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This independent research study was
developed and executed by Saugatuck Technology from November
2003 through March 2004, in partnership with CFO Research
Services, who are solely responsible for the analysis, conclusions
and recommendations presented in this report.
Publication of the research has been made
possible by:
- IBM
- Employease
- Perfect Commerce.
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The next sea-change in business
computing is as much about new IT deployment, sourcing and management
models as it is about the evolution of technology itself. Termed
"On Demand" by some, "Adaptive Enterprise" or
Utility Computing by others— all are essentially talking about
how IT will increasingly be available for use on an as-needed, as-used
basis.Such a capability provides
flexibility for businesses to grow and change, and to compete effectively
while managing expenditures on more of a "utility" basis.
While this represents a major shift
in the way that IT projects are funded, deployed and managed—
the potential benefits go beyond dramatically reducing capital
and operating costs. Instead, the promise is one of delivering
higher business ROI, being more responsive to changing business
needs and accelerating how quickly the business benefits of technology
can be realized.
The rub is that this mini-revolution
will take time to unfold—for both the underlying technologies
that support its longer-term vision, as well as the business applications
and sourcing models that will help make it a reality. Further,
it won't be a panacea for all companies in all situations.
Early adopters who have gotten the biggest returns are those that
have highly variable infrastructure and application requirements—or
who have pockets of internal customer needs that would be prohibitively
expensive to fund under normal operating scenarios.
Research Summary:
- PAYG IT is delivering real business
benefits—although most implementations today are limited
to such traditional "back office" applications as benefits administration,
travel and personnel management. Over time, Saugatuck believes
the scope of application and infrastructure offerings will dramatically
broaden.
- Financial and control issues
dominate the decision to adopt PAYG.
Capital expenditure reduction, operating cost reduction and ROI/Payback
are the top PAYG motivators, while security, vendor dependency
and availability/reliability concerns are the most-cited PAYG
inhibitors. Put simply, the decision to implement PAYG adheres
to the same basic decision factors as any other significant IT
decision.
- PAYG as a mass phenomenon is moving
rapidly from "early adoption" and accelerating toward the mainstream—but
individual firms are taking small, careful steps. Nearly 20 percent
of respondents indicated that they are currently using some form
of PAYG services, which is exceptionally higher than anticipated.
But the vast majority of these users are limiting their PAYG exposure
to one or two back-office, process-focused, traditional applications
as noted above.
Executive Implications
- Finance executives are tying
PAYG decisions to near-term payback and ROI metrics, though
these may not provide a clear understanding of PAYG's longer-term,
strategic business impact. CFOs need to start looking more deeply
under the covers at the business flexibility inherent in PAYG
services—and the accompanying (and possibly expensive) need
for flexible IT and business process enhancements. Fundamentally,
PAYG is selective outsourcing of technology services on an as-needed
basis. In theory, this should interest CFOs on a strategic
level; in practice, they continue to be driven by pressures for
short-term earnings growth. Competitive advantage will go to the
CFOs able to understand the business impact of PAYG and balance
it with real-world cost issues.
- Line-of-business (LOB) executives
are realizing immediate business value in spending flexibility
and reduced costs, and are pressing CFOs and CIOs for more PAYG
capabilities. Their focus tends to be on "point" or single-process
solutions that improve the efficiency of a specific operation
within their purview. Such short-term improvement, however, usually
leads to long-term cost increases while reducing overall efficiencies,
due to the ever-increasing complexity of managing multiple, distinct
systems and services from different suppliers.
- IT executives are suspicious
of vendor claims and protective of "turf" issues, seeing PAYG
as possible threats to established IT organizations.
Many see it as another means of reducing the firms' dependence
on internal resources. Most, however, see the opportunity for
improving IT's impact and benefits for the business. But they
also understand the limits of existing technologies and infrastructures,
the costs of infrastructure and process change. CIOs, therefore,
are in a bind—caught between CFOs seeking cost reduction
and quick payback, and line of business managers seeking more
ways to build business value while reducing their own operating
expense.
In
total, 310 senior business, financial and IT executives participated
in the study. All respondents were North American-based. In addition,
more than 30 senior user executives, industry executives and PAYG
services providers were interviewed for this report. The combined
CFO, CIO and LOB surveys targeted both large and medium-sized enterprises
in a cross-section of industries, with approximately 40% of respondents
from companies with $1 Billion or more in annual revenue.
About Saugatuck
The company provides research-based
consulting services that combines business planning and market assessment
with first-hand research of executive technology buyer trends. Founded
in 1999, Saugatuck is headquartered in Westport, CT (www.saugatech.com
1-203-454-3900).
About CFO Research Services
Group
Original research and thoughtful analyses
are the cornerstones of CFO Research Services Group, the sponsored
research arm of CFO magazine, which is published monthly in the
United Stated and eight times annually in Europe and Asia. CFO Research
Services' team of research professionals dissects emerging trends
in business and financial management using mailed surveys and personal,
on-the-record interviews with respected financial executives. Its
white papers and research reports often provide a backdrop to conferences
produced by CFO Executive Programs and illustrate new applications
of technology and breakthrough managerial thinking. For more information,
visit www.cfo-research.com.
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