Split Investments

Moore encourages clients to view IT as a potent tool for warding off the low-cost commoditization strategies coming out of Asia and elsewhere. "This to me is absolutely ground zero for the IT function, and I think for the corporation in a developed economy."

Take labour costs. Today a corporation in the developed world must decide whether to either co-opt low-cost labour where it can find it or to take as many labour costs out of its offer as possible. A manufacturer dealing with the logistics of physical goods can choose to outsource manufacturing and logistics to low-cost economies to slash labour costs for a low cost point. The alternative is to find ways to automate, as much of the financial services, online retail and media sectors have done, to cut labour costs. Both pathways involve IT, but corporations have little capacity to achieve either well.

"If you look at the current IT systems, the reason innovation is so important, and it's lagging right now, is that we created IT systems to make our own corporations more productive. We didn't create them to make an extended supply chain involving inter-enterprise connections more productive and more effective. As a result, we have really primitive inter-enterprise computing systems and at a time when virtually all our manufacturing has at least some if not all outsourced relationships built into it," Moore says.

"So there is this enormous need for IT innovation to improve the coordination and the reliability and the visibility and the control over these extended supply chain processes."

And all when a major technological shift is causing untold grief to CIOs as the client/server paradigm - recently so useful - proves an obstacle to this next generation of IT innovation (see "Moore's Next-Generation Stack", page 50). That client/server architecture may have become Internet-enabled but that could not delay its rapid ageing, Moore says. Its inflexibility is a barrier to the inter-enterprise business practices essential to competition. Organizations cannot recapture flexibility until they fully transition to a new Web services-oriented architecture, which will take years. Everybody "gets" that they are supposed to migrate towards the much more flexible services-oriented architecture (SOA), with its greater orientation towards inter-enterprise commerce, he says. The barriers lie in the length of the journey, and in the difficulties involved in trying to integrate the new with the old while running the enterprise reliably (see "When SOAs Rule the World", page 48).

"It's a nightmare. As a result, enterprise IT has put on the brakes and said: 'Look, we just can't go on this fast'. But of course it's a horrible time to put on the brakes [given] what the environment is calling for."

For this problem CIOs will find no easy answer, Moore says, but there is a right answer, which involves first making some firm decisions about how you want to distinguish your company.

Classification Game

Moore's prescription for dealing with the problems starts with encouraging companies to decide on which dimensions they will compete. Will they be a low-cost player, try to become a next-generation technology player or try to be a customer intimacy player? "There's a bunch of innovation types that go with each of these three strategies," he says.

Most corporations deploy their IT systems over an Internet-enabled client/server enterprise architecture anchored by a monolithic ERP system. Clustered around this are typically applications for customer relationship, produce life cycle and supply chain partner management, Moore pointed out last year in Network World. "Add in your home-grown applications and bolt the whole thing to a legacy mainframe system, and your flexibility quotient declines to zero.

"More than anything, you need flexibility to compete in the global economy. We're all making this global stuff up as we go along, so we have to be able to experiment, attach, detach and reattach along the way. This implies a kind of modularity not present in most corporate IT systems today."

SOA provides the vision for this modularity. While almost every vendor has spent the past five years reshaping their products to this new standard, most companies have not. Until they do, they can expect to live "in maintenance hell, paying a huge complexity tax every day in terms of the payroll [they] devote to keeping [their] client/server legacy patched together".

The lack of short-term ROI makes transitioning difficult. CIOs do not know how to justify the cost of their effort to their colleagues. It is time to bite this bullet, Moore says, by considering the negative ROI for not adapting.

"When the forces of natural selection are knocking at the door, 'We'll get back to you' doesn't cut it. Failure to act now commits your company to an increasingly marginalized future," he wrote in Network World.