A dash of cloud and sprinkle of start-ups: An experimental recipe for winning new business

UK firms are looking beyond monolithic IT vendors to smaller cloud service providers to help develop new products and services.

CIOs told analyst house Gartner their businesses are prioritising rapid deployment of technologies that can broaden their business models, and will use software-as-a-service and third party agencies to bypass the upfront time and cost of delivering technology projects in-house. The 184 IT leaders from the UK and Ireland were responding to Gartner's CIO Agenda Survey.

Almost two thirds of these CIOs, 65 percent, are looking to increase the amount of IT sourced from third parties in the near future. An even larger proportion are planning to change the nature of their sourcing relationships and partner with a larger number of smaller IT firms.

"There seems a shift away from looking at sourcing just as a partnership with a few big suppliers towards seeing it much more as including a diverse net of partners and suppliers working with both the traditional big IT houses as well as more with smaller shops," said Lee Weldon, research director for Gartner's Office of the CIO research team.

"They're looking to those innovative small players to drive some of this digital business growth. They're really valuing more of these smaller players over the next few years."

CIOs' top priorities when investing in digital technologies are BI and analytics, mobile and infrastructure. While CIOs are looking to analytics and mobile to create new business opportunities, infrastructure investments will generally be focused on improving security, deploying ERP and increasing investment in cloud service providers according to the analyst firm.

"It's very much a focus on technology and information being used to drive changes in the business model itself, in how the business interacts with its customers and stakeholders, in that front-facing view of the business," said Weldon.

"That's different from where most of the traditional IT investment has been, which tended to be more in the operations of the business and driving more efficiency."

The push to build new products and services around digital technologies is moving beyond media and publishing companies to a broad range of industries, said Weldon.

Utility companies, for example, are seeing a new business opportunity in the roll-out of smart sensors into homes and throughout their distribution networks.

"What's interesting is that you're seeing more and more organisations in traditional, established businesses that have learned from digital native businesses and are starting to drive more innovation," Weldon said.

"Big utility companies are talking about how today they provide just that one commodity, whether it's water or energy to the home, but now are thinking about the fact that if they deploy sensors they are able to monitor and learn from usage. Through capturing information they're able to provide much broader, higher-value services and that changes the business model. It's more about the insight they can provide rather than just giving you that as commodity as cost-efficient as possible."

The executive likely to be directing investment in technologies aligned with business goals is the chief digital officer, with such a role in place at nine percent of businesses in the UK and Ireland, compared to 6.6 percent globally.

But while CIOs forsee working with external companies to rapidly secure the technologies and expertise needed to seize these new business opportunities in the long run some of this work may move back in-house.

"It's not that they're outsourcing the strategic response, it's that when they're dealing with this rapid experimentation, exploring and trying to find those new opportunities, that's when they're looking at partnering with those smaller players," said Weldon.

"Often times they are looking to go with a cloud service provider who can host some of this externally so they don't have that ramp up time of investment internally. As they identify areas core to their business then that is when they start to recruit and develop the competencies in-house as well."

IT leaders believe cloud services will provide much of the software and infrastructure for this experimentation without tying the business to in-house deployments and long-term costs.

More than one quarter, 28 percent, of CIOs in the UK and Ireland said they had already made "significant investments in cloud", compared to 25 percent globally.

These investments were primarily in SaaS followed by infrastructure-as-a-service (IaaS).

"In the early days of cloud it was more about cost and 'Can we buy capacity at a better cost than we do internally?'," Weldon said.

"Now clearly it is shifting more towards agility and innovation. To meet that business demand and be able to put something in place."

CIOs expect the proportion of IT run using cloud services to balloon over the next decade, with 75 percent of IT chiefs questioned by Gartner estimating the majority of their business transactions will be run from the cloud by 2025.

Weldon sees the wider shift of IT operations to the cloud being driven by a desire to offload the maintenance of back office "commodity type" infrastructure in order to focus on technologies that differentiate the business.

This transition could result in businesses that do little of what we imagine today to be in-house IT, but that do far more with digital technologies throughout the business.

"What you think of now as being the IT department potentially would shrink," said Weldon.

"But you would have other groups inside the organisation working with technology and information."

The CIOs role is becoming more about being a broker of services that align with business strategy.

"A high priority is going to be orchestrating the different groups involved with information and technology in your business and your ecosystem - your different suppliers and partners.

"It's much more about how you make all of these work together effectively and efficiently to keep them aligned to what you're trying to achieve. That becomes much more important than the old mindset that says 'As a CIO I have a department and my job is to manage that department in an efficient way'."