IT and The Responsive Economy

Successful companies are learning to compete by being more agile and more responsive to continuous change and to the evolving needs of their customers

The emergence of the Internet and the Web have led to disruptive changes in companies' IT infrastructures. Ready or not, it's happening again. But this time, the changes will be bigger and they will come faster. IT departments will have to be more responsive because, at root, that's what these changes are all about.

Four technologies — server virtualization, grid computing, service-oriented architecture and software as a service — are facilitating these changes. But the real driver of the changes is this one central reality: In the high-change global economy we now live in, companies are finding it more profitable to be responsive than to be efficient.

Efficiency was the driver of the industrial economy. Slower and more predictable than the global, information-dependent one of today, that economy endured for decades. To prevail in that older economy, companies had to take time to organize themselves as models of efficiency so they could deliver their products at the lowest cost. Once they had done that, they ran their operations without further change for years and reaped the benefits. The assembly line, cranking out mass-produced goods with economies of scale, was the embodiment of that efficiency.

Today, the economy is much less predictable, and rigid concepts of efficiency no longer work, because conditions change so fast. What was most efficient last week suddenly isn't most efficient this week. Successful companies are learning to compete by being more agile and more responsive to continuous change and to the evolving needs of their customers.

Consider this: People want a good price, but that doesn't mean they want the lowest price. A basic pair of sneakers costs $US20 or less, but people spend five times that amount for sneakers that fulfill something beyond their basic needs. A super-efficient shoe company can make sneakers cheaply and sell them profitably for less than the cost of a month of dial-up service. But much larger profits are available to the company that is merely efficient enough and instead turns its attention to being highly responsive to consumers' evolving demands for athletic shoes that go beyond the basics.

Here's what this will mean for IT in the next few years. Companies need IT infrastructures that will accommodate continuous, incremental change in their operations. To that end, they will use server virtualization and service-oriented architecture to leverage their existing IT investments and get the flexibility and responsiveness they want.

Companies will then move on from server virtualization to outsourced grid computing and from service-oriented architecture to outsourced software as a service, as hardware and software vendors become utilities that offer reliable computing power and basic applications like e-mail, ERP and CRM. They will be able to offer their services at a much lower cost than what most companies would spend to do it in-house. Companies will outsource more and more of their basic IT operations so that they can remain efficient enough in their operating costs. What they keep internally will be the ability to be responsive.

The IT groups that remain within companies will change their focus from data centre operations to the design, construction and constant adjustment of systems that meet ever-changing business conditions. The value of IT groups within most companies will no longer be measured by how well they operate information technology but by how well they combine technology with business processes to create a stream of responsive and profitable products and services for their companies' customers.