FT SPECIAL REPORT

The Connected BusinessWednesday January 29 2014 www.ft.com/reports | @ftreports

Tricky customersUnderstanding dataabout consumerswill be the nextbig differentiatorPage 2

Inside »

Lack of clarityon paybacksNormal metrics‘don’t always apply’to digital initiativesPage 2

Cloud coverHybrid approachgives companiesgreater controlover processesPage 3

Takeover is snugfit for WolverineCloud helps USshoemaker handle$1bn purchasePage 3

Trends for 2014Mobility andanalytics will behigh on corporateIT spending plansPage 4

Ask someone under the age of30 about corporate IT andyou get a big sigh.

“It was a big shock,” saysBradley Tubb, 28 and a sen-

ior account director at Clarity PR. “Iwas a Mac user and when I startedmy first job it was hard to go from auser-friendly interface to workingwith something clunky like MicrosoftXP.

“One company I worked for gave uscorporate iPhones, which soundsgreat, but as I had my own already Iended up transferring my work emailsto my personal phone and the corpo-rate one just kept getting left,uncharged, at the bottom of my bag,”he says.

Mr Tubb also admits to being one ofthe many people of his age who havedownloaded programmes that the ITteam have not sanctioned and trans-ferred corporate files on and off thecloud to get his job done more effi-ciently.

“Sometimes I would go and work ina café, and rather than take my heavywork laptop I would just transfer thedocuments I was working on to myown device using Google Drive.”

These days, Mr Tubb is much hap-pier with corporate IT – his employersat Clarity allow staff to bring in theirown devices. But his early work expe-riences are typical of a growing riftbetween corporate IT departmentsand young employees who havegrown up using smartphones and theinternet.

More than half of young employeessurveyed by Fortinet, the IT securitycompany, at the end of last year saidthey were willing to break any corpo-

rate policy that restricted use oftheir own mobile devices at work.Some 70 per cent said they had used apersonal account on a cloud storageprovider such as Dropbox for workpurposes.

“I don’t think there’s one job whereI haven’t bent the rules quite far to bemore efficient,” say Max Tatton-Brown, an independent communica-tions professional in his late 20s.

It is not just that younger employ-ees – who cannot remember a timebefore the internet and mobile phones– want different gadgets. Their wholeapproach to problem-solving is differ-ent, says Olivier Binse, head of advi-sory at Deloitte’s Digital business inthe UK.

“If you asked a group of younggraduates 10 years ago to solve aparticular problem they would havedone a lot of research and analysis.Now, they just post the problemon a social network and see whatsuggestions emerge,” he says.

Sometimes, says Mr Binse, seniormanagers are uncomfortable withthe public approach and worry aboutreputational damage. But, he says:“Sometimes it is a brilliant strategy –what comes out is much better than awhole research programme mighthave produced.”

Organisations, from Macmillan, thecancer charity, to KLM, the Dutch air-line, have all tapped into the socialmedia skills of younger employees,getting them to staff official socialmedia accounts and talk to customersin a new way.

A number of companies, includingPwC, Vodafone and DHL, are alsoinstalling internal social media plat-forms such as Chatter, Yammer and

Jive to make internal communica-tions more efficient.

“In many cases, adoption is drivenby the fact that a younger generationis coming in. It is a generation thatdoes not use email in their personallives; you can’t just tell them to gouse Outlook,” says Oudi Antebi, sen-ior vice-president of products at Jive.“If you are trying to recruit in largenumbers it becomes a key componentin attracting people. People do askwhat tools they will use to get theirwork done.”

Jive’s own research suggests that,apart from pleasing young staff mem-bers, companies adopting social col-laboration tools obtain a 15 per centboost in productivity.

Security concerns over the newways of working remain an issue forcompanies, but IT departments arestarting to respond in ways that gobeyond issuing a blanket ban.

“Most companies now allow someform of bring your own device,” saysSiân John, UK and Ireland director ofsecurity strategy at Symantec, a secu-rity software group.

“And social media use is becomingmore mainstream in companies. TheIT manager, nervous about sensitivecorporate data leaking from socialnetworks and unsecured personaldevices, can be reassured with a newset of management tools.”

Ms John says that, rather than issu-ing a ban on cloud storage accounts –which would be flouted in any case –companies can build in controls thatstop any truly sensitive data frombeing transferred out of the corporatenetwork.

“Quite often, employees don’t real-ise what might be sensitive – such asmentioning that they are working atcustomer site X. We can put in placeblocks based on certain keywords,”says Ms John. Data being uploaded tocloud storage accounts such as Drop-box can also be encrypted, andSymantec offers Norton Zone, asecure cloud storage service thatincludes encryption as standard.

Corporate social media platforms,too, are built with many layers of pri-

vacy. “If you are working on an M&Adeal, you can create a group on theplatform that is entirely private, thatyou would never know existed unlessyou were invited to join it,” says MrAntebi.

