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The Next IT Strategy: The Information Utility

The Internet is already changing the way in which companies buy and maintain IT, says one expert
 

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October 08, 2001 (Computerworld) -- In this month's issue of the Harvard Business Review, John Hagel III and John Seely Brown posit that your next IT strategy will be about buying IT as services over the Internet rather than owning and maintaining your own hardware and software.

"It's not just a vision," Hagel says. "Large corporations are implementing this."

Hagel and Brown are chief strategy officer and chief innovation officer, respectively, at 12 Entrepreneuring Inc., an operating company that nurtures IT innovation.

Hagel, formerly leader of the e-commerce practice at New York-based McKinsey & Co., recently spoke with Computerworld's Kathleen Melymuka from his San Francisco office.

This is the fourth in a series of monthly discussions with authors of articles in the HARVARD BUSINESS REVIEW on topics of interest to IT managers.

Q: You compare a traditional corporate application with a Swiss Army Knife. What do you mean? A: Historically, connections across applications were so expensive and so difficult to create that people ended up with applications that were massive in scope because they didn't want to have to connect them.

[Application developers] tried to imagine every task that might need to be accomplished and design them all in. So you end up with something like a Swiss Army Knife that can do most things but can do nothing extremely well.

Q: Why is a Web-enabled process better?

A: It allows much more easy and cost-effective connections across applications or technology resources so you can get access to the best-in-class applications, wherever they reside, in a much more flexible way.

Q: You point out that the Web services infrastructure is still maturing, but are there ways companies can benefit today?

A: Yes. One of the most attractive features of Web services architecture is that it provides a set of tools to take existing legacy applications and node-enable them, creating a front end on the application that will allow other applications to access the resources for specific needs.

General Motors has taken this approach to solve the very difficult challenge of connecting its own applications to those of more than 8,000 North American auto dealers - a task that would have been virtually impossible using traditional architecture.

[GM and its partners] keep their existing systems in place, establish much more flexible connections across applications and now have a much more efficient way of serving customers.

Q: You also advise companies to start "at the edge."

A: That's the notion of focusing attention on activity where there is frequently interaction with multiple business partners.

At one end, there's procurement and, alternatively, the sales and customer support function. Those are the areas [of] most immediate value because they involve the need to interact with independent entities with very different technical platforms.

Q: Most of the cases you discuss in the article are about reducing costs. Do you see other uses?

A: Definitely. Given the current economic environment, the most powerful motivation will be cost reduction, but in the longer term, Web services architecture creates enormous potential for business growth.

For example, in mergers and acquisitions, the difficulty in integrating IT systems has been one of most significant challenges to achieving intended value. Web services architecture can play a role in making that an easier, quicker and lower-cost process.

It also provides the opportunity to take resources within the company and make them available as revenue-generating services to other companies. Citibank took a major payment-processing engine they had developed for their own business and offered it as a Web service to a series of electronic markets.

Q: How will this Web evolution affect the staffing and management of IT departments?

A: It will have a dramatic effect. A whole set of skills around network technology and architectural approaches needs to be developed or recruited into IT departments.

And those skills need to be more effectively integrated with traditional enterprise skills [because] you're connecting a new architecture with previous generations of technology. It will be much easier over time to outsource key aspects of [internal] IT operations, so you also will need to deepen those management skills.

On the flip side, there are opportunities to offer services developed internally to generate revenues, so you'll need those skills.

Q: You say Web services will ultimately turn companies inside out. What do you mean by that?

A: Today, boundaries are very clearly defined, and the company usually ends at its firewall.

Web services architecture will create an environment where companies will be able to access resources wherever they reside - in whatever enterprise. Resources that previously existed outside the firewall and were difficult to access will become easy, and those that were tightly locked in will be more accessible to other enterprises as well.

The question will be, What is an enterprise in this new world?




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