June 22, 2009, 2:41 PM — San Antonio-based CPS Energy, the largest municipality-owned gas and electric company in the country, needed to get a better grip on its budget and its budgeting process. Since CPS Energy was an enterprise SAP user, more SAP AG software was the obvious and lowest-risk way for CIO Christopher Barron to go.
Instead, he opted for software from a far lesser-known vendor at a far lower price -- about four times less.
Similarly, CIO Jamie Kutzer had considered buying "a big-name intranet package" from a top-tier software vendor as the tool to drive online collaboration across Allied Building Products Corp.'s 200 branches.
"But it was just too costly, too big -- and frankly, I don't know if we were ready for the big leap," Kutzer says. "So we're using smaller, lighter and cheaper technologies from companies that I had never heard of but that my Web services team knew about. They provide a much, much lower cost of entry."
As the ongoing recession continues to choke IT capital spending, buying integrated software from big-name vendors is on the way out -- fast. What's in is "IT lite," which includes Web 2.0 technologies and services that are cheaper and easier to implement, mix and match. It also includes software from no-name, up-and-coming vendors; open-source tools and applications; and an ever-widening variety of tools for mapping, chat and more that are available for free on the Internet.
The trend makes perfect sense in a form-follows-function kind of way, says Vinnie Mirchandani, a former Gartner Inc. software analyst and founder of Deal Architect Inc., a consulting firm that helps large corporate enterprises evaluate software and negotiate contracts.
Status of Web 2.0 Technologies
* Implementing/implemented: 47%
* Interested/considering: 25%
* Piloting: 13%
* Not interested/don't know: 16%
Base: 735 North American companies; percentages don't add up to 100 because of rounding.
Source: Forrester Research Inc., 2008
"If you and I can buy storage at 10 cents a gigabyte, why are corporations paying [a] hundred times as much?" Mirchandani wrote in a recent blog post. "If at any given time, millions of consumers are talking to each other around the world on Skype for free, why are mobile companies charging you exorbitant roaming fees? If anyone can call the Geek Squad and get a one-time PC repair visit, why is your desktop outsourcer not charging you on a per-usage basis, rather than some monthly charge?
"Consumerization of technology should be a broad manifesto for change in corporate IT and enterprise vendors," Mirchandani continued. "Let's face it -- we are slower, uglier, exorbitantly expensive, obsessed with security and compliance." As he sees it, it's time for an extreme makeover.
"One of the biggest reasons people are willing to go to small vendors today is, the risk associated with having a project fail is much smaller financially," explains Barron. "With implementations involving large enterprise software vendors, a lot of times you don't understand if you failed until you're a year and a half into the project. Because it has so many intricacies and takes so much collaboration between IT groups, it can take four months to gear up for the project, then seven months to implement, and by then it has taken a lot of money."
In comparison, "with software from smaller vendors, it can take 20% to 40% less time to implement, and if it works, it could save you between three and eight times as much," Barron adds.
The catch, of course, is that it doesn't always work. But even failing seems to be cheaper than going with the big guys.
For example, CPS Energy bought a $250,000 business process modeling application that Barron says would have cost about $3 million had he purchased a similar system from SAP or Oracle Corp. Although it was a well-designed piece of software, the lower-cost package didn't work out because it didn't easily interface with CPS Energy's installed MQSeries middleware and would have cost another $250,000 to customize.
"In the end, it didn't work the way we needed it to work, but it cost $500,000, not $3 million," Barron says.
But lower cost is just one of many reasons users cite for turning to smaller, lighter, less-expensive technologies. Much of the newer, consumer-oriented Web 2.0 technology is also faster and far more effective in fostering communication and collaboration, which is a primary goal for organizations with increasingly dispersed workforces. The U.S. Department of Defense, for example, has adopted both Web-based chat and wikis as standard communication tools, even in battle.
"We have tactical war commanders who use small chat rooms on the battlefield, and we're leveraging wikis to enable us to more quickly develop shared intelligence on a particular situation or event," says Dave Mihelcic, chief technology officer at the Defense Information Systems Agency (DISA).
Mihelcic says the DOD also has "free and ready access" to Intellipedia, an online system for collaborative data sharing that was developed and is used by the U.S. intelligence community. The system consists of multiple wikis used by individuals with appropriate clearances from more than a dozen agencies and national security organizations, including combatant commands.
