This famous quote from U.S. Supreme Court Justice Louis Brandeis extols the virtues of openness and transparency – shedding light on peoples’ actions to avert wrongdoing. In our high-tech times, organizations would be wise to apply this thinking to address “shadow IT” – employees using software-as-a-service (SaaS) applications that are procured and deployed without going through established IT channels and policies. Let’s see why.
The SaaS train has left the station, and there’s no slowing it down: global spending on SaaS is forecasted to grow at a CAGR of 20.2% in 2012-2017, reaching US$45.6 billion by 2017.
The IBM Center for Applied Insights has just released a global study of 879 IT and line-of-business (LOB) SaaS decision-makers: Champions of Software as a Service: How SaaS is fueling powerful competitive advantage. The research reveals that application agility – the ability to quickly, easily, flexibly deploy applications and implement solutions – is the number two driver for adopting SaaS (following close on the heels of reducing total cost of ownership), so it’s easy to understand why businesses find SaaS so irresistible.
The temptation is great for employees to quickly and easily deploy SaaS applications without involving the IT department to approve, provision, and secure them – but these rogue deployments can expose the organization to security risks and other negative consequences.
So, what does “sunlight” have to do with SaaS? The IBM study grouped organizations based on their level of SaaS adoption and whether they’re reporting competitive advantage from SaaS. Pacesetters are the 19% of respondents reporting the highest level of SaaS adoption and gaining competitive advantage through their broad SaaS efforts. At the low end, Chasers are much slower to adopt SaaS and gain competitive advantage from it.
Rather than deploying SaaS on the sly, pacesetting enterprises actually cultivate a strong collaboration between LOB and IT on SaaS activities such as selection, deployment, and security.
In 71% of Pacesetter organizations, LOB and IT strongly collaborate on SaaS selection and deployment, whereas only 36% of Chasers report a strong collaboration. 70% of Pacesetters report that SaaS is strengthening the IT and LOB relationship, versus only 39% of Chasers.
A strong strategy is another significant differentiator of the Pacesetters’ approach to SaaS: Compared to Chasers, more than twice as many Pacesetters have a cohesive, enterprise-wide SaaS strategy (71% versus 31%), and Pacesetters are four times more likely to position SaaS as an integral part of their enterprise cloud strategy.
The dark alleys of “shadow IT” lose their danger once one shines a strong light on them. Fostering a well-defined SaaS strategy and encouraging strong IT/LOB collaboration around SaaS are the “sunlight” that leading SaaS enterprises use to combat shadow IT.
Forget about “out of Africa.” These days, everyone’s trying to get in – and by that I mean, get in on the explosive growth that will soon expand the continent’s consumer-facing industries by an estimated US$400 billion.
Today, we launched a new study based on a survey of 180 Africa-based IT leaders across Egypt, South Africa, Kenya, Nigeria and Morocco. We wanted to learn how these IT leaders are preparing their organizations for this huge market opportunity.
We knew – going in – that the African people are adopting new technologies as fast as, or faster than, people in other parts of the world. So, we were not surprised to find that nearly 9 out of 10 IT leaders believe emerging technologies (including mobile, cloud, analytics and social) are critical to their business success.
However, we learned that far fewer enterprises are rapidly adopting those technologies. It’s a shortfall we’re calling Africa’s technology adoption gap. What’s slowing them down? Turns out, it’s the same factors giving Pacesetters their lead:
Strategic business leadership – Pacesetting IT leaders are better at communicating the value of emerging technology, and they’re 40 percent more likely to collaborate effectively with business peers.
IT skills development – While the majority of companies are still playing catch up and resolving skill deficits, Pacesetters are 80 percent more likely to be developing IT skills to meet future business needs.
Information security – Most African businesses say security is a top concern, but Pacesetters are taking action. They’re 30 percent more likely to be implementing new security technologies, building a risk-aware culture and investing in security skills development.
I want cloud to help me strategically reinvent ______________.
I want cloud to help me make better decisions in ______________ part of my business.
I want cloud to drive deeper collaboration across ______________.
Using their input as inspiration, an artist illustrated the crowd’s cloud wish list – which areas of the business they’re targeting for reinvention, where they’d like to drive better decisions and which types of collaboration they want to strengthen.
