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Why Applications Don’t Matter

Nicholas Carr infamously penned “Why IT Doesn’t Matter” back in 2003, and many in the IT world howled their indignity at the idea. Many proved over and over that IT did matter in many businesses. IT did provide competitive advantage.

But part of what he stated does resonate now. Business applications used to be the epitome of how IT helped differentiate an enterprise. American Airlines invented the yield management system for allocating and pricing airline seats, revolutionizing the industry and generating an estimated $1.4 billion in additional revenues over three years. MCI won five points of market share from AT&T in the 1990s with its Friends and Family plan, enabled by its uniquely flexible billing application. Bank of America cemented customer relationships and leapfrogged competitors by providing state-of-the-art electronic bill pay capabilities.

But more and more, the custom or customized application is dying. Of course, there will always be custom applications, and some companies and industries such as Wall Street will remain highly dependent on them. But for many enterprises, the cost of maintenance and the inflexibility caused by decades of either building custom applications, or highly customizing packaged applications from vendors, has simply become too high to bear. Many organizations have laid down a new law: applications are to be purchased, and they are to be implemented vanilla— no customization. Several CIOs at a CIO conference I recently attended stated this as their go-forward strategy. If the applications are vanilla, they can no longer be the source of competitive differentiation.

So what in IT is now the source of competitive advantage? The data. The data transcends the application. The data outlives the applications. Data is more important than the applications. After all, the applications are the means to capture the data, but the data captures what is actually going on in the business.

IT organizations need to shift their priorities to recognize this reality and to focus on their data infrastructures. We’re already seeing signs that this is happening. Historically, the applications folks tended to be at the top of the totem pole in the IT organization. But more and more IT executives are putting their key managers on data integration and data management. Some are even anointing data czars or chief data officers. In fact, at the conference, the CIO of an insurance company asked me for leads in recruiting a data czar, a position he was about to create. (If anyone wants the job of data czar in the Philadelphia area, let me know.) The CIO needed someone to think about data and information strategically across the entire enterprise, while his existing IT leadership kept the shop running smoothly.

Applications are still a core foundation to any business. But like email and networking, they are becoming commoditized. The key to competitive differentiation is in your data and how you integrate and manage it.

Next posting: Why you should throw out your ROI analyses.

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9 Responses to Why Applications Don’t Matter

  1. Torrance Mayberry says:

    The recipe for competitive advantage is no longer in customized applications. Companies are now realizing applications are not the source of competitive advantage. Instead, quality data differentiates a company from its competitors (Young 2009, What’s The Relevance Of Data for Global CIO’s?).

    One of the recipes for successful differentiation using data is applying knowledge management in data governance. An Australasian financial institution is implementing this recipe and fostering a culture of knowledge sharing for salient data across the entire business.

    Interestingly it is not the CIO who is driving this initiative, but the CFO. The CFO role has changed in the current climate and it is he who recognised the lack of quality data. This was the catalyst to establishing a new data governance framework applying knowledge management principles of collaboration and innovation.

  2. Tom Nats says:

    I agree to most of this but the problem is businesses are not vanilla. Sure, you can have a database with 40 tables with generic names and generic columns. (ie. reference1, reference2,etc..) but any business has certain needs and certain rules.

    The idea of vertical data models is another concept. Retail, Healthcare, Restaurant, etc… but no mater how much a CIO wants an off the shelf product, it’s just not going to happen 100% of the time, especially in the data warehouse world.

    This reminds me of when Oracle 9 came out. It was to be the ‘end of the DBA’ and here we are, many years later where that just didn’t happen.

    -Tom

  3. Judy Ko says:

    Torrance,
    Great insight. Data quality and data governance are key. I’ve seen a pretty direct correlation between companies with data governance programs and those who have been able to wield information as a real weapon against their competitors.

