services while minimizing cost.
• Offshore Outsourcing is perhaps the most prominent example of the emphasis on cost cutting in the IT industry today. As consumers of information technology look to cut costs, offshore outsourcing is becoming an attractive solution for activities such as call centers, data entry, and data processing. This phenomenon is creating serious competition for US IT service providers. India in particular, has produced viable competitors including companies like Infosys, Tata and Wipro.
  In addition to an increasingly skilled workforce, these companies are able to offer as much as 70% cost savings over western companies.
• Several IT industry leaders – in particular those with on-demand computing initiatives – have successfully begun the move toward a service-based approach to licensing.
• Another strategic solution for flexible delivery of IT products melds elements of both outsourcing and innovative licensing models. The Application Services Provider (ASP) model allows customers to “rent” the use of a fully supported application.
• An ASP is any company that delivers and manages applications remotely via the Internet or private network. Single-source ASPs provide applications, customer support, integration services, and expertise. This is especially beneficial for applications that are critical but not a part of core business processes.
  This means companies can access applications without having to build an infrastructure to support them. e-learning is one example of the content that ends itself to a hosted, or ASP solution.
• To maximize profits, successful companies focus not only on their products, but on the processes by which they produce or deliver them. Two solutions that can optimize business processes include Supply Chain Management (SCM) and Enterprise Resource Planning (ERP).
• Supply Chain Management (SCM) is the planning, scheduling, and control of the organization and functions that make or assemble materials and products from manufacturer to wholesaler to retailer to consumer.
• The Supply-Chain Council has defined the basic steps for successful Supply Chain Management implementation.
  · Plan: Planning is the first step for each phase of SCM. This step requires defining all of the resources required to deliver your product or service to customers. Metrics should also be defined for evaluating whether the defined SCM system is actually reducing costs and increasing efficiencies.
  · Source: This means selectivity and working with suppliers to define how goods and services will be delivered. This may include managing inventory, routing supplies to your manufacturing facilities, authorizing payments, maintaining date, and managing supplier agreements.
  · Make: This is the manufacturing or production component, which involves scheduling production activities, testing, packaging and other steps required prior to delivery including tracking of any regulatory compliance for production. This would also include metrics to track performance.
  · Deliver: This includes order management steps from processing customer inquiries and quotes to routing shipments and selectivity carriers to the customer. Some companies may refer to this component as “logistics”.
  · Return: The customer service and problem component, this would include return of defective or excess products to suppliers, as well as returns from customers. Supporting customers who have problems with delivered goods would also be included here.
• SCM software is available to facilitate these steps and often is actually a collection of software components that manage each phase of SCM. SCM software can be divided into two groups:
  · Supply Chain Planning (SCP): SCP contains analysis and scheduling algorithms that help product and build realistic timelines.
  · Supply Chain Execution (SCE): SCE is a collection of tools designed to automate the control of each component of the supply chain.
• The increasing use of the Internet for integration in business applications makes SCM more and more cost effective as an approach for streamlining production-to-delivery processes.
• ERP stands for Enterprise Resource Planning. ERP systems may include everything from manufacturing, order entry, accounts, receivable and payable, general ledger, purchasing, warehousing, transportation, and human resources. PeopleSoft, SAP, Oracle, JDEdwards, and Baan are examples of major ERP vendors.
• The ideal vision of ERP is single-instance solution, meaning a single application and one giant database that serve all of an enterprise’s needs.
• Advantages of single-instance solution include:
  · Streamlined financial reporting due to one application tracking cost and revenue company wide.
  · Cost control and reduces staffing normally required to manage disparate applications.
  · Competitive advantage gained by allowing a focus on core business activities.
• As attractive as a single instance ERP system may sound, it may not be cost-effective or practical, to replace existing systems with one brand-new solution.
  In these cases, an integration approach using XML-based tools or emerging web services could achieve many of the benefits of single-instance ERP. This is called a “best-of-breed” approach.
• The advantages of an integrated best-of-breed approach to ERP include:
  · The ability to leverage substantial investments in existing software and systems.
  · Better functionality for specific applications by allowing the use of specialized software.
  · Flexibility to participate in collaborative efforts with others, regardless of the ERP systems they use.
• CRM is an integrated information system for controlling pre- and post- sales activities. Successful CRM implementations are characterized by:
  · A customer, rather than inward focus
  · A strategic approach to technology investments to support CRM
  · Practical implementation strategies
• Strategic approaches to technology investments that support CRM means considering actual business processes and how the technology will enhance the ways in which people do their day-to-day jobs.
• CRM technologies should also support acquiring information in formats that facilitate tracking of profits and loss (P&L) in creative ways. For example, traditionally P&L is accessed by product. A good CRM system might also allow analysis of P&L by customer.
• CRM solutions should also be practical and non-disruptive to the core business. This may mean gradual implementation.