Given the holiday season, why not take some time to think about the gifts cloud could shower on your organization? Where could cloud enable a new business strategy? Which decisions could you improve with cloud-based analytics? Where could cloud-enabled collaboration enhance business processes and drive better results?
Then as you’re making your New Year’s resolutions for 2014, figure out how to turn this wish list into reality. As the cloud study shows, leading companies aren’t settling simply for greater efficiency from cloud; they’re using cloud to compete on a higher plane.
I've had the priviledge of working with IBM's Security Systems and Services teams over the past two years looking at the evolution of security leadership and what security leaders, like the CISO, are going to need to look like in the future. We’ve also looked at leading practices in cybersecurity education and we’ve identified essential security practices for CIOs based on our experiences at IBM.
Have a strategic vision… ensure global consistency in policy… engage in lots of communication with business leaders… speak business value and understand risk… minimize the impact of security to the business… be on the bleeding edge of enterprise and consumer technology...
A set of challenges also emerged from the interviews we conducted. Although we targeted more mature security leaders, they are still struggling in three areas.
How do I best manage a broad set of concerns from a diverse set of business stakeholders? Security leaders that are engaged with the business have to deal with a number of security fears from the C-Suite. The CEO might be most worried about losing customer trust because of a breach, the CFO might worry about the financial impact of recovery, COOs might focus on the impact of operational downtime. Good security leaders are able to balance, manage and allay all of these concerns.
How do I improve mobile security policy and management – not just deploy the latest technology? It’s no surprise that mobile security is top of mind. It was identified as a top technology concern in last year’s Assessment and continues to be at the forefront. Most are enabling secure mobile deployments in their organizations, but fewer have achieved comprehensive policies or strategies for personally owned devices.
How do I translate security metrics into the language of the business to help guide strategy? Technical and business metrics need to be used for more than just budget discussions and technology prioritization, they need to be deeply integrated into the decision making process of the business. To get to that point, security metrics must be translated into things the business will understand, like financial impact.
To learn more and download the full report and other materials visit the IBM Center for Applied Insights and join us in an open discussion about the future for information security leadership.
A few months ago, the IBM Center for Applied Insights embarked on a research study to find out how and why business and IT decision-makers are using cloud. At the start of that journey, I fully expected the survey data would lead us to a primarily IT story. After all, IT departments have been turning to cloud for quite some time now to achieve scale, drive cost savings, and improve organizational efficiency. And we’ve all read articles about the cloud stack wars. So, cloud must be mainly an IT thing, neatly handled by the technology parts of the enterprise, right?
Not quite. The true picture is surprising. One worldwide survey and over 800 IT and business decision-makers and users later, the data has revealed that cloud is no longer just an IT crush. Though business is a later suitor, still lagging IT somewhat in terms of strategic interest in cloud, a change in affections is brewing: Over the next three years, cloud’s strategic importance to the business – across virtually every area, including finance, operations, sales and marketing, and product development -- is poised to double from 34 percent to 72 percent – leaping over their IT counterparts at 58 percent.
So, why is business starting to crush on cloud?
Our study has revealed that leading organizations – one of five -- have discovered a secret source of competitive differentiation through cloud and are using it as an engine for growth.
These Pacesetter organizations are building competitive advantage using Cloud in three key ways – through strategic reinvention, better decisions and deeper collaboration. In each of these areas, they’re reporting business results from their use of cloud. For example, Pacesetters are:
• 70% more likely to build new and improved business models through cloud
• 117% more likely to use cloud to make data-driven, evidence-based decisions
• 71% more likely to use cloud to collaborate across the organization and ecosystem
How are the Pacesetters getting so much out of their relationship with cloud? The study reveals all, but I’ll give you a hint: Pacesetters are leading the charge toward more comprehensive cloud strategies – they’re 270% more likely than peers to have enterprise-wide cloud strategies.
This is one case where having your head stuck in the clouds just might turn your organization into a rainmaker!
