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Leaving the past behind and embracing the 'new normal' in IT

Linda Tucci, Executive Editor
SAN DIEGO -- Outside-in architecture, bringing the edge to the core, pull-based economy, swapping CPUs for GPUs. It can all sound a bit like mumbo jumbo. But CIOs might want to take note.

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These are the principles that will separate the successful companies from the failures in the "new normal," according to John Seely Brown, the keynote speaker at Burton Group Inc.'s Catalyst Conference being held in San Diego this week.

The new normal has already become a cliché in IT circles, shorthand for the toll the Great Recession has exacted on IT budgets. For many CIOs, the new normal is an amplified version of the old normal: doing much more, much quicker, with much less money. Brown, former chief scientist at Xerox Corp. and now independent co-chairman of Deloitte LLP's Center for the Edge, begs to differ.

Instead of defining the new normal, Brown argued that the economic crisis may be covering up a "much more fundamental" change that will affect IT dramatically. In a world of constant flux, the business principles that made companies successful in the 20th century will hurt them in the 21st century.

The nature of change has changed, Brown said. In the past, infrastructure innovation followed an S curve: slow change followed by a big disruption that levels off to slow change after the infrastructure is installed. (Roads, cars, planes have not changed much in 50 years.) This stability has allowed for accurate prediction, which in turn allows companies to organize themselves to achieve maximum efficiency.

"We now have a new type of infrastructure, an exponential curve composed of rapid, punctual evolutions that show no sign of slowing down," he said. The result is a new normal of "unrelenting advancement, causing disequilibrium in almost everything."

Brown, for one, is happy to leave the past behind. His research has shown that the return on assets (ROA) for U.S. firms -- a metric the geniuses on Wall Street can't mess with -- has been dropping like a rock since 1965. (The rate for successful companies is declining more slowly but is still going down.) The average life span of companies in the S&P 500 used to be 75 years, according to his research. The "topple rate," or the time between the average company's entry to the S&P 500 and its exit, is down to 10 to 15 years "and could go down to five," he said. As ROA has gone straight downhill, labor productivity has gone up. The half-life of a given skill used to be about 20 years. It has shrunk to five.

Leaving the past behind and embracing the ever-changing future will require companies to figure out "how to participate on the edge of the flows," Brown said. That participation "is not something you wrap up in a database" and probably will not come from a company's most experienced people, its core knowledge. And that likelihood will require IT to build an infrastructure that is not inside out, or push-based, but outside in -- pull-based.

Consider the case of Skadden (Skadden, Arps, Slate, Meagher & Flom LLP), the large New York law firm, Brown said. Two years ago, Skadden noticed something strange. The young associates it recruited were solving cases much faster than anybody else -- maybe not the best thing in the CFO's eyes, considering the drop in billable hours, but a phenomenon that bore examining. It turned out the associates had built their own internal Twitter network, to tap the group's collective knowledge. The firm's new task is to find a way to link the senior and young lawyers together.

Similarly, when it was in the throes of developing NetWeaver, SAP AG formed an SAP community network that resulted in "exponential learning rates," by allowing 100,000 people to communicate and collaborate, Brown recounted. The network now has 1.4 million people. Ask a question, and you can expect an answer in an average of 17 minutes, he said -- and that your idea will be vetted in another two days, because others in the network have tried it out.

A third example is Li & Fung Ltd., a 100-year-old Chinese apparel company that "is behind almost all the apparel coming into this country," Brown said. The company gets 30% to 50% return on equity and average "stick through" revenues of $1 million per employee. The company is an "orchestrator" of some 10,000 factories around the world, creating a loosely coupled but highly modular "process network" of extremely specialized companies -- essentially, using the entire world to produce goods. The yarn for an Ann Taylor sweater, for example, might be sourced in Thailand, washed somewhere else and sewn in yet another factory. The network also allows factories to learn from one another, he said.

We now have a new type of infrastructure, an exponential curve composed of rapid, punctual evolutions that show no sign of slowing down.
John Seely Brown
independent co-chairmanDeloitte LLP's Center for the Edge
"Show me an [enterprise resource planning system] that can keep up with this," Brown said. In fact, the world's paragon of the efficient supply chain, Wal-Mart Stores Inc., has "given up" on its traditional approach, according to him, launching a multiyear strategic alliance with Li & Fung "to pick up their techniques."

The questions from the audience brought the new normal back to reality. Collaboration labs in a loosely confederated network might be the grease of business success, said one attendee, but "in a world of SOX and other government regulations" "who owns the legal responsibility" to make the network safe and compliant? Another attendee asked if the networks were "ready" for this evolution.

The challenge is to make these "process networks" work securely, Brown said. That probably will require new governance infrastructures where policy is treated as an "object." Once the cloud figures that out, and once developers figure out how to bring the computer to the data, rather than the data to the computer, the disruption will be beyond what anyone has imagined, in his view. He envisions not just Software as a Service or Platform as a Service or Infrastructure as a Service, but Business as a Service.

Brown is not the only one preaching the new normal and "pull-based" economies. At an MIT innovation conference this spring, Tivoli Systems (now part of IBM) founder Frank Moss remarked that if he were an IT professional today, he would be focusing on the "extraordinary capability" of personal technology -- social media, the mobile Web, affective computing -- to understand his customers: what motivates them, how they think, what they like and don't like.

"Your job is no longer about getting control," Moss said. "It is about recognizing that most of the value in your company is actually being created outside your company, either by customers or by employees," whose work lives are only partially defined by what they do inside the company, he said.

"That's what constitutes success in the 21st century," said Moss, who is now the director of the MIT Media Laboratory. His perspective is a departure from his Tivoli days, he added. The purpose of IT then -- his whole selling shtick for Tivoli -- was "about putting IT and business people in control."

Let us know what you think about the story; email Linda Tucci, Senior News Writer.


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