Re-Imagining Enterprise Technology

What Enterprises Are We Focusing On

This article focuses on large enterprises (> $100M / year in Technology spend) that are not technology companies, meaning that they don’t create software for resale to other parties or deliver technology solutions to end customers. All enterprises leverage technology in order to design, build, deliver and support their products or services, but they don’t deliver technology per se as a business.

By not including technology companies or those that deliver technology as a service we are excluding all the major drivers of the Nasdaq:

-???? Nvidia, Apple, Microsoft, Alphabet (Google), Tesla, Meta and Amazon

We are also excluding all those for which technology is inextricably linked into their solution and / or were born digital and asset light

-???? Intuit, Tesla, SAP, AirBnB, Uber, Oracle, CISCO, PaloAlto, all the SAAS companies, etc…

The obvious types of companies that we are targeting include:

-???? Banks (JP Morgan, Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley, etc…)

-???? Insurance Companies (Allstate, Liberty Mutual, State Farm, etc…)

-???? Retailers (Wal-mart, Kroger, Home Depot, etc…)

-???? Utilities (electric and gas utilities)

-???? Consumer Goods Companies (Adidas, Procter & Gamble, Kraft Heinz, etc…)

-???? Insurers and Heath Care (Insurers, Hospitals, etc…)

-???? Manufacturing (Caterpillar, Ford, GM, etc…)

-???? Energy Companies (Exxon, BP, Chevron, etc…)

-???? also large government functions

Also note that Technology costs roll up to SG&A and almost every enterprise has undergone significant reductions or is planning to cut their SG&A costs; read “the year of efficiency” by Mark Zuckerberg at Meta for a clear and concise explanation of what these efforts entail and why they are important. What is the purpose of a technology department and whether it can be measured as an effective investment is a critical and immediate question for all large enterprises in this category above.

What is the Purpose of a Technology Department

I asked Chat GPT 4 what the purpose of a technology department is and this was their response:

The purpose of a technology department in a large enterprise is multifaceted:

1.?? Support Business Operations: Ensuring that all the technological tools and infrastructure necessary for the business operations are in place, functioning correctly, and efficiently.

2.?? Drive Innovation: Identifying and implementing new technologies that can create competitive advantages, improve customer experiences, or streamline operations.

3.?? Manage Information Systems: Overseeing the storage, processing, and distribution of data across the organization, ensuring data accuracy, security, and compliance with regulations.

4.?? Provide Technical Support: Offering support to employees for technical issues, which can range from simple troubleshooting to complex problem-solving related to software, hardware, or networks.

5.?? Maintain Infrastructure: Keeping the company’s IT infrastructure up-to-date and running smoothly, which includes networks, servers, databases, and other technology-related equipment.

6.?? Ensure Security: Protecting company data from cyber threats by implementing robust security measures, conducting regular audits, and ensuring that the enterprise complies with data protection laws.

7.?? Develop and Manage Applications: Designing, developing, and maintaining software applications that are critical for the business processes of the enterprise.

8.?? Technology Planning and Strategy: Aligning the technology strategy with the business strategy, which includes planning for future technology investments and managing the current portfolio of technology projects.

9.?? Facilitate Communication and Collaboration: Providing tools and platforms that enable efficient communication and collaboration within the organization and with external partners.

10.? Cost Management: Overseeing the technology budget, ensuring that technology investments are aligned with business goals and deliver value, and optimizing costs associated with technology.

11.? Stay Current with Trends: Keeping abreast of technology trends and best practices to drive continuous improvement and to anticipate the impact of technological change on the business.

In large enterprises, the technology department is a strategic business partner, enabling the company to achieve its goals through the effective use of technology.

I think that is a solid, traditional answer of the role of a large scale enterprise Technology function aimed to the type of enterprises named above.

Why Enterprise Technology Functions Do All Those Roles

Technology functions began when companies bought their own hardware to install their own software, which they customized themselves or with third parties (consultants or the company that developed the software). Enterprises of this scale either built or ran their own data centers or leased large swathes of space from other data center providers. They also purchased the end user devices and connected them to the company network, and then connected the networks together around the globe. Companies also had extensive telecom networks as they connected their offices worldwide and then provided them with primary and backup network connections.