In the digital era, customers’ preferences are turning into expectations. They no longer buy a product or service solely on its own merits. They also base the decision on the quality of the entire experience of selecting, obtaining and using those offerings. And, thanks to the social channels, they can make or break the reputation of a brand at the click on a mouse. As consumers, people have become more accustomed to specifying, ordering, receiving, rating and modifying products of all types, and from just about anywhere with any type of device. And now the expectations they’ve developed in the consumer marketplace are carrying over into their workplaces.
The research findings show that the need to serve a great customer experience is capturing the attention of COOs and other operations executives, whose focus is now expanding from the traditional areas of cost-saving and efficiency to actively supporting top-line growth, as well. They are aggressively acting on opportunities to differentiate their companies by providing customers with experiences that are instant, seamless and insightful.
Like everyone, Operations executives are finding themselves in an increasingly impatient world. Customers want information and service delivered at near real time or better. This means automating not only your processes, but also decisions, analytics, content, data and reporting. Operations teams are responding, and in many cases, eliminating delays by making customers part of the new processes. For example, customers are now enabled to open accounts on their own and at their leisure.
Despite more and more of customers’ experiences with a company being based on distinct, dispersed technologies and multiple channels, customers have come to expect each of their dealings to be easy and unified. This implies that systems, data and processes are interconnected so that each customer is served consistently across various touch points and at every interaction. The idea is to make complexity and change invisible to the customer with a seamless experience.
Customers expect to be served in more targeted, meaningful ways and COOs are increasingly leading the way in turning data into insights that drive revenue. Unprecedented amounts of customer and contextual data are available today, much of it containing a wealth of information capable of improving the customer experience. By bolstering analytics capabilities, enterprises can churn massive amounts of big data in near real time and use both customer and contextual data to inform their processes.
For more insights and quotes from the Operations leaders on the importance and ways of serving a great customer experience towards ensuring growth for their organizations, take a glimpse at this highly visual whitepaper
I look forward to your comments and observations. Please click “Add a Comment” below or “More Actions” to share this with others.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- *To get a first-hand perspective on how Operations leaders are addressing the challenge of serving empowered, digitally savvy customers, the IBM Center for Applied Insights conducted extensive interviews with senior executives in Healthcare, Banking/Financial Services, Insurance, Energy and Utilities, Travel and Transportation, Telecommunications, and other industries across the United States, the United Kingdom, Germany, China, Australia and Brazil.
Do you know which industry is adopting analytics fastest? Do you know which industry has the biggest problem with social skills? Now you can find out.
The latest IBM Tech Trends Study surveyed over 1200 IT and business decision-makers – IT managers, business professionals and IT practitioners from 16 different industries and 13 countries – to assess how and why enterprises are adopting four emerging technologies – Mobile, Analytics, Cloud and Social Business – that are dramatically transforming how enterprises operate.
The study showed that Business Analytics and Mobile Computing represent a large swell, with over half of respondents already adopting these technologies. Cloud Computing and Social Business form a coming wave, with 40% currently piloting or planning to adopt by 2014. Furthermore, enterprises’ projected investment in the four areas is surging: 55% or more plan to increase investment in Mobile, Cloud, and Business Analytics, and 43% project increased investment in Social Business.
Despite the momentum in these areas, the study also uncovered a critical shortage of IT skills: Across all four technology areas, only about 1 in 10 companies reports having all the skills needed to be successful, and a quarter of respondents report major skill gaps.
A Deeper Dive: the Tech Trends Industry Dashboard
Today we’re launching a new interactive dashboard that allows you to explore the study findings in a dynamic way, by industry and by tech area. You can investigate adoption, investment, and skills for a particular industry within each tech area and sort to see how that industry compares to others, or to the cross-industry average.
Here’s one example. I chose Analytics, then Adoption Levels, and sorted by “Deployment” (and also clicked to “show percentages”):
We see that Insurance, Media and Entertainment, and Banking are the top three front runner industries in terms of high adoption of Analytics. Where does your industry fall?
You can also click on a particular industry name to bring up a graph specific to that industry; here we see Analytics skill levels reported by Media and Entertainment organizations:
It appears that Media and Entertainment is doing better on Analytics skills than the average: 23% have all the skills they need for Analytics, versus just 13% across all industries.
Sharing your insights
Are you successfully surfing one of the big tech waves but getting knocked down by another? Regarding your enterprise itself, do you think you’re outpacing your industry, keeping up, or lagging?