He is convinced that social softwarewill bring profound changes to theways companies operate. “This is not

just another set of software tools.When done right, they will flattenorganisational structures and open upthe way companies communicate.”

These are big claims which may ormay not come true. But, at least,some of the friction between young“digerati” and their corporate IT gate-keepers could be starting to ease.

Young, gifted – and digitally savvyIT departments havelong beenwary of theunder-30s but arefindingways to adapt,writesMaija Palmer

‘I don’t think there’s onejob where I haven’t bentthe rules quite far tobe more efficient’

Pity the poor chief informa-tion officer. Having made itto the boardroom in manycompanies, CIOs now findtheir traditional controlover IT spending threatenedby chief marketing officersand – more recently – chiefdigital officers.

But they will have toget used to it. The internethas transformed customer-facing businesses, introduc-ing new sales channels and

enabling both marketingchiefs and the newfangleddigital supremos to claimgreater influence over tech-nology budgets.

By 2020, almost 90 percent of technology spendingwill originate outside ITdepartments, according toa forecast last year byGartner, the IT researchfirm. The explosion inonline sales and marketingis driving this trend.

David Willis, a senior ana-lyst at Gartner, is confidentmarketing chiefs will be thelead spenders on IT withina few years. They standtogether with their digitalcounterparts, whose rolepromotes digital strategyand reflects “the frustrationthat boards have at gettingthings done in IT”, he says.

This shift owes a lot to a

profound sense amongmany board members thattheir company is not max-imising the returns on itsinvestment in technology.

“We’re not saying thatCIOs are dying out,” says

Mr Willis, “but they willlose influence if they focusonly on operational issues.”

The increasing sophistica-tion of cloud computingservices has brought thisdebate to the fore. Market-ing staff have discovered

how easy it is to launchprojects using online serv-ices and pay for them withtheir company credit card.

Often characterised as“shadow IT”, these initia-tives underpin Mr Willis’prediction that technologybudgets will move awayfrom information chiefs.

VMware, a US cloud soft-ware house, says manyCIOs have recognised thebenefits of what it terms“off-radar” IT spending.

More than a third of the1,500 European IT decisionmakers VMware polled lastyear suspected their col-leagues had bought cloudservices without seekingpermission from the ITdepartment.

Marketing and advertis-

Continued on Page 2

CIOs must face up to ‘off-radar’spending on online servicesBudgets

Co-operation is vitalas decisions on whatto buy becomedispersed, writesMichael Dempsey Marketing staff are

finding it easy topay for technologyvia their companycredit cards

Bold is beautiful: analysts say organisations will not maximise the benefits of their digital strategies unless they think holistically and avoid a piecemeal approach. See Page 2 Oivind Hovland

2 ★ FINANCIAL TIMES WEDNESDAY JANUARY 29 2014

A piecemeal approach todigitisation misses opportu-nities to gain maximumadvantage from digitalinvestments, according totwo McKinsey consultants.

“Tools such as big-dataanalytics, apps, workflowsystems, and cloud plat-forms are too often appliedselectively by businesses innarrow pockets of theirorganisation, particularly insales and marketing,” sayTunde Olanrewaju, a princi-pal in the consultancy’sLondon office, and PaulWillmott, a director.

Insights about big data,for example, can be usednot only to enhance cus-tomer targeting and adjustpricing in real time, butalso for better forecasting ofoperational-capacity needs,which boosts asset andresource utilisation.

The McKinsey consult-ants say: “Most enterpriseleaders share an importantchallenge: how to getbeyond the small share ofthe prize they are capturingtoday by looking for impactacross the whole valuechain.”

For many companies, dig-ital transformation projectshave focused on onlinesales, social networking andmobile applications.

But a year-long researchproject by McKinsey foundthe greatest impact on acompany’s profitability maycome from cost savings andchanges beyond the inter-face with customers.

The study suggested that,while digital sales couldimprove profits by an aver-age of 20 per cent over thenext five years, cost reduc-tions could average 36 percent.

“A too narrow focuson distribution channelsmeans organisations aregetting only a small shareof the full value that digitaltransformation can pro-vide,” the report concluded.

McKinsey’s findings areechoed in research under-taken in the financial serv-ices sector by Capgemini.

“Digitisation can createsignificant cost-savingopportunities for organisa-tions within the financialindustry,” says JeromeBuvat, head of CapgeminiConsulting’s Digital Trans-formation Research Insti-tute.

“Our research found thatback-office digitisation cangenerate as much as 30 percent annual cost savings forbanks.”

But, he adds, “most banksare falling into a commontrap. They are focusing on

the digitisation of customer-facing channels at theexpense of back-end infra-structure and processes.There’s little business valuein launching a new mobileapp if it requires too manymanual processes and hand-offs at the back office towork smoothly.”

