The Commodities Economy and the New Technology Trends

Business Process Management (BPM), Web Services and Service Oriented Architectures (SOA), Utility or Grid Computing and many other “hot topics” in today’s IT environment all have something in common. They support the new business environment driven by the commodities economy.

Call it the adaptive or agile enterprise or invent your own new buzzword. Whatever you call it, most businesses are in an environment of ever-diminishing product differentiation. One CD player is pretty much the same as any other, one bank account the same as the next. Undifferentiated products are characteristic of a commodities market where your only real differentiators are price and time to deliver.

Companies in this situation are fighting this downward pressure on margins in several ways.

Gartner has a list of ten resolutions for the corporate IT departments for 2004. While the list is not short of the usual Gartner waffle, there are a couple of good points in there. We are in a commodities economy and that gives new demands on business and thereby on IT. Out are integrated “best practice” systems, in is process driven, flexible solutions.

Migrate towards real-time infrastructure

Time is of the essence. Product development and launch cycles are shrinking to keep up with the features warfare in what is essentially a commodities market. There is less time to correct any errors or mistakes. The old days of yearlong budgets are well and truly gone and replaced by monthly, weekly or even more frequent reviews and corrections. The time it takes an organization to adapt and adjust to changed circumstances is increasingly its competitive advantage.

Create a business process skills competency centre

Business process management (BPM) is the next big thing in enterprise solutions, for two main reasons.

Unable to differentiate themselves on product features, companies are increasingly searching to create a differentiated customer experience. The business processes that support those experiences, whether they be in the call centers or in the shops, or in the sales or in the service part of the customer relationship, are what differentiates one company from another. Skoda, Volkswagen, and Audi are essentially all the same cars, but the customer experience is very different. The old IT solutions of “best practice processes” supported by integrated IT systems that was perhaps best exemplified by Siebel, the CRM vendor, is out. Flexible, process driven systems are in.

In the fight for margins within the commodity economy, the processes for producing, selling, and servicing the organization’s products or services are a key part of your competitive advantage. Invent a new gadget and manufacturers in China will have copied it in 10 weeks, tops. Invest in a new machine for your assembly line and your competitors have it in six weeks. Give your knowledge workers better access to information, and the guys across the street will have even better systems the week after you launched yours. You must fight this game, but it is not going to give you a lasting advantage. Do business in a fundamentally different way from your competitor, perhaps even in a different market, and you do have an advantage that could last.

Other “hot” trends in the IT world are supporting the same business drivers. Web Services or Service Oriented Architectures (SOA) is all about the architecture and infrastructure to deliver loosely coupled systems that are easy and flexible to change.

Utility or Grid Computing is about managing IT resources in a world where long-term prediction is very hard (and probably in practice impossible for the CIO). Think of it as insurance: by pooling your uncertainties with many other people they become easier to manage.

Plan to overspend your budget

Gartner probably has a vested interest in putting this one on the list but there is an important point there: Your IT infrastructure is changing to something that is fundamentally different from what you have had in the past. How confident are you that you will be able to budget for this environment? Treat your IT budgets as all your other production costs: budget, yes, but also realize that we live in the real-time economy and all aspects of your production must be managed much more frequently than you have traditionally done.

Happy 2004.