If you have particular insights about your industry’s position, please share them. All the graphs you encounter in the exploration are shareable – use the social media buttons or the embed code located beneath each graph to embed the graph within a blog, web page, or social media site. The embedded graph retains all the interactive functionality of the full dashboard.
Happy exploring – and we hope you’ll join the conversation around these findings!
Senior Consultant, IBM Center for Applied Insights
Growing up, there was a very specific sandwich-making rule laid down by my dad. When making peanut butter and jelly sandwiches, you had to use the peanut butter before the jelly. Was this because of some principle which determined that the resulting sandwich held together better when the ingredients were applied in this order? No. It was because he hated the cross-contamination of jelly into the peanut butter jar which was inevitable when it was on the spreading knife first. He preferred jelly-free sandwiches, you see.
This memory of a long held rule, which still govern my actions today, came to me as I was reviewing the Center's current research into security related topics. We're talking with Chief Information Security Officers (CISOs) about their evolution and leading practices in the enterprise. We're discussing how they successfully bring security topics into the business world. Most importantly, we're examining how business priorities impact security choices.
In the realm of mobile and BYOD, you can hardly have a conversation without discussing security. It is a key inhibitor to mobile adoption and one reason companies are looking for managed security solutions rather than simply hoping for the best. Some security leaders argue for keeping personally owned devices out of the enterprise, simply due to the risk potential. Others, accepting that mobile is here to stay, fight to make its use as secure and safe as possible. It's only going to get worse and more and more connected devices enter the enterprise (see this recent Forbes article: "The Next Big Thing In Enterprise IT: Bring Your Own Wearable Tech?")
IBM's prior CISO, and current head of Security Services, Kris Lovejoy wrote about best practices for mobile implementations last year as part of our Security Essentials series:"Enabling mobility: their device, your data". For many, doing business means being mobile. As a security leader, it becomes your job to manage the risk - not just avoid it. Caleb Barlow extended these thoughts with an article this summer, "Yes, It’s Possible to Be Confident About Mobile Security", which focuses on four key ways to mitigate the risk of adding mobile to your secure enterprise:
Risk analysis - Organizations must understand what enterprise data is on employee devices, how it could be compromised and the potential impact of the comprise (i.e. What does it cost? What happens if the device is lost? Is the data incidental or crucial to business?).
Securing the application - In the pre-mobile, personal computer era, simply securing the device and the user were sufficient. When it comes to mobile devices, we also need to think about securing the application itself. As a typical application is downloaded from a store, the end user really has no idea who built the application, what it actually does with your data or how secure it is. Corporate applications with sensitive data need to be secure in their own right.
Secure mobile access authentication - Since mobile devices are shared, it’s important to authenticate both the user and the device before granting access and to look at the context of the user requesting access based on factors like time, network, location, device characteristics, role, etc. If the context appears to be out of line with normal behavior, appropriate counter measures can be taken.
Encryption: Simply put, if the data is sensitive it needs to be encrypted both while at rest as well as while in motion on the network.
What stops you from fully adding mobile to your security strategy? Hopefully it is more than just a distaste for jelly in your peanut butter. This October we'll have more to share on mobile adoption challenges when we release this year's follow up to our 2012 CISO Assessment.
The Guardian's Media Network recently hosted a live chat around the topic of how CMOs can align and use digital marketing and data analytics - two areas we've taken a close look at since the inception of the IBM Center for Applied Insights.
The Guardian notes:
Big data (and analyzing that data) means that marketing professionals are now getting even closer to the customer – they know more about audiences than ever before, with pinpoint precision. At their fingertips a marketer now has detailed facts and figures about consumer browsing habits, their favorite brands, how they use social media. It means that campaigns can be targeted, analyzed and proved better than ever.
It becomes the job of marketers and CMOs to make sense of all that data and not get lost in the noise. Doing this, takes an analytical and curious approach to data. It's easy to find the "big numbers" but more challenging to find the "right numbers." As Surjit Chana, CMO of IBM Europe, has said, the core principles of marketing haven't changed. What has changed, dramatically, is how those principles come to life in today's marketing campaigns, customer experiences, and business results. In our paper, Marketing Science: From descriptive to prescriptive, we found that only 23% of marketing professionals use tested analytic approaches to understand the vast amount of data they have access to. More traditional marketers, using data to describe outcomes but not determine actions, consistently use data at face value - without applying data models or scientific thinking.