Not only may a narrowfocus minimise the benefitsof digitisation, it may alsoleave organisations vulnera-ble to more agile newentrants.

This means companieswill need to compete withunprecedented speed andagility, says Hung LeHong,research vice-president andGartner fellow.

For example, large hotelchains such as Starwood,Hilton, and Hyatt first hadto compete against the ini-tial wave of digital businessmodels from sites such asHotels.com.

Now, these long estab-lished groups must competeagainst new digital businessmodels created by compa-nies such as Airbnb, theroom rental site.

To reap the real benefitsof digitisation, consultantsagree, business and IT lead-ers will need to adopt amore holistic view of their –and their competitors’ –operations.

One further issue forboardrooms is that big dataare not just structured andtransactional but alsoinclude unstructured ele-ments such as intentions,thoughts and images.

This mixture can over-whelm executives but alsooffers big opportunities,says Jason Ward, a seniorUK executive at EMC, thesoftware group.

He cites the example ofGermany’s MAN Trucks,which has been able toevolve its business to pro-vide a fleet managementservice to operatorsthrough the analysis of datacollected from cabs.

Many organisations havestruggled with similarprojects. As consultants atAT Kearney note, the truevalue of digitisation comesfrom the ability to collectand retain for analysisevery morsel of informationon customers.

But this can produce “anoverwhelming mess of datawith no insight”, they say.“Those able to attract andretain the right analystscan transform the moun-tain of customer data intodecisions and strategies forexecutives.”

Experts urgeboardroomsto be bolderDigital strategies

Many companies arefailing to capturethe full benefits oftheir investments,writes Paul Taylor

ing departments were theprime culprits, but mostinformation chiefs havereacted to this with equa-nimity.

In fact, 72 per cent ofrespondents regarded suchoff-radar spending as benefi-cial. They recognised thatcolleagues would opt foronline data storage andemail hosting because ofthe sheer convenience ofthe cloud. However, IT pro-fessionals do worry aboutthe potential security riskof this covert spending, asit may open unauthorisedroutes into corporate data.

The unstoppable momen-tum behind cloud IT spend-ing means CIOs are learn-

Continued from Page 1 ing to position themselvesas honest brokers. Accept-ing the appetite for popularservices, they are facilitat-ing the technology wishesof colleagues while watch-ing out for security vulnera-bilities or instances of com-pany rules being broken.

Lee James, head of ITstrategy at Betfair, theonline betting exchange,reports to CIO MichaelBischoff and says anyattempt to block the cloudspending craze would stifleproductivity. “Off-radarcloud spending is inevitablein almost any organisation;what matters is how the ITdepartment responds.”

Mr James says CIOsshould welcome onlinetechnology purchases by

their colleagues whileencouraging them to let ITstaff assess proposals andoffer advice. Co-operationand co-ordination are cru-cial, offering a way forinformation chiefs to main-tain influence while accept-ing that total control overIT spending is a thing of thepast.

In light of these trends,global brands are revisingtheir chain of command.When the CIO of Starbucks,the US coffee bar chain, leftin 2012, it seized the oppor-tunity to create a digitalchief too.

Adam Brotman, CDO anda lawyer by training, has aheady mix of digital ven-tures to manage. The com-pany operates in 63 coun-

tries and has ambitiousexpansion plans, so MrBrotman is concerned thatprojects such as SquareWallet, its mobile paymentapp, work consistentlyacross languages and cul-tures. But his brief is wide,extending to matters whichwould never trouble aninformation chief, such asin-store entertainment.

The chain’s growing rela-tionship with customers viamobile apps and socialmedia is Mr Brotman’sfocus, and he reports toHoward Schultz, chief exec-utive. Mr Brotman’s officeis next door to CIO CurtGarner and they and theirteams work closelytogether. Mr Garner sticksto providing the technology

CIOs must face up to ‘off-radar’ IT spending

The Connected Business

Maija PalmerSocial media journalist

Paul TaylorUS business technology andtelecoms correspondent

Jane Bird,Michael Dempsey,Paul Solman,Jessica TwentymanFreelance writers

Andrew BaxterCommissioning Editor

Liz DurnoSub-editor

Steve BirdDesign Editor

Andy MearsPicture Editor

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infrastructure that keepsthe corporation tickingover, while reporting toTroy Alstead, chief finan-cial officer.

Anyone who thinks the

CIO’s role at Starbucks hasbeen downgraded shouldnote that Mr Garner has 760staff answering to himwhile Mr Brotman’s officeruns a team of 110.

But a third of the 100 ITprojects running at Star-bucks relate to customersor to integration with part-ners, suppliers and acquisi-tions such as the recent$620m purchase of Teavana,the US tea-shop chain.

The CDO’s job is to put adistinct Starbucks stamp onthe online aspect of allthese relationships.

For Starbucks, this is sim-ply a question of keeping ITconnected to the rest of thebusiness. Ensuring a profit-able digital identity is atask for CIO and CDO alike.

