Leapfrogging Past Today’s IT Mess
May 1 2005 by Chief Executive
There are two major changes impacting the conduct of global business. Today’s CEOs must understand and deal with these changes in real time.
The first is the advent of the virtual enterprise. Companies are no longer insular. Their supply chains span the globe and reach far beyond their individual firms. Their customers and stakeholders demand and expect 24-7 access to goods, services and information.
The second change is even more pervasive. It is the proliferation of knowledge and technology at the “edge.” Enabled by mobile phones, personal digital assistants, radio frequency identification (RFID) and the like, power to act has moved across time zones from the central office to all workers. Information technology networks must be industrial-strength, globally consistent and secure so they can deal with decentralized, mobile, “always on” users.
Companies that understand these dynamics can turn information technology into a competitive advantage. Those that don’t are likely to fall by the wayside.
Wal-Mart is a good example of a company that has learned to thrive on the edge. The company tracks inventory levels online, interfaces with its suppliers automatically, and tracks shipments with RFID devices. It keeps prices low, shelves stocked and competitors on the run. This “digital nervous system” has transformed Wal-Mart from an Arkansas department store into the world’s most dominant, cutting-edge retailer.
Frito-Lay is another example. When I led Frito-Lay, we developed one of the world’s first database management systems that let us track store-level supply and demand every day. We essentially employed Herman Lay’s original business plan€¦quot;he bought the potatoes, made the chips, sold the chips from his car, and adjusted production accordingly.
These companies were early to recognize the explosion of new technology. They also understood that business ecosystems€¦quot;virtual enterprises€¦quot;will dominate, and that global enterprises do not have to own their entire supply chain or even their business processes.
Understanding the move to the edge is important. Being able to address it is even more critical. Most companies today can see how rapidly technology and the world’s economy are changing, but they’re ill-equipped to respond. Most are hamstrung by a 40-year archeology of computer systems, built piece by piece, siloed by division and hardwired together. These legacy systems were not designed for the new environment and often cannot even communicate with each other.
As a result, 80 to 90 percent of IT budgets are often spent “managing the mess” rather than investing in true business value. These systems are far too fragile to manage the opportunities at the competitive edge and the true rise of global commerce.
Companies looking to move to the edge need to shift their focus to investments that do more than play catch-up or keep-up. To accomplish this, companies will need access to a globally consistent and secure network. They need a digital nervous system that seamlessly, and securely, connects to customers, suppliers and employees around the globe.
One of our customers is ABN AMRO Bank of The Netherlands, which is a leader in this area. It recently launched the first large-scale global deployment of a fully managed mobility service. This service gives ABN AMRO employees access to a wireless network providing anytime, anywhere real-time connectivity to critical business applications formerly available only through stationary desktop computers.
As enterprises move authority and capability out to the edge, they must choose their partners carefully. Organizations outsourcing pieces of their business must look for companies with deep industry expertise. Modernizing legacy systems is not a matter of choice. It’s a matter of competitiveness and survival. And it’s not about ripping out the old and replacing it with the new, but about a long-term plan to maximize business processes and systems. Tomorrow’s successful firms will be those that begin today to migrate into a technology environment that trades roadblocks for superhighways.
Michael H. Jordan is chairman and chief executive of EDS.