    I’ve seen CFOs driving, but also other LOB executives, depending on the use case, such as head of manufacturing ops or CMOs. Have you seen other business functions take the lead?
    Judy

  4. Judy Ko says:

    Tom,
    Absolutely agree with you that businesses aren’t vanilla. To me, the question is where do you build in the knowledge and rules that make each business unique. It used to be that it was coded into the apps (usually through painstaking customization). Now, more of that “special sauce” that makes companies unique can be handled in the data layer, as rules tied to data objects which can be easily shared across applications.

    Nevertheless, there will always be custom apps– COTS can’t cover everything.

    Thanks for the comment!
    Judy

  5. Phil Simon says:

    OK…I’ll respectfully disagree.

    I can’t see the death of apps anytime soon.

    But more and more, the custom or customized application is dying.

    I’ll be the first to admit that data quality and governance are critical, but let’s remember that end users still have to interact with apps. DG and DQ are far from abstract constructs.

    To the extent that people make individual decisions around data (or not), more user-friendly apps still matter. Without getting off on a rant, then at a minimum allow people to get the information that they need more efficiently.

    On a different level, while many iPhone apps are for pure entertainment, mobile BI and other business-oriented tools available “on the go” cannot be dismissed.

  6. Torrance Mayberry says:

    Yes, I have experienced other business functions take the lead. In one example three LOB executives (CFO, COO and CMO) collaborated to infuse knowledge management principles into data governance.

    As co-sponsors of the initiative the executives of an international hotel company recognised that quality data was critical to the sustained performance against the company’s strategy priorities. They saw that poor quality data posed a threat to the company’s future capability to make better and more informed decisions. Poor quality data was perceived as unwanted “noise” that contributed to bad decisions, a lack of insight and lost opportunities.

    Moreover, what I found most effective from this experience seven years ago was that these LOB executives mobilised not only their peers but also the executive board. This initiative had the full participation of all LOB levels over the entire global enterprise.

    These executives had the foresight to align their initiative to what economists were purporting to be the differentiator for competitive advantage. Economists, like Peter Drucker, recognise the importance of knowledge for competitive advantage. As early as the 1950s, economists were writing about knowledge being as important as capital and labour in calculating growth. It is not surprising then that LOB executives who have had some grounding in economics, also recognise the effect that quality data has on a company’s sustained growth.

    CTOs and CIOs are enablers and often don’t see the correlation between sustained economic growth and quality data. They typically only see data governance through the lens of cost reduction (doing the same things quicker and cheaper) but this is only part of the accounting equation. Good data governance and quality information provide opportunities for sustained revenue growth.

  7. Justin Norwood says:

    Judy,
    Fundamentally, I understand where you are coming from. Increasingly I am working with CXOs who have bought into the ‘design by acception’ approach, whereby on-premise applications start with an industry template and the goal is to keep that template at least 80% intact, allowing for 20% or less customization. And this is just in the companies that are still bothering to implement on-premise applications – many others have turned to the cloud, which generally results in an even lower level of customization, and therefore a lower cost of implementation and maintenance.

    That said, I struggle with the assertion that the trend is to move the enterprise’s technology customization from the application layer into the information layer. Instead, I believe that today’s business leaders are eagerly awaiting the first cloud-based application platform that has been designed from the ground up with the design principle of leveraging information for competitive advantage. Such an application (and its underlying information architecture) would put BI at the fingertips of the knowledge workers in the organization, side-by-side with the transactional system where they work day-in and day-out. It would take the predictive analytics from our consumer world (ex. product recommendations on Amazon.com) and apply it to our business world (ex. a SFA/CRM system that would make recommendations on which prospects to call on). And to accomplish these feats, this utopian application would leverage information assets generated by employees of the company as well as information assets provided by partners and external providers such as D&B, Experian, etc. in order to provide a rich, contextual information framework that could not be delivered simply by using data generated within the four walls of a company.

  8. Judy Ko says:

    Justin,
    Good points. Perhaps what we’re really talking about is the death of the traditional on-premise enterprise application. That model as traditionally applied hasn’t worked. What you bring up is the mashup concept writ large, with business services interacting with information and data services. These may or may not be cloud-based (there’s also a long-term trend towards hybrid on-premise/cloud deployment).

    Will be interesting to see how things play out over the coming years…
    Judy

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