In an increasingly digital world,every online interaction that acompany has with a customerbrings it some more data aboutthat individual, from basic demo-

graphics to more in-depth informationabout their purchasing habits.

Those data can be a powerful sourceof competitive advantage, helping acompany better understand what,when and how to sell the customermore goods or services, if only it cantake full advantage of the informationit has.

As Angela Ahrendts, outgoing chiefexecutive of Burberry and drivingforce behind much of the brand’s dig-ital transformation, said last year:“Consumer data will be the biggestdifferentiator in the next two to threeyears. Whoever unlocks the reams ofdata and uses them strategically willwin.”

The trouble is, relatively few organi-sations have achieved this yet, saysJason Gordon, a partner in the analyt-ics team at Deloitte, the managementconsultancy.

“It’s partly the newness of the prob-lem and partly its magnitude: there’sjust a lot of data pouring in, througha wide range of mostly very newchannels,” he says.

“The result is that most companieshave barely scratched the surface ofwhere they need to get to in terms ofbeing able to analyse customer data,and understand the customer betteras a result, although there is a wide-spread acknowledgment that thisneeds to change,” he says.

An even bigger stumbling block, hesays, lies in gathering customer dataarriving through multiple differenttouch points – the web, mobile, socialand so on – and being able to con-solidate them to create a single viewof an individual across multiple chan-nels.

“This is perhaps where the greatestpotential lies for improving the cus-tomer experience,” he says.

“Today’s connected consumer willinteract with a business through mul-tiple channels, but to them, it’s all thesame brand. A single view of thatcustomer can help the brand delivera highly personalised experience,regardless of the channel.”

Despite the challenges involved,some companies are making signifi-cant progress, but it requires a highlyfocused, selective approach to thedata that are collected, how they areanalysed and the actions they prompt,says AstraZeneca’s Mark Mont-gomery.

“We don’t just collect data for thesake of it,” says Mr Montgomery, whois the pharmaceutical company’s glo-bal director for digital and customer

insights. “For us, it’s about havingcloser conversations with patients andphysicians, from offering them health-care guidance to getting their partici-pation in clinical studies.”

“We’ve spent a lot of time makingsure that we collect the data thatreally matter and, from the insightsthat data give us, we come up withactions that will make a strategic dif-ference to us and our audiences – dataand actions that keep us nimble andhighly relevant.”

James Whatley, social media direc-tor at Ogilvy & Mather, an advertisingcompany, cites Ticketmaster, theonline ticket sales company, asanother organisation making signifi-cant progress in using data toimprove the customer experience.Since 2011, it has allowed its custom-ers to select seats for events based onwhere their friends and family onFacebook will be sitting.

The smart thing about this is that itworks both ways, he points out: aswell as enabling a customer to sitnear their best friend, it can also help

them avoid their insufferable cousin,by choosing a seat as far away fromthem as possible.

Either way, the customer benefitsfrom Ticketmaster’s smart and cus-tomer-friendly use of social data fromFacebook.

“Online ticket sellers often comeunder fire for hidden fees and near-monopoly of the industry, but disrup-tive innovations like this give thecompany a marked point of differenceand keep customers coming back,”says Mr Whatley.

As yet, not many organisations areusing data to transform the customerexperience for the better – so thosethat do have a real opportunity tostand out, says Phil Dearson, head ofstrategy and user experience at TribalWorldwide London, another advertis-ing agency.

“Those that are [can] take whatthey know about us, in order to antici-pate what we might want, rather thancarpet-bombing us with options. Alter-natively, they can give us a price tai-lored to our value to them,” he says.

There is an important consequenceof this increasing focus on customerdata and customer experience, saysDavid Mathison, a New York-basedexecutive search specialist andfounder of the CDO Club, a network-ing organisation for chief digital offic-ers and others in related roles.

An understanding of data analysistechniques and approaches is now amust-have skill for anyone with ambi-tions to lead their company’s digitaltransformation strategy, he says.

“There are plenty of data out thereand not enough insight – and that’sbroadly true across companies, non-profit organisations and governmentagencies,” says Mr Mathison.

That is not to say that those incharge of starting new digital chan-nels need to be highly technical, “bigdata” specialists, he stresses: they typ-ically have an insights and analyticsteam to provide that expertise.

But they must have a very firmgrasp of what their data are tellingthem, “because, after all, that’s wherecompetitive advantage really lies”.

