As part of our Saugatuck's ongoing Executive Insights research program, analysts Bill McNee and Mike West recently caught up with Paul Daugherty, Chief Technology Architect at Accenture. Published originally as a two-part set of deliverables in our CRS-CLS research service, we thought that our ongoing non-subscriber readers would value many of the insights and takeaways from this interview, which we have condensed into one 7-page abridged Research Alert.

What is Happening? Daugherty offers a range of insightful views regarding the key issues that large enterprise CIOs are currently grappling with, accelerating investments focused on driving business innovation, managing risk and reward, and key trends in the services business. The interview then turns to the evolution of enterprise architecture, the rise of hybrid cloud, the shift toward Cloud adoption of core-systems of record over time, CMSA and the Boundary-free Enterprise, and guidance for IT and business execs as they begin their journey to the Cloud.

Ongoing CRS-CLS subscribers can assess the full transcript and Saugatuck’s insight relative to the key themes presented in the 7-page Part 1 and 8-page Part 2 of this interview by clicking here (Part 1Part 2). Non-subscribers can purchase and download here (Part 1Part 2). 

Why is it Happening? Learning first-hand from technology industry leaders who are regularly in the field with customers can provide valuable insight into current and future trends. In late June, 2012, Saugatuck Technology’s Bill McNee and Mike West met up with Paul Daugherty, Chief Technology Architect at Accenture in an extended interview, first published in Saugatuck’s CRS-CLS research service. As a courtesy to our broader readership, here we provide a condensed version of Daugherty’s viewpoints across a range of issues. In the interest of space, we have eliminated Saugatuck’s questions, and instead provided a header for each section that encapsulates the topic area that is being discussed by Daugherty.

Key CIO Issues Today: Broadly speaking, I see three key categories of issues that CIOs are grappling with today – and they all revolve around 1) balance, 2) priorities, and 3) talent. In regards to balance, there is the perpetual struggle that CIOs have to balance the needs of the business [in an ever changing business environment] with the need to be more efficient and cost effective, and operate in a very tight cost-control mind set. The second issue is priorities. Keeping a balance requires business and IT leaders to prioritize . . . their new choices in technology, and how they can be used to solve business problems. The third issue is around talent. With the vast changes in technology, talent is moving to the forefront as a critical challenge. This applies to talent to support their existing [legacy] systems to keep the current ship running, but it also increasingly applies to the retooling of talents to support areas like Cloud, big data and mobility, as CIOs incorporate these new technologies into their IT organizational roadmap.

Growing Focus Around Innovation: We are absolutely seeing an increasing focus on innovation, and using technology to drive business innovation. And I think it does go in cycles – look back to the global downturn in 2008 and 2009. At that point in time, we saw a real shift of focus on cost and cost effectiveness and efficiency. When we came out of the downturn, and as the business climate started improving, we saw a real shift to innovation which happened to come together with all the new technology that I have been talking about.

However, I would say there is a broader trend at work here, which is about the “consumerization of technology.” We have done some research on this and the data shows that the amount consumers are spending on their own technology – the amount that you and I spend buying our own personal technology – now exceeds what companies spend on a per capita/individual basis on new technology. That is causing a real shift in mindset.

The net impact is that it creates pressure in the enterprise to adapt those same sorts of consumer technologies to meet the expectations of customers, business partners, and employees. I firmly believe that the focus around consumerization is really an underlying driver and enabler of a lot of the innovation that we are seeing.

On Balancing Risk and Reward: I think that with all of the new technology there are risks, as well as big rewards. This includes risks around the maturity level of the technology and its actual functionality, as well as considerations such as privacy, security, and those sorts of things. In this sense, risk / reward is something that we spend a lot of time thinking about, and working with our clients on.

The overall approach we use with clients is looking at it in a pragmatic fashion – looking at the right ways to adopt the technology and the right pace, so that clients are comfortable that it will work and that we can prove it as it is deployed – and that it is going to work in the intended fashion and deliver the right results for the business. In addition, particularly with some of the more pioneering technology, the approach of improving as we go, and learning as we go, is particularly important.

On Evolution of the Services Business: I think there are three key trends that we can talk about – 1) how the industry is retooling itself, 2) the ecosystem and how that is changing, and 3) some new roles, and how we see these evolving.