A Call to Experiment
Manjit Singh is responsible for IT at a $3 billion Fortune 500 company with operations in 70 countries on six continents. He's also a technology executive who believes that experimentation is a good thing -- especially if it saves money.
As CIO at Chiquita Brands International Inc., Singh was one of the first high-profile users of software-as-a-service. Now he's back at the leading edge, deploying wikis, expanding Chiquita's VoIP usage and looking to do more with open-source software.
"CIOs as a group are very risk-averse. As a result, we don't tend to embrace the new technologies as much as we should," Singh says. "But the economy has forced people to take a more serious look at this. I think it's good. This is a paradigm shift that will be around long after the economy recovers."
At Chiquita, Singh says, "we're constantly looking at things, trying to figure out if there is a different way to achieve the same benefit or value." For example, the company relies heavily on VoIP throughout its remote operations in Central America. Now, Singh says, Chiquita is getting more aggressive about deploying VoIP in other regions, notably Europe. Chiquita recently fully VoIP-enabled its headquarters in Switzerland.
"For us, it was a step in a different direction," he says. "Now is the time for experimentation."
"Before, we were using e-mail and PowerPoint, and you know the limitations of those technologies," Mihelcic says. "With a wiki, it takes seconds to get knowledge online."
"By providing collaboration on an enterprise level, we can also communicate across organizational boundaries," adds Rebecca Harris, head of global information grid enterprise services at DISA. "It provides us with a way to invite in, at a moment's notice, unanticipated users to help with problem resolution. It really is a different way of providing a traditional capability."
The overall goal is to "crush the hierarchy of information in the DOD," says John Garing, DISA's CIO and director for strategic planning. "The DOD has a chain of command, and information traditionally has had to go up through the chain of command, and decisions flow back down. Now, senior leaders want information to flow very quickly."
Garing says DISA IT personnel have visited Google Inc. several times to learn how the company handles product development. "They do things in small teams and bites and constant beta testing," he says. "They can add things to the network quickly, and if they're not a hit, they can kill them fast. We also need to be able to move things quickly before they get to be monolithic programs."
Garing's IT team also visited Amazon.com Inc. to study how it provisions Internet cloud-based storage on an as-needed basis. "We studied how they were delivering that service," he says, and now, instead of waiting weeks or months to have hardware or software installed, DOD personnel can buy capacity on demand through a DISA service called RACE, for rapid-access computing environment.
Unlike the many CIOs who cite the economy as a key factor driving accelerated adoption of Web 2.0 technologies, Garing says DISA is "really aimed at getting speed and capability into the hands of people quickly."
Kutzer at Allied Building Products wants all of that, along with lower costs upfront, plus an immediate return on investment.
"We're focusing on the near term like never before," Kutzer says. "Given the new state of [economic] affairs, if you're going to buy a new technology, it's going to have to help me this year. Cash is king right now, and everyone is hunkered down over their balance sheet.
"We're trying to be creative and imaginative without overstepping capital expense restrictions," he adds. "The way to do that is to bring in smaller solutions to meet acute needs. In the past, we may have tried to kill 10 birds with one stone."
For example, Kutzer says Allied recently bought a small mapping application from a vendor he had never heard of. "We didn't overinvest. We spent less than $1,000 on something that we think is going to add value immediately in our Web services environment."
Still other companies, like $6 billion GAF Materials Corp. in Whippany, N.J., are tapping more deeply into the Web 2.0 capabilities of already-installed software, such as Microsoft's SharePoint, to leverage the collective knowledge of their workers.
"In my industry, it's unheard of to be thinking this way," says Adam Noble, GAF's CIO. "Historically, it has all been one-way communication. But now, engineering and product development groups are using blogs to share ideas, and what it's doing is driving product innovation."
Noble, for one, believes that having a Web 2.0 strategy is an absolute must, regardless of budgetary constraints and/or old-school processes. "If you take the position that 'we don't do social networking,' your resources are going to go for it anyway. If you don't do it internally, your corporate information will be on Facebook."
Says Noble, "We are looking at how we can use Web 2.0 with our customers. We want to expand social networking beyond our own four walls."