Data can be source of powerCompetitive advantage Unlocking information on customers is the key, writes Jessica Twentyman

If business leaders were asked toassign a Facebook-style status totheir relationship with digitaltransformation, it would probablyread: “It’s complicated.”That is the view of researchers

from MIT Sloan ManagementReview, a US-based businessjournal, and Capgemini, an ITconsultancy, who last year co-authored a report about the digitalambitions of more than 1,550executives worldwide.On the one hand, bosses

recognise the importance of digitaltransformation: 78 per cent ofthose surveyed said it wouldbecome critical to theirorganisation within the next twoyears.On the other hand, there is a

lack of clarity about the pay-offthey can expect to see from

investing in digital initiatives: abouthalf of the companies surveyedsaid that they create a businesscase for these programmes, butmany of them are “guilty of fuzzymath[s],” the report finds.But should company leaders be

held back by the lack of awatertight business caseaccompanied by solid growthprojections and return oninvestment calculations?Not necessarily, says Jerome

Buvat, global head of research atCapgemini Consulting. Digitaltransformation projects “takecompanies into uncharted territory,where traditional payback metricsdon’t always apply”.Instead, he says, smart

companies take small stepsforwards, via pilot and “skunkworks” projects that focus onidentifying “quick wins” for furtherinvestment.A skunk works project is one

that is developed by a small,autonomous unit with a remit toinnovate, often to tight deadlinesand on a limited budget.The term originated at Lockheed

Martin, the US aerospacecompany, in the 1940s, asengineers and pilots worked torefine jet fighter technology, but

has since been adopted moregenerally.This technique, for example, is

often adopted as a necessity bystart-ups that disrupt establishedmarkets with new products andnew ways of interacting withcustomers, according to JamesMcQuivey, an analyst at ForresterResearch and author of DigitalDisruption: Unleashing the NextWave of Innovation.He notes, however, that it is

also an approach with which older,more traditional companiesfrequently struggle.Yet Mr McQuivey has also seen

significant successes among oldercompanies that are prepared tothrow away the research anddevelopment rulebook and thinkdifferently.“Small, independent teams are

critical to digital transformationprojects, because they need to benimble and they have to be freeto pursue entirely new thinking,”he says.When these small teams have

direct support and encouragementfrom their organisations’ leaders,he adds, their independent status– which lends them some distancefrom day-to-day organisationalpolitics – gives them the

confidence to propose the bestideas, regardless of the impactthese may have on deeplyentrenched corporate behavioursand beliefs.The approach is very resource-

efficient, adds Mr Buvat atCapgemini. Projects that fail tothrive, or lose their way, can bekilled off quickly, leaving resourcesfor more promising ideas.“Based on what works and what

doesn’t, an organisation’s roadmap for digital transformationoften becomes clearer quiterapidly, without too much time ormoney being spent.”This should make digital

transformation a more manageableprospect for companies.In any case, it is not as if

standing on the sidelines until arock-solid business case becomesclear is a more sensible option –at least, not according to theMIT/Capgemini report.“The connected world creates a

digital imperative for companies,”it says. “They must succeed increating transformation throughtechnology, or they’ll facedestruction at the hands of theircompetitors that do.”

Jessica Twentyman

‘It’s complicated’ Paybacks are uncharted territory where traditional metrics don’t always apply

Just the ticket: at rock concerts and other events, Ticketmaster customers can choose seats based on where their friends and family on Facebook will be sitting Alamy

‘There areplenty ofdata outthere andnot enoughinsight’

JamesMcQuivey:has seensuccessesat oldercompanies

‘Back-officedigitisation cangenerate as muchas 30 per centannual cost savingsfor banks’

Adam Brotman of Starbuckshas a legal background

FINANCIAL TIMES WEDNESDAY JANUARY 29 2014 ★ 3

The Connected Business

When WolverineWorldwide,the Michigan-based shoeand clothing group,acquired four brands inOctober 2012, its turnoverdoubled to $2.6bn. Theacquisition could havebeen a huge administrativeheadache, says Dee Slater,chief information officerand vice-president ofsupply chain.

A cloud service made theprocess so simple that thetransition was seamless,although it had to handletwice as many transactionsovernight.

Wolverine sources morethan 100m pairs of shoes ayear from 110 factories in20 countries. Its products,which include Keds andHush Puppies, are sold viawebsites and retailersthroughout the world.

“Acquiring a businessworth more than $1bninvolved thousands ofactive purchase orders,

masses of goods inshipment, and paymenttransactions in process,”Ms Slater says.

“We didn’t lose a single[purchase order], nofactories were unpaid, andthere was no time atwhich we didn’t knowwhere goods were.” Fullintegration was completewithin a year.

Scalability and ease ofintegrating acquisitions arenot the only advantages ofusing a cloud service, shesays. Other benefits areaccess to best practice inactivities ranging fromsecurity and compliance toprocess innovation and theability to respond quicklyto market changes.

Wolverine’s use of thecloud dates to 2001, when itbegan transforming labour-intensive paper-basedpurchase orders, creditnotes and import/export

documents into electronicdata communicated tosuppliers, customers andpartners online. “It wasn’tcalled the ‘cloud’ then,”says Ms Slater.

The online, electronicapproach helpedstandardise and simplifydata across theorganisation. “We’re not atechnology company, butwe want to be innovativein our use of technology,”says Ms Slater.

Wolverine has a hub onGT Nexus, a cloud-basedglobal trade “network ofnetworks” that connectscompanies to theirsuppliers, customers andpartners.

Information such ascosts, volumes anddispatch and delivery datescan be uploaded andshared on the hub bypartners, such as factoriesand wholesalers. Buyersknow where their goodsare, and suppliers wheretheir payment stands.

“There is one set of dataand all partners in thesupply chain, logistics andfinance can access thissingle version of thetruth,” says Ms Slater.

And because everythingis tracked, Wolverine canfocus on the areas wheregoods are ahead of orbehind schedule.

Further enhancementswill keep supply chainpartners informed aboutwork in progress, such aswhether raw materialshave arrived or goods arein the packaging phase.This makes it easier torespond to changes infashion.

“If a style or colourtakes off, we will be betterable to expedite it if weknow what stage thefactory floor is at,” saysMs Slater.

Is she worried about dataon the cloud beingvulnerable to securitybreaches? “Anything onlinecould be subject tohackers, and that worriesme,” she says. “It’s my jobto be paranoid.”

Organisations ought tothink hard before insistingthat existing cloud servicesbe customised and adaptedfor them, she advises.

“You should questionwhy you want to dosomething differently fromthe rest of the industry,because it probably meansyou will miss out on thebenefits of the cloud, nowor in the future.”

Shoe supplychain has soleversion of truth

In just a few years, the cloud hastransformed consumers’ behav-iour. Services such as GoogleDrive, Amazon’s Cloud Drive,Apple’s iCloud and Dropbox hold

many people’s personal data, storingeverything from documents and pho-tos to music and video and givingaccess from almost anywhere.

Businesses, by contrast, have beenslower to embrace the public cloudamid concerns over access and secu-rity.

Yet the signs are that companies’use of cloud services has begun toexpand, with growing numbers run-

ning systems such as email services,human resources and administrativeprocesses via the cloud, as well asdata storage and back-up. Expertsbelieve the next few years will see asharp increase in uptake.

Jack Sepple, senior managing direc-tor of infrastructure and cloud atAccenture, the consultancy, says: “Asrecently as 2012, I think there was stillsome education needed around how toleverage the cloud.

“But now, most organisations areno longer looking at ‘Should I use thecloud?’ but ‘How can I use it?’. Theyunderstand the possibilities. The one

thing that can sometimes hold themback is concern about security.”

Nearly half of large enterprises willbe using the so-called hybrid cloud,which combines private and publiccloud services, by the end of 2017,according to Gartner, a technologyresearch company.

“In the past three years, privatecloud computing has moved from anaspiration to a tentative reality fornearly half of large enterprises,” thecompany said in a report last year.

“Hybrid cloud computing is at thesame place today that private cloudwas three years ago; actual deploy-

ments are low but aspirations arehigh.”

Gartner predicts that between 2013and 2016, $677bn (£412bn) will be spenton cloud services worldwide. Therewill be strong demand for all types ofservices, but BPaaS (business processas a service), where processes such aspayroll and ecommerce are run on thecloud, will be the second largest mar-ket segment after cloud advertising.

And by 2017, more than half of largeproviders of SaaS (software as a serv-ice), where applications are run onthe cloud rather than being installedon individual computers, will offer

matching business process servicesand an integrated PaaS (platform as aservice), a hosting environment forusers’ applications, says Gartner.

James Petter, UK managing directorof EMC, the data storage and softwaregroup, says: “Organisations move tothe cloud for a number of reasons, butthey most often relate to agility, con-trol and efficiency. They may be usinga private cloud on-premise, an off-premise private cloud or they may putsome data into a hybrid cloud.

“Some may even be going to a fullypublic cloud. But they want to retaininformation in-house and have theflexibility of the cloud.”

Yet Gregor Petri, a research directorat Gartner, points out that businessesare not simply transferring existingsystems to the cloud. “People are notmigrating services, but doing thingsthat weren’t possible before, such asin social media, mobile and big dataspaces.”

One example is in the supply chain.Joe King, senior vice-president atJDA, the supply chain software group,says: “More than just hosting serv-ices, the cloud is ensuring availabilityand performance, protecting data andhelping businesses with change man-agement by deploying functions andlessening disruption.

“The cloud is playing a significantrole in the whole spectrum of the sup-ply chain, from deciding to buy to thesuppliers, distributors and retailers.”

In fact, the cloud is allowing busi-nesses to improve all aspects of thecustomer experience, adds Accen-ture’s Mr Sepple. “It is offering newways of holding discussions with cus-tomers and leading to better collabo-ration,” he says.

“The consumer journey and engage-ment has improved and there is morecustomer satisfaction. Integration ofchat and video are underpinned bythe cloud, and customer relationshipmanagement systems and digitalsocial platforms can be deployedmuch faster and [more] effectively.”