When technology and analytic skills don't exist in the marketing teams, it makes perfect sense to build partnerships with those who do. The closest partner in most organizations is IT. Thus, the renewed focus on CMO + CIO collaboration. We're continuing to watch, collaborate, and recommend approaches to our C-Suite colleagues. Check out "Understanding leading retailers" to see how the retail industry is collaborating with IT and partners to serve customers better.
Client Insights, Managing Consultant, IBM Center for Applied Insights
Today we’re launching new research of financial services that build on findings from our global cross-industry study, Why partnering strategies matter, released in May of this year. Here, I'll explore how the financial services industry compares to our global study - where they outperform, and where they have an opportunity to improve performance.
What did we find?
The financial services sector has faced a number of challenges in recent years. A global economic crisis slowed growth and put pressure on these enterprises to creatively cut costs while also facing increased governmental compliance and regulatory requirements. Client expectations and sophistication also rose. Similar to respondents in our global study, leading financial firms began a shift in sourcing motivations and execution.
As reported in our cross-industry study, leaders that source broadly and for innovation do better financially, reporting 2x revenue growth and 5x gross profit growth compared to their peers. Financial services respondents are no different. What is different for financial services companies is increased attention on agility achieved through new business and operating models, and responding better by anticipating market shifts.
Does the financial services industry partner differently?
First, we looked at how financial services compare to global respondents across four partnering strategies. When we look at extent of outsourcing and primary sourcing motivation, we find a higher percent of Enterprise Innovators and Enterprise Optimizers in financial services. What does this mean? Respondents in financial services are at the forefront of this shift in sourcing strategy - sourcing more broadly across the organization compared to their industry peers.
Are business priorities and partner capabilities different?
Enterprise Innovators in the financial services sector are similar to leaders in other industries - putting an emphasis on agility and responsiveness to achieve desired business results. However, financial services leaders differ in three areas: their focus on enabling new business models to outperform, anticipating market shifts, and creating a culture of innovation throughout the organization. Enterprise Innovators in financial services order these priorities more than 20 percent higher than their peers in other industries.
Can these leaders do more?
Financial services organizations can do more to improve the connection between shifting sourcing motivations and execution. Enterprise Innovators in financial services are aligning their services with business outcomes, but are less likely to tie metrics to business outcomes. They are on par in transforming their scope to include a broad range of delivery models, include partners in strategy, and vertically integrate contracts across infrastructure, business processes, and applications. However, when it comes to skills, they are less likely to make the required role changes to current personnel. Finally, they are moving toward integrating governance across service providers, but can improve by implementing enterprise-wide governance.
To see our full study - ’Partnering for innovation in financial services’ and to access the global cross-industry study, visit our page.
Client Insights, Managing Consultant, IBM Center for Applied Insights
This is my third post in our series about research into changing sourcing strategy and execution. My first post looked at how leaders are taking a broader and more strategic view of sourcing relationships. In the second, I looked at the dramatic financial impact of sourcing decision-making (2x the revenue growth and 5x the gross profit growth compared to their peers!). Here, I’ll explore top business priorities and partner capabilities Enterprise Innovators are looking at to structure, scope, and govern these shifting sourcing relationships.
Priorities are shifting and capabilities must adapt to match Enterprise Innovators include enterprises which put a greater focus on innovation and sourcing for a broad set of capabilities. Agility and market responsiveness are key differentiators. If they are going to get the rapid innovation and growth they seek, they need specific capabilities from their chosen partners.
Enterprise Innovators are looking for providers that can help them wherever they want to go:
Geographic specific experience and expertise
Proven physical and IT infrastructure
Flexible, integrated supply chains
Creative approaches to existing channels
Proactive ideas for new technology
Enterprise Innovators are experimenting with new business models along the way, trying to learn quickly and driving new ideas to results. If partners cannot respond, they may be left behind.
