Five Questions Facing European Manufacturing CIOs
Finally the summer has come to an end. Traffic is back in Parisian roads and the early morning London-Frankfurt flights are full again. It was a different summer in many ways. First England won back the Ashes. Then there is more hope about economy in general and General Motors in particular in comparison to last summer when Lehman folded. On a more mundane note, in my 10 years in Europe, this was the most hectic August. Over a span of 6 weeks, I had the privilege of meeting several senior IT leaders across automotive, aerospace, chemicals, machine manufacturing, high tech and defence companies in Europe. I am going to share some of the exciting discussions I had in this space, starting with the five questions that I heard CIOs are asking as they cautiously prepare for post-recession economy.
How to un-fix the fixed costs?
How does the COO of a company making machineries for semi-conductor company respond when the revenues drop by a third? How does the CIO of a truck maker react when the vehicle sales drop by 40% in 9 months? Unlike the rapidly changing demand, many things are fixed in the European CIO’s world - license fees, annual maintenance contract, rate cards, committed business volume, work force size, leasing fees and so on. Re-negotiation takes time and effort and costs money. Letting go the workforce creates reputation and service delivery risk. Naturally the question in everyone’s mind is – how to un-fix this fixed cost without breaking anything else?
How to adjust IT for the Nano world?
More than 90% of growth in car industry comes from the emerging markets. The problem is, this market is notoriously price sensitive and wants stuff at Nano price. (On a different note, the $2,500 Nano has started rolling into Mumbai roads, and one thing that struck me is how spacious and city-friendly this car is). So how do companies make money when the growth is at the most price-sensitive end of the market? What is IT’s role in this? Can IT bring down its costs in line with the new pricing realities? More importantly, what can IT do to help business operate profitably when price has become such a critical factor.
What is the cash-neutral way to One IT?
This was one of the most discussed themes. Companies I spoke to have huge worries about the mishmash in their IT landscape. Multiple mergers, independent business unit structures, technology hedging and often lack of planning have led to an IT landscape that is difficult to understand, expensive to run and time consuming to change. Solutions to this issue is unambiguously clear – get rid of duplications. But this requires investment –more than 2 to 3 times the cost of running these applications. Getting business to fund such investments when there is limited assured benefits is a challenge. Is there a way out of this trap? Perhaps there is a cash-neutral way to achieve One IT?
Are we fitting square pegs into round holes?
Services is the new Manufacturing –at least if you go by how manufacturers make money these days. Telecom companies now run exchanges and engine makers earn more money maintaining engines than selling them. But surprisingly very little investment is yet to flow into applications and processes that supports the Services business. Naturally the maturity of applications supporting Services business is a order of magnitude lower than the Manufacturing applications. The other problem is trying to overlay the Services process on the Manufacturing data model – bit like trying to fit square pegs into round holes. Can Services business requirements be met by patching the existing applications or is there a need for a different approach?
What is the unclouded version of Cloud Computing?
It is difficult to ignore Cloud Computing. It is supposed to change the very way companies do IT – instead of building one’s own IT, companies can get all their IT from the tap. Ground-breaking stuff. But when the memories of Dot Com crash still give a nightmare, how does a responsible CIO respond to all the hype surrounding cloud computing? Perhaps wait it out for a few more years. But what if competition gets it before us? What should and could we do in the next 12 months when it comes to Cloud Computing?