One example is the cloud’s role inenabling data analytics, says Mr King.“The cloud provides the analytics thatare helping demand planners get thebest out of their forecasts,” he says.“It allows easy access to data to helpcustomers improve the bottom line byimproving transport solutions.”

The cloud also has an importantrole in cutting costs. “We habituallysee at least 20 per cent savings whenservices run on the cloud, sometimesmuch higher depending on the situa-tion,” says Mr Sepple.

However, says Mr Petter at EMC:“It’s not just about cost but aboutscale – as an organisation grows, thecloud allows it to gain skills and serv-ices.”

This point is taken up by Gartner’sMr Petri. “Very often, it is not evencosts but about being able to focus onyour difference,” he says.

The form of outsourcing that thecloud provides can be much more tar-geted than traditional outsourcing, hebelieves.

“Business processes can be out-sourced at a much more granularlevel – you outsource one by one andpay for them on a transaction-by-transaction basis. The processes canbe outsourced to highly specialisedcompanies who might carry out thesefunctions for 100 companies, so thereis a great deal of expertise and gainsof scale.”

Companies taketo the cloud forflexible solutions

Computing Hybrid deployments give greatercontrol over processes, writesPaul Solman Efficiency: the cloud is playing a significant role in the supply chain

Case studyWolverine Worldwide

Cloud hub connectscompany to suppliersand customers,writes Jane Bird

On FT.com »

Cloud is silverlining for FidorWe could neverhave done it allourselves, saysonline bank chiefMatthias Krönerwww.ft.com/reports

Wolverine’ssystem canrespondquickly tochanges infashion

4 ★ FINANCIAL TIMES WEDNESDAY JANUARY 29 2014

The Connected Business

Cloud computing, data ana-lytics, mobility and sociallyenabled business processesare reshaping corporate IT,while the emergence of

machine-to-machine communicationsushers in the “internet of everything”.

John Chambers, chief executive ofCisco, the supplier of networkingequipment, predicted in his keynotespeech at the Consumer ElectronicsShow in Las Vegas this month thatthe internet of everything – connect-ing people, devices and machines –would drive the next wave of globalinnovation and deliver $19tn in profitsand cost savings to the private andpublic sectors over the next 10 years.

While this wave would be poweredby an explosion in the number of con-nected devices – predicted to growfrom 10bn to 50bn units over the nextfew years – Mr Chambers said itwould be about far more than thenumber of internet-enabled devices

and sensors. “This transformationwill change the way people live, workand play.”

In the meantime, enterprise soft-ware is expected to be the strongestgrowth segment of the global IT mar-ket in 2014, according to figures pre-pared by Gartner, the IT researchfirm. Spending on business softwareis expected to grow 6.8 per cent to$320bn this year, after rising 5.2 percent in 2013.

Richard Gordon, managing vice-president at Gartner, says: “Invest-ment is coming from exploiting ana-lytics to make B2C [business-to-con-sumer] processes more efficient andimprove customer marketing efforts.”

He adds: “Investment will also bealigned to B2B [business-to-business]analytics, particularly in supply chainmanagement, where annual spendingis expected to grow 10.6 per cent in2014.”

After marking time in 2013, the total

global IT market will grow 3.1 percent to $3.8tn this year, Gartner pre-dicts. It says spending on devices,including PCs, laptops, mobile phonesand tablets, will grow 4.3 per cent in2014 after slipping 1.2 per cent in 2013.

However, the firm slightly reviseddownward the compound annualgrowth rate for IT services between2012 and 2017. This mainly reflectsreductions in outsourcing growthrates, specifically, in co-location, host-ing and data centres.

“Chief information officers arereconsidering [increasing the size oftheir data centres] and are insteadplanning faster-than-expected movesto cloud computing,” says Mr Gordon.

Over the past 12 months, the cloudhas become an easy choice for main-stream organisations, says AndrewBrabban, Fujitsu UK’s director ofapplication services. In the US, forexample, 80 per cent of organisationsand consumers use public cloud serv-

ices. Mr Brabban says: “There will bea focus for cloud services in threeareas: management, integration andaggregation.”

Chris Curran, PwC US Advisory’schief technologist, identifies businessanalytics as the top trend to watch.“With business analytics, companiesare realising the advantages ofincreased innovation, improved pro-

ductivity, enhanced customer experi-ence and loyalty, and lower costs.”

He says advances in sensors, dis-play technologies, and devices willenable companies to monitor people,entities, behaviours, events, andobjects.

“Companies will use data originat-ing from these and other technologiesto apply new analytic, statistical and

computational modelling techniques,”he says.

Mr Curran also identifies sociallyenabled business processes as a bigbusiness technology trend. “Businessprocesses across the enterprise willdeeply entangle social and communitycapabilities to enable a new genera-tion of connected employees,” he says.

