IT 2.0 for Executives
Thoughts on Bringing Enterprise Capability to Mid-Market Firms

Entrepreneurs often ask me for advice about starting a business. The first advice I would give is something I learned in the process of starting Cognis IT – you need to write a business plan. You have to have a plan for where you’re going.

The whole process of running a business I contrast with reading a book – when you read a book you start at the beginning and go to the end. But business should be the exact opposite. You have to have an exit strategy, so first you need to think about where you want to take the business. How are you going to exit this business? Are you going to develop someone that you can turn the business over to, whether it’s a son or daughter or another family member or friend? Are you trying to take the company public and cash out then? Are you trying to sell the company, to another company or to your employees or to your business partners? You need to have some kind of exit strategy and then work your way back. What are the kinds of things you need to do year in and year out to continually move forward to get to that exit strategy, whatever it is? That dictates how you build the business.

So you start out with the business plan. As you write the business plan, get lots of advice. It’s one of the things that I do, and it’s something I do anytime I have to make a major decision. I’m a huge advocate of utilizing focus groups. They don’t have to be ultra-sophisticated. You don’t have to hire a marketing firm. Reach out to a diverse group of people that you know to view your plan. Of course, you don’t want to overburden them, so every time you do this, every time you create these focus groups, ask different people to participate. I might ask one person once a year for feedback. The great thing is that people love to give you their opinion. And I think they also feel that if you start a company and it becomes a success that they played a part in it.

So again, the first advice I’d give to an entrepreneur is to build your business plan and then get feedback on the business plan.

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I often run into the situation where I meet with other executives and talk about what we do, and when I throw out the phrase private cloud computing, the executives recognize that they’ve heard it before, but at the same time they look confused. They don’t know what it is. I think there is a desire for business executives to understand what it means. Unfortunately, though, I think the technology industry, while doing a great job of marketing cloud computing, does a horrible job explaining what it is. So I’m writing this blog to try to help the average business executive understand what cloud computing means, because there really is a dramatic benefit that can be gained by moving to cloud computing. One benefit that businesses are beginning to see, and will see more and more, is in the purchase of software.

I think that most companies, if not all companies, are probably already using some form of cloud computing. For example, if you’re using some kind of customer relationship management software like salesforce.com, that’s cloud computing. And although most software is still not in the cloud, software vendors like Microsoft are starting to realize that organizations that sell shrink-wrapped software in stores are dying on a daily basis. If you’re a software development company and you’ve manufactured some particular application that you’re marketing — whether it’s to the general public or to the business community — you’ve got to put that software onto a compact disc and package it in some kind of hard plastic case, shrinkwrap it, and then probably put it in a box. Just that packaging cost alone forces you to sell the product at a certain price. If you can eliminate all that packaging and put the software on the Internet and allow people to download it so they don’t have to go to a store to buy it, you don’t have to have the packaging costs, so you can sell the product more cheaply and distribute it a lot more easily. Virtually everyone has a computer now, virtually everyone’s on the Internet, and so from a customer service perspective you’re actually making it easier for customers to buy your products and services.

Because the cloud is making it so much easier to sell, deliver, and maintain the software, more and more software vendors are embracing the cloud. And you, the business executive, will see the benefits.

What cloud software are you using?

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If you asked the CEO or CFO of a company what they’re spending on IT and what percentage of their total budget it constitutes, the figure they’re going to give you is going to take in much more than servers and desktops — it’s going to include copy machines, it’s going to include printers, it’s going to include wiring and cabling — it’s going to include anything related to technology. The answer to the question will vary, of course, from company to company. But most of the executives I talk to want to get a general feel for what they should be spending on IT in their companies. Not exactly, but a ballpark answer. So I’m working on an answer for you.

I’d like to come up with an IT budget (which includes all IT expenses, not just servers and desktops) that tells you that you should be spending between $X and $Y per person. It needs to be based on providing your staff with the most efficient technology to allow them to be as productive as humanly possible. I hope to then be able to share with you a breakdown of how I got to that number range, providing you with a template so that, for your specific organization, you can plug in your own numbers and say, okay, here’s what I should spend on IT.