As I’ve said, these leaders are seeking a different kind of provider, in truth, a different type of relationship. To accomplish their business objectives, they recognize the need to alter the way they structure and manage their long-term alliances. Key facets of this change is outcome visibility, a focus on transformation (not just moving capabilities), and keeping all players involved in governance.
How can we see success?
Historically, service level agreements have focused on operational or cost-centric measures like system availability or cost per service desk call. But new leaders are aligning measurements with business priorities. In the financial services sector, that might mean driving uptake in mobile banking; in the telco industry, it might be lowering subscriber acquisition cost or increasing up- and cross-sell rates; or for a retailer, it might involve meeting an aggressive roll-out schedule for expansion into a new market. This shift in thinking gives rise to new vendor valuation models – ones that can help assess a provider’s contribution to broader business objectives beyond cost reduction.
Must everything change?
Enterprise Innovators are sourcing to get capabilities they need to innovate on a broad scale. So there’s a transformative bent to their sourcing relationships. Their contracts are more likely to be vertically integrated – they may include business process, applications and technology infrastructure – to enable more holistic change.
Enterprise Innovators are more likely to engage partners for specific industry or functional expertise which they can leverage to transform the roles of their employees. If their aim is marketing innovation and they’re sourcing analytics capabilities, they want their partner to do more than just provide a basic service – they want help reshaping how the marketing function works – to drive beyond understanding customer segments to understanding individual customers, from describing what’s happening to predicting what’s next.
Can we just work together?
Enterprise Innovators are pushing faster toward enterprise-wide governance. Because they’re focused on results, they recognize the need for input and collaboration across all the business units and providers involved. If the goal is accelerating the launch of new products and services, then marketing, manufacturing, distribution and sales may all need a voice in related services sourcing decisions.
This post concludes my three part series on sourcing market shifts. Want to continue the conversation? To learn more, visit our page and download the whitepaper!
Consultant, IBM Center for Applied Insights
I came across this Smarter Commerce video a couple of weeks ago and I really like because it gets to the core of what Smarter Commerce is and why you should care about it. If you take a few minutes to watch it, what you’ll notice is that it keeps coming back to the customer as a central theme.
And at the end of the day, that’s really what Smarter Commerce is all about. It’s taking all of that data you’re collecting, helping you develop insights about your customer and the marketplace, and then applying all of that to every aspect of your business.
We recently conducted some research on a couple of specific areas with our colleagues from IBM DemandTec. Specifically, we looked at retail merchants and CPG sales organizations. The retail merchant research was conducted in collaboration with Planet Retail and the CPG sales org research was conducted in collaboration with Kantar Retail.
As we looked at the data from these research projects, we kept coming back to the same central theme as the video above: the customer. Everybody talks about being customer-centric. It’s almost a cliché. But what we found was that while everybody talks about it, most aren’t actually doing it.
Merchants tend to be product and category oriented, and CPG sales orgs tend to focus on their customer, the retailer, rather than the end consumer. Now we’re not saying that merchants should forget about product categories or that CPG sales teams should ignore the retailer, but we found that groups that placed a strong focus on the customer (or more specifically the consumer when talking about CPG) tended to outperform those that didn’t.
These “leaders” were customer-focused and collaborative, both within their enterprises and externally with vendors and partners. And they also made much greater use of analytics to uncover insights about their customers and the marketplace. The differences were really quite striking. For example, Leading Merchants were 1.6x more likely on average to use analytics to drive merchandising decisions, while Leading CPG Sales Organizations were more than 1.7x more likely to use analytics to improve product innovation.
Senior Consultant, IBM Center for Applied Insights
When you are in the business of developing (hopefully) provocative, data-driven thought leadership, every topic or issue can seem like it is undergoing rapid, fundamental transformation. Things are faster. Things are more complex. Things are being disrupted. When setting out earlier this year to take a look at how the role of finance and the CFO is changing, I had to make sure that I wasn’t going to fall into that pattern without due cause.
There are plenty of articles, reports and other quips saying that CFOs can’t just keep the books anymore. Protecting the bottom line isn’t enough. The value that they provide needs to change. Finance leaders have to be more creative, more innovative, and more strategic, yet still maintain operational discipline and efficiency.
Is this true? Are there finance leaders who are doing things differently and succeeding because of their efforts? After research, analysis, study and conversation, I have to say that this is real, and it comes down to those who can manage three areas that are accelerating concurrently and reinforcing one another.
