I am in SF at Panorama Capital’s CIO offsite meeting, which is a great get together between investors, startups, and actual CIO’s with large enterprise companies. For those of you that don’t know Panorama, it is a pure venture capital group spun out of JPMorganChase, so as you would expect their CIO Council features some well known major brands; in attendance today are CIOs from HomeDepot, 800Flowers, SnapOn Tools, JDSU, Manpower, E*Trade, House of Blues, Audiovox, and Juniper Networks, among others.
The first session of the day is a presentation by McKinsey about the trends in enterprise applications. With only 1 hour this topic obviously isn’t going to get covered in detail so what they did was break it up into 4 major buckets:
– IT budget
– New technologies
– Evolution of infrastructure and architecture
– IT organization
All of these are good topics, although I think I would have attacked this a little differently by focusing on what user are expecting as an experience, how go to market and route to market strategies for vendors are evolving, and how dramatic technology evolution over the last decade have hardened architectures and how customers and vendors alike are benefiting as a result.
McKinsey says that IT budgets will grow by 3-4% over the next budget cycle (which typically begins from a planning perspective in the 3rd quarter). Interesting data point about CIOs driving down operational costs while allowing capital expenditure budgets to increase at a healthy pace (13%).
The major takeaway from the budget topic is that enterprise CIOs are shifting their priority, and as a consequence their budgets, away from “run the company” to “change the company”. Major areas of focus for this are system consolidation, upgrading infrastructure, improving productivity of existing systems, and improving security and compliance.
What I found interesting from the run vs. change commentary is that shared services dominate the run debate, which isn’t surprising but does lead into the change bucket of process enablement. In other words, CIOs are recognizing that without full and complete process enablement they can’t run their company, while at the same time are saying that process enablement is what enables them to change their company. Interesting.
When asked of the council members how many CIOs are feeling pressure to “change the rules” of their business through product and service innovation a good number of hands went up, I would say a majority. What this leads me to believe is that there is an opportunity for application innovations, which does triangulate to the budget topic where capex increases are being observed.
I just asked a question about the impact of capex vs. opex on the procurement process and heard some interesting commentary. Essentially it boils down to these CIOs using software as a service as a stepping stone to something that is IT-blessed, while another CIO gave an answer that sounded a lot like “paving the cowpaths”. Rather than doing top-down implementations they are looking at what works in departments and then capturing that innovation in IT. My counterpart from Salesforce.com, Bernard Pech, talked about how SFdC is actively courting CIOs and IT in an effort to get ahead of this evolution in their business. Interesting.
On the CIO shopping list were the usual suspects, including compliance, data integration, and business intelligence, however a surprising item, which was #1 on the operations related upgrades were industry-specific extensions. Clearly, and we have seen this in our business, there is a big opportunity in vertical apps and that is something startups do their best to avoid from a product standpoint… they love to sell vertical but not to build vertical products. Related to SAP, I think we have 28 vertical specific versions of our core products, which to my knowledge is the broadest vertical product portfolio in the industry.
The next topic is a favorite of mine, new technology. McKinsey says SaaS is a $5b market today, but in all honesty I’m not exactly sure what they classify in the SaaS topic.There is a slide that attempts to break down the packaged applications marketplace, but there was a lot of conversation about this and it was agreed that this was an overly narrow definition. In short, I think you have to look at the market simply as “are you implementing it” and “are you relying on someone else to run it” and from there you can get granular and look into the overlaps. To rely simply on SaaS as a definer doesn’t work because everything is essentially migrating to this technical ideology. The SaaS debate ended with more questions than answers, I think we exhausted Joel from McKinsey…
IT infrastructure and architecture is up next. Big themes here are that CIOs are viewing basic infrastructure as a scale game where efficiencies can be realized. Additionally, virtualization tools are taking server consolidation to the next level and is most effective when traditional optimization techniques have been used.
Survey data… blah, blah, blah. Actually, I’m probably glossing over this but I don’t find these IT surveys particularly interesting or informative. The fact that 33% of the CIOs surveyed have message broker and bus architecture initiatives on their 12 month plan isn’t anything interesting to me, and it’s not something actionable for me because it is pretty vague.
Seems that most of this talk about server virtualization is centered on running more logical servers on fewer physical servers. There isn’t much in the way of integrating a “cloud” approach to datacenters, but perhaps this is built into the notion of virtualization. The CIO of 800Flowers made an important comment about how vendors are talking about virtualizing servers while he is concerned about virtualizing facilities… thereby getting to the notion of being a true server cloud. He further added that the cost of VMWare is equivalent to the cost of buying another cheap machine, and with the CPU overhead cost to run VMWare itself then the cost benefits quickly erode.
That’s it for this session. Next on the agenda is a panel about trends in enterprise apps that is being given by myself and Bernard Pech from Salesforce.