As 2008 continues to be overshadowed by the fallout from the US subprime market, we see banks tightening lending and consumers tightening their belts. But a market discontinuum is not universally bad news. Celona Technologies' Charles Andrews argues that companies should hold their nerve and resist slashing IT budgets just yet.
The simple truth is that markets implode regularly and usually with good reason. While you might think that the $5 trillion of market value lost in the dot com crash of the early part of this decade would have taught a few lessons, recent bullish investment has resulted in yet another market "readjustment" in the US and UK. The current crisis is centred on the banking and housing markets, caused largely by over-inflated borrowing and subprime loans, but commentators say the knock-on effects will be much wider when consumers feel the pinch and tighten their spending. If you believe everything you read in the papers then it would seem we are staring into the mouth of recession. But while the outlook is still ‘somewhat uncertain' according to economists, we need to get this into context.
At peak the total number of adjustable rate mortgages in the US were worth around $1 trillion. Only a fraction of these are subprime and current conservative estimates say the damage is likely to total no more than $400 billion. That's a lot of money; but compared to the dot com wipe out, or as a proportion of US market capitalisation (around $16 trillion), it's manageable. In the UK the concern is that growth has been substantially funded by debt, leaving some sectors highly vulnerable, but the stock market is resisting a crash - at least for the moment. In May the FTSE 100, for example, bucked the gloomy predictions on the back of high oil prices (which stimulated a rise in the energy sector), as well as positive announcements from a range of companies including BA, BT, Cadbury and SABMiller.
What this means is that if you're fortunate enough to be in a sector that's insulated from the current downturn, you very much need to keep the wheels on your current initiatives, since the reasons for these investments haven't evaporated overnight. But it also means that in sectors where attracting, retaining and upselling customers just got more difficult, it's even more important to ‘innovate', which in plain terms simply means finding new ways of solving business problems. For the vast majority of firms key business priorities remain unchanged. These priorities are largely customer-centred and include attracting, retaining and upselling customers, targeting customers more effectively, expanding current customer relationships, and creating new products and services that will be attractive to customers. Other business goals, such as process improvement, reducing costs and increasing the use of analytics, are likewise simply stepping stones to improving the customer offer.
Companies' business priorities in turn map onto the IT solutions and strategies that support modern enterprises. And whether your business priority translates to improving your enterprise systems, implementing a business intelligence solution, or modernising your legacy infrastructure, platform or application, underpinning all of this will be data. Data has long been recognised as one of the most valuable assets many businesses possess, but the uncomfortable fact is that all too often it is a barrier to change and innovation.
This becomes apparent when a company carefully decides upon a new solution to transform its operations. It takes great pains in budgeting, selecting and implementing the solution only to discover that the promised benefits can't be realised until it can deliver the data the solution requires. And therein lies the problem. But can you imagine constructing a new office without considering how you were going to power it? Yet companies design new IT solutions and infrastructures without adequately planning the necessary data migration.
This demonstrates how a technical problem - an inability to migrate data - transforms itself into a business problem (an inability to gain the benefits promised by the new solution), and why CEOs need to ask awkward questions about data migration when their CIO first starts selling them that ‘big solution' concept.
The successful businesses of tomorrow are not currently slashing their IT budgets in a knee-jerk reaction. They are investing now in order to be first out of the traps when market conditions change. They understand that the future business environment will be characterised by much shorter innovation cycles and the requirement to get goods and services to market more quickly. They recognise that to remain competitive and to differentiate their offerings will require an arms race - where the competitive weapons are effective, modern IT solutions supporting sound business judgement. In this environment advantages will be short lived, the requirement for change will be inevitable, and the ability to implement change rapidly and effectively a major advantage. Such companies don't write blank cheques, however, they demand that IT investment delivers maximum business value.
That is why they are turning their attention to data migration, because getting it right delivers key business advantages. It enables companies to innovate more rapidly and maximise use of resources. It allows infrastructures to be consolidated and feature-rich applications to be implemented on lower cost platforms. It delivers rich, accessible and up-to-date customer data to applications that can exploit it to target offers more effectively, enable customers to be dealt with more efficiently and allow workforces to become more effective. And it allows you to switch off legacy, meaning that both budget and skilled workers can be redeployed to better effect.
The ongoing requirement for data migration also means that it is no longer viable to simply throw money and effort at a migration just to get it done. In future, system renewal - and the associated data migration - is likely to transform from a once-in-a-career experience to a relatively regular occurrence. There will be no time to hand-spin migrations, so automation will become essential.
In 10 years we are likely to look back on highly manual migrations in the same way that we think of manual typewriters. The electronic typewriter may have been a step forward, but it is not the PC. In just the same way, leading companies are moving away from first and second generation approaches to data migration towards business-aligned third-generation migration technology. They are holding their nerve, transforming their infrastructure and readying themselves for a new way of doing business.
Charles Andrews is CEO of third-generation data migration specialists Celona Technologies (www.celona.com).