I think a lot of people have difficulty actually calculating what they’re spending on technology. They have the ability to include some of the things, but they won’t include all of the things. As an IT service provider proposing services, we rarely see customers doing apples-to-apples comparisons of what we’re proposing to provide versus what they’re spending. Either we’re not taking into consideration some of their costs (because we don’t know about them), or they’re not taking into consideration some of their costs and, therefore, it’s never a level playing field and never a level analysis.

I’ll be working on developing an IT spend template so we’ll all be on the same playing field. What costs do you think should be in that template?

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Cloud computing can contribute significant savings that you might not have thought about — there are green benefits in moving to cloud computing.

The desktop computer tower that you have typically runs off about 150 volts of power. If you move to a cloud computing environment you can use thin client terminals instead of your traditional desktop tower. As I described in the previous blog post, in using a thin client terminal your tower is replaced by a much smaller box, literally a fraction of the size of the tower, smaller than a book. And this small thin client box will run off about 7 volts of power. The difference is significant. If you have 50, 100, 200 PCs in your environment, there can be huge energy savings and cost savings.

In a traditional computing environment, as your company grows you’ll add more and more servers (creating what’s called server sprawl), and you’ll need to put them in one dedicated room for a variety of reasons — security, maintenance, storage, cabling. These servers are never turned off. And because they are running all the time and using lots of energy, the room will tend to get very warm. So you’ll need special air-conditioning in that room because you need to maintain temperature control to keep the machines from overheating.

If you switch to a cloud computing environment and eliminate your servers altogether, you’ll be able to close down the room that you are using for the servers and get rid of the air-conditioning. There’s tremendous energy savings there. And a lot of people don’t realize that typically, when a business looks at its electric bill, 40% of that bill is for the technology that you use when you plug into the wall in your building. So if you can find more efficient ways to run that technology, such as cloud computing, you can actually dramatically reduce your energy footprint and realize significant cost savings as well.

What else can we do to Go Green in IT?

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If you use a computer, it’s probably a traditional desktop computer. It usually consists of a keyboard, a monitor, a mouse, and a tower that contains the main components of the computer (like the computer processor, power supply, memory, operating system, and the storage drives). The tower houses all of the software programs that you use. As you work in those programs creating documents — spreadsheets in Excel, letters and forms in Word, and so on — the information is stored in a hard drive inside the tower.

Now, however, the Internet and cloud computing allow you to work at your desktop on what’s called a thin client terminal. When you use a thin client terminal you no longer use a tower. You still use a keyboard and monitor, but your tower is replaced by a much smaller box, literally a fraction the size of the tower, smaller than a book. You no longer need that tower because you can now use programs that are in the cloud, and store your information in the cloud. The thin client does not have a hard drive to store information because that information is actually stored at some remote data center. The operating system and software programs that you are using reside on servers in that remote data center as well — you don’t need to install software on your machine at your desktop.

You gain considerable cost efficiencies at the desktop level by moving to a thin client terminal in the cloud environment. The thin client box will typically cost you $300-$400. A traditional business-grade desktop computer might cost you around $1500. With no hard drive, fan or other moving parts, thin clients last much longer than standard computers and they’re cheaper to maintain. They also use significantly less power.

Do you use a thin client terminal? What’s your experience been like?

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Should the size of your company affect the decisions you make about information technology? The only difference in businesses from small to midsize to large regarding information technology is in the size of their IT budget. The IT budget is obviously larger the larger you get. What you spend on a per person basis is probably the same across all business sizes, and you invest in technology across all business sizes for most of the same reasons.

You start with a vision for how you want to move your business forward and you’ll implement technology at whatever size you are to help get to the next level. As you grow you build on a foundation that you put in place when you start your company. The technology that you use may be more powerful and sophisticated as your company grows, but the basic functions and business needs remain the same.

You start your company with the foundational tools that you’ll need to run your business. You’ll need some kind of productivity software so you can do spreadsheets because you’ll probably need to get a bank loan and they’re going to want you to give them spreadsheets. You’ll need some kind of word processing software because you’re going to write letters to clients and you’re going to give contracts to customers so you’ll need to be able to create those documents. You may need to give presentations so you’ll need some kind of software that allows you to put together presentations. You’ll need that technology no matter what size organization you are. So you’ll get that base level of products as you start your company.

