Reducing 1,100 applications to 100 and rolling 15 data centers into one is pretty radical vision. But not only is Nortel's new CIO Steven Bandrowczak rationalizing Nortel's applications infrastructure, he is also introducing a discipline of business-aligned applications purchasing.
Nortel's IT applications in future will support 3 key business processes. For example, if the ROI promised by an operational manager for acquiring new applications is a headcount reduction of 4 and a cost reduction of $100,000 per annum; these figures are "baked" into operational budgets for next year. So end users become accountable to IT! Blimey, role reversal.
Bandrowczak believes IT can help deliver business transformation. He is transforming his IT Department from a back office function to be a strategic partner of the business. Today 80% of IT budgets are spent on systems maintenance and 20% on new innovative systems. In future it will be 65 : 35. So "keeping the lights on" needs to be cheaper. He sees IT as integral to business strategy and accountable to the business for delivering ROI and sustainable competitive advantage.
OK, in some ways this is not "news". There has been lots of talk about CIOs taking a more strategic business leadership role. But there have been few case studies of someone actually doing it, and more importantly, being prepared to talk about it. Bandrowczak might just be the catalyst for a sea-change in the IT market, resulting in IT becoming not only embedded in the business, but actually becoming the business itself, as it is in some financial institutions and telecoms companies.
So what are the implications for vendors is the Nortel model becomes mainstream (apart from the obvious "develop software for VM" mantra)?
- Tie yourselves into your customer's core business processes. Interesting fluffy applications around the edges of the business will be usurped by Oracle's, SAP's and Microsoft's all-embracing applications stacks.
- Invest in really understanding your customers' businesses. Many of the larger vendors have sales initiatives in this area, but it is still early days. Those that crack this and earn the right to be a trusted advisor at the customers' management table will have a massive competitive advantage.
- Increase the visible linkage between your software and business requirements. Great technology without a clear business perspective will fail to gain market traction. Demonstrable in-depth understanding of core business processes in different industry sectors will be a critical success factor.
- Dare to be different. Much of the IT marketing out there is "me-too". Web sites, case studies, white papers etc all look the same, which makes life dull for everyone. Be colourful and audacious, as if you cannot cut through the noise you will be rationalised.
- Provide customers with honest, well-documented and independently audited ROI estimates. End users will need more help and education to justify application expenditures. If they become more accountable, so do you.
The last two years have been great and profitable times for software and the IT market. But now end user budgets are tightening up and sales cycles are extending, as fears about the US economy and the global financial crisis set in. The software industry needs to prepare itself for even more change if the Nortel IT business model becomes established. I have no doubt it will relish the challenge.