In addition, he says that, since con-sumers are using their mobile digitaldevices to monitor their health, checktheir bank accounts and pay theirbills, many companies will need todevelop a mobile customer engage-ment strategy.

Among corporate IT leaders, twomain technology priorities emerge,according to Gartner’s recent CIOAgenda 2014 survey: renovating coreIT processes and exploiting new tech-nologies and trends.

“The core of enterprise IT – infra-structure, applications such as ERP,information and sourcing – was builtfor the IT past and needs to be reno-vated for the digital future,” saysGartner’s Dave Aron.

But he warns that the skillsrequired to undertake the renovationof core IT are different from thoseneeded to exploit such new technolo-gies and trends as digital design, datascience, “digital anthropology”,start-up skills and agile development.

“Most businesses have establishedIT leadership, strategy and govern-ance, but have a vacuum in digitalleadership,” he says. “To exploit dig-ital opportunities and ensure the coreof IT services is ready, there must beclear leadership, strategy and govern-ance. Individual digital leaders arenot enough; all business leaders mustbecome digital leaders.”

Analytics and mobilityamong big 2014 trends

Corporate ITPaul Taylor onwhere CIOswill be spending theirmoney

Getting connected: John Chambers gives his speech at CES Bloomberg

Mobile

Devices Worldwidecombined shipments ofdevices – PCs, tablets,ultramobiles and mobilephones – are projected toreach 2.5bn units in 2014, a7.6 per cent rise on 2013,says Gartner. For PCs alone,shipments fell 10 per centlast year to 315.9m units,the worst decline in PCmarket history. RBC CapitalMarkets predicts PC unitsales will fall a further5 per cent this year.

Operating systems Androidis on course to surpass 1bnusers across all devices in2014. By 2017, more than75 per cent of Android’svolumes will comefrom emergingmarkets.

Payments Forty-three per cent ofrespondents toOvum’s recentConsumer InsightsSurvey chose banksas their mosttrusted mobilepayments serviceprovider. Thencome credit cardcompanies (13 per cent),online payment providers(9 per cent) and mobileoperators (6 per cent).

Investment Mobileoperators invest more than$100bn a year in capitalspending on their networks.The EU used to account fora third of the world’stelecom capex investment,but that has fallen below 20per cent. Meanwhile, the UShas held its capex constantat almost a quarter of theworld’s total, even thoughthe global pie is gettingbigger, according to theCTIA, the US wirelessindustry trade group.

Advertising The globalmobile marketing andadvertising market will growfrom €6.9bn ($9.4bn) in2012 to €27.9bn in 2018 – acompound annual growthrate (CAGR) of 26 per cent,according to Berg Insight.By then, it will account for19.3 per cent of the totalonline advertising market or5.9 per cent of the totalglobal ad spend for allmedia. Globally, mobilesearch advertising isestimated to represent morethan 50 per cent of the totalmobile ad spend, followedby display advertising andmessaging.

Smartphone security Fifty-two per cent of smartphoneusers want to use theirfingerprints instead ofpasswords and 48 per centare interested in using eye-

recognition to unlock theirscreen, according toresearch by Ericsson.A total of 74 per centbelieve biometricsmartphones will becomemainstream during 2014.

Online retailUS Overall fourth quarteronline sales rose 10.3 percent year-on-year, accordingto Forrester Research.Mobile sales reached 16.6per cent of all online sales,up more than 46 per centover the same period of2012. Tablets accounted for11.5 per cent of online sales,against just 5 per cent forsmartphones. Tablet usersalso averaged $118.09 per

order, against$104.72 forsmartphone users.As a percentage oftotal online sales,the iOS operatingsystem was almostfive times higherthan its Androidrival, accounting for12.7 per cent ofsales comparedwith 2.6 per centfor Android. On

average,iOS users spent $115.42per order, nearly 40 percent higher than Androidusers. Shoppers referredfrom Facebook averaged$60.48 per order, versus$109.93 for Pinterest. ButFacebook referrals convertedsales at more than threeand a half times the rate ofthose from Pinterest.

China Online retail sales inChina are forecast to surgeover the next five years, andthe country is set to be theworld’s biggest ecommercemarket by next year,according to ForresterResearch. The research firmprojects that sales will top$370bn this year, comparedwith $294bn in 2013, andexceed $670bn by 2018.

Home technologyConnected TVs Theinstalled base of internet-connected televisions in theUS will reach 202m units in2015, up 44 per cent from140m at the start of thisyear, according to NPDConnected Intelligence.

Video gaming About 65 percent of game spending inthe US last year was ondigital downloads, accountingfor $13.3bn of the $20.5bntotal, according to Newzoo.Digital game revenues roseby 10 per cent. Tabletgaming is expected to growat a CAGR of 47.6 per centuntil 2016, while smartphonegaming will grow 18.8 percent.

Data points Technology by numbers

China online retail sales

Source: Forrester ResearchForecasts

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