Disruptive innovation—since the first internet bubble this has been a fashionable term to describe an innovation that undermines the business model of an established industry.  Usually, a disruptive innovation has its roots in the development of a new technology, but the disruptive element itself is the application of that technology in the form of a new business model.  The technological progress of the past decade has had some sudden disruptive effects but in others the change is likely to be more sustained and transformative.  The emergence of the downloadable MP3 in combination with file sharing networks had a dramatic and quite sudden impact on CD sales.  But the massive improvements in computer processing power, networks and data storage have not disrupted the retailing business; these are merely transforming it, as the industry reworks its push-based supply chain into a much more intelligent and interconnected pull-based process.  Retailers are analysing vast amounts of data about their customers’ shopping behaviour and the state of their inventories, and using that information to shorten lead times, reduce inventory, and play into consumer trends better.  But they also are collaborating more intensely with their suppliers, exchanging data and sharing responsibility across the supply chain.  

 

The financial sector has also been a keen adopter of technology.  In fact, most of the money flows these days are purely electronic—money has become information, not notes and coins—and this has enabled financial innovations such as online banking, online payment systems and the more notorious asset-based securitization.  These innovations have helped the world’s economy grow but some are also indirectly responsible for the global financial crisis we currently find ourselves in.  This is because banks (and regulators) could not keep up in their risk management systems, leading to a failure in the pricing and detection of risk.  The clock will not be turned back however.  While some niche banks may argue that better risk management means less technology, at a systemic level the route to better risk management lies in the deployment of more technology, more computing power and more advanced, real-time analytics.   

Other sectors have been less enthusiastic investors in technology.  The state of our transport infrastructure, for example, especially in the world’s large cities, is under tremendous pressure.  In Belgium, the government’s own study bureau has concluded that with existing policy measures and existing infrastructure, our traffic situation will become unmanageable in the decades ahead.  If we wish to keep it manageable, then we will need to deploy technology at a much faster rate than we have been doing to date. For example, one initiative is to push much richer information to travellers, so that they can plan ahead, before they get in their car, what the most optimal (fastest, cheapest, greenest, etc) means is to get from A to B.  The challenge however, will be to organise these processes (i.e. collecting data from various sources, analysing that data, and broadcasting customised messages back to people) in an intelligent manner.  Dynamic road pricing, via a satellite-based system, is another idea on the table that could have a significant impact in reducing road congestion and cutting emissions.  In logistics too there is still plenty of opportunity to improve information flows across the entire supply chain. This means that the various players in the supply chain need to start linking their IT systems to make possible the real-time monitoring of logistics processes from suppliers to final destination.  Ultimately, however, we need to look at the problem from a more systemic perspective, incorporating information about public transport, road transport, supply chains, the environment (smog alarm?) and much else.  If you look at the potential for deploying technology in this area, then today we are still in the starting blocks, notwithstanding the fancy equipment installed on the Antwerp Ring highway and other metropolitan highways around Europe.

 

A similar assessment can be made of the energy system (i.e. that we are still in the starting blocks) although here the blueprint of where we are heading (Smartgrids) has at least taken shape and the first major projects are underway.  Also in healthcare, e-health initiatives are set to transform the sector. Mainly via the use of electronic health records, significant gains should be achieved in both quality and efficiency, via improved coordination of care across the system and quality control. