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.
As CPS Energy was an SAP AG customer, more SAP software seemed the obvious, lowest-risk way for CIO Christopher Barron to go.
But Barron decided otherwise. He opted for software from a far less high-profile vendor at a far lower price — about four times less.
CIOs today are better positioned to make such decisions today. One reason is new forms of interaction and collaboration between various corporate teams.
“Engineering and product development groups are using blogs to share ideas,” Barron said. “And it’s is driving product innovation.”
Barron is representative of a growing number of corporate leaders who are opting for scaled-down systems from lesser known firms – and finding they do the job just as well.
CIO Jamie Kutzer had a similar experience.
He 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 per cent
- Interested/considering: 25 per cent
- Piloting: 13 per cent
- Not interested/don’t know: 16 per cent
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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.
Speed matters
“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 per cent to 40 per cent 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.