Accelerating technological change…
With economic uncertainty and tightening business and technology cycles it is hard to stay at the cusp of change, let alone get ahead of it. A recent article on the Forbes blog, “4 Ways Technology Is Transforming Business Strategy”, does a nice job explaining why technology is disrupting strategy. Since technology (mainly IT, but also in other areas) doesn’t change in a nice linear way, it’s dramatically reducing the shelf life of business models. The pace of change is out of whack, coming in fits and spurts, and making the job of finance executives, who like things nice and predictable, very difficult. But technology is not just a challenge; it’s also an opportunity to give CFOs and other finance practitioners new tools.
Accelerating strategic change…
Traditionally a functional role, finance has always been responsible for efficient financial operations, ensuring compliance, providing trusted information and managing cash and capital. However, things are getting harder and harder with stability and predictability becoming a thing of the past when it comes to markets, competition, and customers. What can CFOs do about this strategic shift?
In the article, “Think Functionally, Act Strategically”, the author discusses how functional roles, like finance, have to change to meet accelerating strategic change. They have to balance the basic business capabilities and competitive necessities of the past with differentiating capabilities of the future. It is not just about using the current capabilities and processes of the organization anymore – CFOs have to co-create the strategy, the tools, the processes and the implementation plans with the rest of the business.
By embracing and riding technology and strategic acceleration, CFOs can potentially unlock performance gains. We decided to go back and re-examine the results from IBM’s 2010 Global CFO Study, extend the work, and see how organizations were performing financially that were pushing their efficiency and analytical capabilities. You can read the approach and details in the report, but looking at financial measures like revenue and EBITDA, we found that those enterprises that are excelling at efficiency and insight are outperforming financially through all phases of the economic cycle. We hypothesize that this is opening them to new strategic possibilities – evolving into what we call “performance accelerators” (see graphic below).
CFOs and others in the finance function can help manage the acceleration of technology, strategy and performance. By using their current capabilities and developing new tools and processes, they can act as headlights, the gas, the breaks and the navigation system for their organization. We can’t analytically prove the existence of “performance accelerators” yet, but with further research we expect to show that strategic, growth-driven CFOs are seeing accelerating performance benefits.
Client Insights, Managing Consultant, IBM Center for Applied Insights
This is the second post in a 3-part series about our new Sourcing research. My first blog post in this series looked at current outsourcing market shifts - a broader and more strategic view of sourcing relationships. Today I am exploring the financial impact of sourcing decision-making. Enterprises that source broadly across the organization and with a primary focus on innovation perform better financially – racking up 2x the revenue growth and 5x the gross profit growth compared to their peers.
An initial look at average revenue growth and gross profit growth across segments suggested a potential correlation between partnering strategy and business performance. You can see below that respondents who are both sourcing broadly and sourcing for innovation, outperform by considerable margins (as you may recall we are calling these outperformers 'Enterprise Innovators'). However, we knew that a number of other factors – such as industry, company size, geography – could be influencing these results.
We initiated analysis to help rule out firmographic characteristics as the reason for Enterprise Innovators’ outperformance. Against a slate of financial measures, each based on 3-year 2011 compound annual growth rates, Enterprise Innovators trended higher than the average of the other segments combined. This overall pattern is statistically significant. However, since this sourcing study is observational, we could not definitively conclude that Enterprise Innovators’ approach to sourcing causes better financial performance based on this correlation. To help make that case, we used an analytical technique called propensity score modeling.
Propensity score analysis matches Enterprise Innovators with other organizations in the sample that have similar firmographic characteristics, such as industry, company size and geography. In this case, we calculated propensity scores using 68 Dun & Bradstreet variables – those which showed a significant difference between Enterprise Innovators and the other segments.
Enterprise Innovators scored higher than other businesses on all financial measures even after propensity score matching, suggesting their approach to sourcing – i.e., sourcing broadly to drive innovation – was a contributing factor to this higher performance.
My next blog post in this series will look at top business priorities and partner capabilities across the sample, and then explore how Enterprise Innovators structure, scope, and govern their sourcing relationships. Please log in and leave a comment!