As these systems grew in importance and capability, there was a large effort to integrate data across these systems and also to secure the data from intruders. As a point of reference, I am old enough to remember when we were consultants in the 1990’s and we would just plug our third party laptops right into the company’s network ports and join along (or play Doom). This was obviously before the large scale investment in security that all companies make nowadays.

In turn, these investments required management and justification up to the board of directors, along with alignment with business functions who needed to make the business and customer changes to allow this software to function.

Until recently, customers did not worry about their data being held by companies and countries didn’t worry about whether or not processes and functions are done “in region”. Thus the act of gathering up all the data from around the world and processing it in a central place was a reasonable solution.

When I look at the role of the technology function above, I can “feel” all the legacy components and processes that go into that definition and believe that they are fairly represented.

What if You Started from Scratch, Today

Today, however, the space for new companies (NOT tech companies) is very different. Some assumptions:

-???? No company would purchase hardware (servers, storage) or lease space in a data center

-???? No company would buy on premise software

-???? No company would buy a multi-million dollar software package and then bring in third party consultants with the goal of doing significant, unique customizations that would prevent future upgrades

-???? Hardware is generally delivered by the vendor and is mostly self supporting, such as iPhone, Laptop, Monitor, etc…

-???? You would manage your network primarily as a way to grant and limit SAAS application access and central files / data that is held through third parties

-???? You could create some applications but generally they leverage another tool or system provided by third parties and hosted online as the foundation

-???? Productivity tools, from Box to Zoom to Office to Slack are understood by employees and taken as knowledge to use from company to company (i.e. you are not training people on these tools, they are skills the employee brings or invests in themselves)

-???? It is clear that the business needs technology (they don’t plan to do this work in an analog fashion) and they would work with the technology experts on implementation and changing processes to get optimal results

-???? Customers would have high expectations of the company and should be able to get answers to questions online and also be able to interact with the company (returns, for example) automatically without going through a human (unless there were unique exceptions)

-???? Partners and Vendors would expect that your company has common technology for their business space and would work with your technology and / or create automated links between companies for better partnerships

-???? It is expected that new software solutions continually come out (like Chat GPT) and can be subscribed to or delivered via API; it is smarter to wait and use that then to attempt to build anything giant and substantial in this space

-???? Many countries limit data sharing or have specific privacy requirements; it would be “normal” to need to provide country or region-specific technology solutions, not an “exception”

-???? Business Units would often be “closer” to the customer and would just get their own SAAS solution for their area and support it themself. For example, an HR department could just link to a third party company that provided benefits without having to go through central IT and could work with the vendor to set it up and jointly respond to internal employee inquiries themselves or through the vendor

-???? Note that a large scale enterprise may have 1000-2000 SAAS solutions between their employees, the partners they work with, and their vendors. It is clear that central IT is not going to understand the business rationale and details for these thousands of applications, even if they are involved with security and connecting API’s and networks and data sets

The New Answer - Technology Departments Provide Central Software Solutions

The new answer is that Enterprise Technology Departments provide central software solutions. This is their PRIMARY function. They may still do other services “on the edge” like setup new users with laptops and phones, provide some level of tech support, and have some minor on premise networking, but these are on the margin and often even done by third parties. Many SAAS applications will be set up and supported within the business (except for some hook up / networking steps).

A SAAS based ERP solution, such as SAP would be supported by an Enterprise Technology function, in close partnership with Finance and other key internal customers like supply chain. They would also support a host of either built or purchased software applications.

Now that this definition has been significantly compressed, a new question emerges - how can you determine if an Enterprise Technology Department is doing an effective job at providing a central software solution?