In regards to the first point, around retooling and looking at the capabilities that we have in the industry, there is a lot of change, a lot of new technologies coming into play very quickly – and one of the things that a lot of clients struggle with is finding the right talent, the right skills to do the work they need to do, which is why they come to firms like Accenture. At the same time, we have to transform and retool our skills and make sure we have the new skills to support the new technologies. So one of the new key priorities around any services organization, and Accenture in particular, is how do we develop the right capabilities, how do we help our clients build a new Cloud, or mobile or social strategy? We have made significant investments and have built up a big team around Cloud technologies and the other areas that we have been talking about – and this is a key priority that you will also see happening across the industry.

The other thing we are looking at is how we run our projects differently in these areas – and how we adopt and run the business differently to suit the new technologies. When we deliver our Cloud work we are generally using very agile / flexible approaches – which suits the kind of deployment suggested by Cloud technologies – multiple releases, very quick delivery times etc. And at the same time we try to industrialize it, so we’ve made big investments in our global delivery networks that can provide the right skills in the right parts of the world to support whatever kinds of work we are doing.

The second change in our business is related to the ecosystem. There are a lot of new cloud companies popping up. As one great example, Amazon started years ago as an online retailer and is now a leader in Cloud Computing. We have newer entrants to enterprise computing such as Google. Other key players include Salesforce.com, NetSuite, Workday and others. We also have the large players, Oracle, SAP, IBM and others making their move into the Cloud and related technologies – which requires a new balanced understanding of how to work with the new emerging players, as well as with the established leaders in the industry.

And finally there is a new set of roles that have emerged in the services business. There is a lot of talk now about Cloud services brokers, about new roles that clients will need as they look to adapt and implement Cloud services. This is something we are very interested in, and where we have taken some steps that allow us to act as a broker for a client to give them the best capability, integrated in a way that is directly usable for them, and that helps accelerate their migration into Cloud technology.

Creating Differentiated Value in the Evolved Services Business: Global delivery is an important part of the equation for us:50-70 percent of our SaaS work is delivered from our global delivery network, which gives us a lot of scalability to rapidly grow the talent base – this has in itself been a differentiator for us.

In terms of increasing differentiation, yes, we are absolutely looking at how we provide new capabilities. We are also developing accelerated delivery approaches, including what we call Accenture Advanced Enterprise Solutions, which is an approach to very quickly deploying ERP solutions for our clients, both on-premises and SaaS. We have industry templates that go from the best practice processes in an industry, to the metrics, through the configuration of the software to work according to those best practice processes. That kind of industry-specific differentiation and acceleration is a really important ingredient of how we are competing, and how we are moving our business forward in the Cloud.

[In addition], Accenture has deep industry depth that we are leveraging to provide SaaS solutions to customers where there aren't already third parties present. One example is within our Accenture Software group, where we develop software for a number of industries under a cloud-based service delivery model. For the insurance industry, we have a software-as-a-service version of our claims components software offering, that leverages our industry knowledge, and our knowledge of how that process works in industry.

You mentioned business process as a service (BPaaS), and that is one area we are focused on as well as looking at where business processes are headed. Our Navitaire business, which is in the airline operations and processing area, we are offering the capability on an as-a-service basis for that industry.

On the Evolution of Enterprise Architecture and the Rise of the Hybrid Cloud: One of the key principles that is at the top of our list is a belief that the hybrid cloud is important for our client base, particularly among the global 2000 companies we do business with, and that hybrid cloud is going to be the reality for many years to come. I agree with your terms that there is kind of a camel-back in demand, with a shift to more pure cloud architectures still many years out.

[Saugatuck research shows that on-premise deployment still will dominate 50 percent of decisions in 2012, but this falls off to 18 percent in 2014 and 13 percent in 2016 – with a corresponding rise of hybrid Cloud demand peaking in 2014, and with pure-Cloud approaches dominating 2016 and beyond].

But I think the reality is that the Cloud will need to operate in a hybrid mode for many years to come, given the large investments that clients have built up over time, and the slow refresh rate of replacing all of that legacy technology especially for large enterprises. One implication of this is a continued rapid shift to the Cloud for solving new problems with new systems and applications – but all of the solutions will need to operate on a hybrid architecture, as companies look to support the adjunct processes and databases and applications that they are implementing.