As your company grows, maybe you’ll need some kind of formal accounting package, and as you grow a bit larger you may need a more robust accounting package, so you’ll change. But, across all size organizations, companies tend to use technology for the same basic things. It’s just that as you grow in size you may need specific software that does a specific thing — it needs to be more robust because you’ve got more users at a certain size using that software than you do when you’re a start-up, or you’re interacting with more customers when you’re a larger size company, but you know you’ve got to do accounting whether you’re a small company, a midsize company, or a large-size company. The basic things that you use technology for are the same across any size organization.

Do you agree with me?

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I come from the perspective that technology is a tool. One of the more disconcerting things about information technology that I’ve seen since coming into this industry – and I’ve seen it when I’m at client sites where they’ve invested in their own technology staff – is that there’s often more of an incentive to create a technology fiefdom than to do what’s in the best interest of the organization. It’s a technology mindset. The IT department adds lots of staff, buys the latest technologies, but there’s no thought about how that benefits the organization.

Your organization has a mission, it has a strategy, and it’s trying to accomplish certain things. So how does technology help move the dial to accomplish whatever your organization is trying to accomplish strategically? IT people often don’t think about that, but I think it’s their most important role — to understand their organization (or their client’s organization) as well as possible, its vision, where it’s trying to go, and then take advantage of their expansive knowledge of technology to figure out what tools are needed to help accomplish the strategic vision. That’s what should be happening. But it often isn’t because of the technology mindset.

IT budgets often get out of control because most business executives don’t understand the technology mindset and find it very difficult to talk to technical people who often speak in acronyms. The IT department can be its own island within the corporation and they get the budget they ask for because they explain what they need in a way that non-technical people don’t understand. Often business executives just figure, okay, well I don’t understand it and it must be important so let’s give them what they’re asking for. Before you know it the organization has this robust IT department in place that has its own agenda that may be completely divergent to where the company is trying to go. And because of this fiefdom, the IT budget is out of control.

Keep a lookout to prevent an IT fiefdom from getting a hold in your company.

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As a successful executive, you need to have a certain level of understanding of every aspect of your organization. Certainly, in today’s information-driven economy, you’ll need to understand information technology to the point where you can have a clear conversation with your IT staff. And the most important question you need to ask them is whether they really understand the vision of the company — and then you need to have them communicate back to you the vision of the company so you’ll know for sure that you’re all on the same page.

One of the most important times for clear communication is during budget time. All companies go through a budgeting process. Your various departments submit their budgets; you’re going to vet those budgets and then provide your departments with the resources they’ll need. As you go through that process and employees ask for money to buy equipment or manage projects, you need to ask them these questions: How does the new equipment or new project move the company’s mission forward? How does it help us accomplish our strategic vision? And these questions need to be asked again and again, on a line by line item basis.

For example, if the IT department wants to buy something, say have the company make an investment in customer relationship management software, they need to clearly explain how that investment is going to benefit the company. And the IT department needs to quantify that benefit. You need to force the IT department to provide quantified reasons why the company should buy the software. And not only must they justify the investment financially, they also have to show how the purchase is related to moving the company’s vision forward. If it doesn’t help you to move where you want the company to move, it’s probably not an investment you should be making.

I’m a stickler about forcing people to explain things to me like I’m a four-year-old — I think there’s a tendency for people to try to talk over your head. You don’t want to appear stupid, so you let them get away with being unclear. And then you realize, too late, that you didn’t pull in the reins early enough in the process, and you’ve just wasted critical resources. As a business executive, you need to force people to talk to you so you clearly understand what they’re talking about. If you’re having a conversation with your IT staff and they’re using geek speak, you need to stop them — just say “I don’t understand what you’re talking about and we’re not leaving the room until I do.” Force them to communicate with you clearly.

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Have questions or a comment? Email me!