Evaluating Performance of An Enterprise Technology Function

Performance can be evaluated on three key criteria:

1.??? Time to value - the enterprise wants to solve key issues like optimizing inventory costs, increasing quality, or providing 24/7 service at scale. If these services are not available now, how long would it take to build it vs the time to buy it. If the Out of the Box (OOTB) solution has less features but is available right now (or very soon), this has to be a major factor in its favor. The cost of capital for enterprises has increased significantly due to the rise in interest rates from near 0% to 5%, and for some types of enterprises (commercial real estate) access to capital or debt has become much scarcer

2.??? “Full” Cost of Solution - if you provide an ERP solution and teams are still extracting the information out of it, putting it in a central data area, modifying it, and then putting it through another layer, and extracting it in a tool like tableau, and then finally work on it via excel to get the answer, that is a costly solution. All of those costs (within Technology and within the business) need to be included in this cost. ERP’s are typically very costly, and when you add in all the manual effort required to get useful information to make decisions, the cost skyrockets further. The full cost takes all the costs of the whole Technology division and pushes them to the software solutions they support, so you should expect 2-3 times the “direct” costs to be the “full” costs

3.??? “Effectiveness” of Solution - the simplest, almost comical example is how banks spent billions on compliance systems and then many banks failed when interest rates rose; those solutions were obviously ineffective. Every large scale company has invested hundreds of millions in various HR systems, and yet they are freezing hiring and doing layoffs. Is that an effective solution? Couldn’t they have achieved this (poor) outcome if they spent tens of millions less? Many large retailers face inventory write offs and few full-price sales - is that what their supply chain and pricing systems told them to do? The effectiveness has to be measured against its original purpose and judged by top executives or regulators

To do this analysis, you will need to

-???? Break your software into categories and then map your software, whether purchased or built in-house, into these categories. For example you could have HR software like Workday or Success Factors, ERP software like SAP or Workday, Supply Chain software like O9 or internal applications, etc…

-???? Push “all costs” to these software solutions. This includes management, central functions like analytics and security, and observability and tech support. The relevant costs in the business (i.e. unpacking and re-translating the data and hiring their own data scientists to make sense of it) should be included

-???? Then measure the effectiveness of these solutions, in the eyes of the end customer and senior management. You also should bring in the vendor for their opinion on how it can be improved; your company has one implementation of workday (for instance) and the vendor has done hundreds or thousands of them

-???? Timeliness and new features (and missing features) need to be considered; no business has static needs in today’s fast changing landscape. What is the pipeline of improvements coming from the vendor, compared to what you would deliver in house, and at what cost and risk?

If you need to make improvements, then you need to consider alternatives which would consist of

-???? other vendors in the same space (SAP vs. Workday for ERP)

-???? moving from in house to a third party (in which case time to market is critical)

What This Means for TBM

TBM was built in an era (2016) when on premise solutions were the norm and when there were huge gaps in what could be purchased from third parties in terms of software; the SAAS category was relatively nascent.

These assumptions are no longer valid; enterprises can choose to build software but it is not the norm and it has to be viewed with a hard-eyed lens in today’s era of high cost of capital and focus on reduction of SG&A.

It isn’t just the cost; third party software companies are adding features and capabilities at a rapid rate and there are more competitors to choose from in key spaces.

We also need to ask the customers in the enterprise what they want. These customers drove the SAAS revolution predominantly because they were not satisfied with what central IT provided them. It is time that we either meet their expectations or purchase from someone else.

TBM should reflect what is going on in the world in 2023, not 2016.

What a Future Enterprise Tech Function Looks Like

Even in an era where almost all software was purchased from third party vendors, there is a huge need for central IT. Rather than hiring “full stack engineers” to build the latest software and “avoid vendor lock in”, you would hire experts who know these third party systems and be able to implement them and take advantage of new features as they become available. On the business side, you would hire staff who are experts in changing the business to take advantage of these features, rather than working around them or using manual methods.

There is very little literature about the need to hire specific SAAS experts, whether that is for configuration or upgrades on the technical side or specific business acumen on the client side to change processes and methods to work most effectively.

Enterprise technology would also need to be more aware of the purchasing cycle and be more willing to make hard choices to save money, such as pitting large scale vendors against each other and actually ripping out lagging solutions and installing leading solutions. This sort of work is viewed as a last resort in most technology functions, which cements the vendors’ position and makes them less likely to offer the best financial terms.