On Cloud and Core Systems of Record: When you generalize from ERP to some of the core operational systems that are at the heart of companies – things like HR and accounting types of function that are more horizontal, they are already moving very rapidly to the Cloud. Just look at Workday, SAP/SuccessFactors or Taleo. This is an area that is moving to the Cloud at a very fast pace. In finance, we are starting to see some of our clients think about the Cloud, and moving at least part of the finance process. However, in terms of moving the core global consolidated financials and accounting systems moving to the Cloud, we are still a ways off.

At the same time, we are seeing increasing adoption in some of the Cloud-based ERP and finance oriented tools being used to solve very specific problems like 2-tier ERP architectures, to meet different geographic and subsidiary needs. When you look at highly specialized ERP and manufacturing and process oriented industries, evolution to the Cloud will take a while, partly because the problems get very specialized by industries, and if you look back at the evolution of ERP it took a long time for those specialized industry capabilities to evolve. In fact, they often evolved a decade after the ERP industry started evolving.

On the Rise of a New Master Architecture [what Saugatuck is calling “CMSA” – as in Cloud, Mobile, Social and Analytics]: We absolutely believe it is the convergence of a number of technologies that is creating the value, and the inflection point for this all to take off. What we have seen in the past, is the same thing we are seeing now in Cloud – a new delivery mechanism and new commercial model. You have mobility which is offering new channels and new ways to access customers. You have big data and analytics which are offering new ways to drive business and get insights and offer new services, and it is really that connection of all those new solutions coming together to create that opportunity.

It is really the intersection between all of these technologies that define the value. Just to give you one example, there is a project that we are doing right now for a large (global) Financial Services company, where we are doing social media monitoring for them. We are using data and big data coming from multiple sources, continuously monitoring and looking at what is happening across the Twitter firehose and all the social networks. We have big data operating in the Cloud, across many different ways to interact and look at the information, and we are using analytics to drive the insights and the reactive and proactive behavior this institution needs to take to properly manage their “brand”, so to speak, within the social universe.

This convergence requires looking for those intersections across technologies. One of the newer elements of the mix is the social media elements, where we are doing a lot of work now. The way we are viewing social, on top of all the other technologies, is that social is really a new way to add value around the business processes that our clients use. We can take any process – be it CRM, supply chain, etc. – and look at how do you socially enable that process, and allow a company to do a process more effectively, or deliver more value, by taking advantage of the social interaction between customers, employees and partners in any one of those processes.

On Integrating Social into Important Business Workflows: Social is being viewed too often as an isolated technology capability. You will find most companies with multiple platforms and really what you need is a common platform so that people can communicate across the same social graph. Some sort of standard or consistency is important, and integration with the workflow is very important. If you transform a process so that now your sales process is running in a social manner, and your sales agents are collaborating internally with external channel partners, and the customers are able to collaborate, you have really transformed the way you do business.

Guidance to Senior IT and Business Executives Starting the Journey to the Cloud: I’ll give you three things to think about. One would be data. Data is a critical asset to an organization, but has the potential to be a bottleneck or inhibitor with respect to Cloud. A lot of companies right now struggle with their master data, ‘what is the single source of the truth?’, ‘how do I get access to the data, at the right point in time or in real time as I need it?’

The implication of Cloud and the technologies we are talking about – is that you need to have a very good handle on your data. And I think investments in understanding your data, improving access to data – the master data architectures, and master data approaches that have been around in the industry for a while – are becoming increasingly important as you look at all these new technologies.

The second would be the talent; all of the things we are talking about require new approaches, new thinking. The way you construct a new system to take advantage of big data is very different than the way you would have constructed an application to use structured query language (SQL), for example. Many of the concepts that people in the industry have been familiar with will need to be relearned, from the new skills around architecture, and the skills around integrating these technologies to the skills around working with the business.

My third suggestion is approaching everything in a pragmatic fashion. We’ve had a phrase we’ve used in the past which still rings true – ‘think big, start small, and scale fast’. I would use that around all this technology as well. You need to think big and make sure you understand the potential implications of all the technologies we are talking about. But then avoid the science project – start small, prove the business value, prove that the technology works, and scale it the way you need to use it. Then get ready to scale fast. The way you build the technology, the way you structure the organization, the way you work with other organizations to make sure that you can deploy it at scale, rapidly, to get the business value to the organization – these are all important issues. Those are the three things: data, talent, and ‘think big, start small, scale fast’ mentality.

For an extended version of this Research Alert, visit Saugatuck Technology.

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