As an executive, you should care about cloud computing for two reasons: There’s a financial reason and there’s a productivity reason, but let’s talk about the financial reason first. There’s a term called “server sprawl” which means that there’s a tendency in companies, every time they add a new application, or a new piece of software, to put it on its’ own separate server. We see it all the time. As a technology provider, we’ll go into a prospect’s server room or data room to see how they operate, and usually we find that they have multiple servers, each running just one application (which translates into about 1 server per 25-35 employees).

So let’s say that we’re going into a company with a hundred employees. Chances are they’ll have 3 or 4 servers, and each of those servers is probably going to be running its own separate application. What does that mean? They might have a server dedicated to running their e-mail service. They might have another server dedicated to running a financial system, another for standard Office files. Let’s say they’ve got a sales organization and they’re using some kind of customer relationship management software to help them interact with their customers — that software might be on a separate server. Let’s say they’re a healthcare provider — they might have special software related to the medical industry, or if they’re a law firm they might have special software related to the legal industry. Usually in every industry we find companies using some kind of software that helps them run their business that’s related to the business industry. And again that software is on its own dedicated server. Because all of these servers are typically running a single application, they’re typically only 10% utilized. And that’s fairly standard across the industry — most companies use 10% to 15% of their server capacity. So one of the reasons there’s been a movement to cloud computing is because cloud computing allows you to consolidate multiple applications onto a single server.

When you move to cloud computing, what typically happens is that you’ll take somewhere between 5 and 10 applications that are running on their own individual servers and you’ll consolidate them onto 1 physical server. In the case of our business, we have been successful in consolidating in the vicinity of 30 servers onto 1. So an important benefit in the move to cloud computing is the significant cost savings you’ll get by this consolidation of servers. Servers are expensive pieces of equipment (that usually get replaced every 5 years) — you’ve got the purchase price of the server, which could vary from a couple thousand dollars to several hundred thousand dollars depending on the size and capacity of the server. You’ve got to have the server installed, so someone, whether it’s your own staff or an outsourced IT service provider, has to configure and install the server. These are one-time costs associated with doing that. And then that server has to be maintained, either by internal staff or an outsourced IT service provider. If you use internal staff, you have employee costs – salary, benefits, space, equipment, etc. If you use an outsourced IT service provider you’ll have either a maintenance agreement fee or what’s called a break-fix cost. With break-fix, when the server breaks, you call up the service provider and they come and fix the server and charge on an hourly basis as well as charge you for travel and other expenses. With a maintenance agreement, you’ll be charged a flat fee (monthly, quarterly, yearly) and any time the server breaks, the service provider comes out and fixes the problem.

From a cost perspective, then, whenever you can condense the number of servers that you’re using, you can reduce your capital acquisition costs.

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I met with a banker recently, and whenever I meet with someone for the first time I talk about who I am and what I do. So I told the banker that my company has three primary product or service lines: we provide managed IT support services, we provide private cloud computing services, and we do custom application development work. As soon as he heard cloud computing — and of course everybody’s heard the term now, it’s so well marketed — the first thing out of his mouth was, I hear that all the time and I still don’t know what cloud computing means. So I thought this blog would be the perfect place to simply define cloud computing.

So, to understand cloud computing, first replace the word “Cloud” with the word “Internet” — Internet computing or computing over the Internet. Think of it in the following way. If you were sitting at your desktop computer, let’s say at work or at home, that desktop computer has memory that allows you to be able to do things (use different software programs like Microsoft Word and Excel) and store things (like the documents you create using Word or Excel) right there in the desktop computer. Cloud computing allows you to access software programs over the internet (thus avoiding the need to purchase and install the software on your desktop computer), or to take the information you have on your desktop (the software programs and the documents that you create) and put it in a remote location. And then, using any digital device from anywhere in the world, you can securely access that information, which is physically in a remote location, over the Internet. The software and documents are somewhere else (stored on very sophisticated equipment, with built-in redundancies for power, cooling, and access to the internet), and you’re just accessing the software and viewing the documents.

That’s really all there is to cloud computing.

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IT 2.0 for Executives

About Geoffrey Kent

Geoffrey Kent is CEO of Cognis IT and updates this blog on a weekly basis with executive insights into IT, strategic outsourcing, Cloud Computing, and entrepreneurship.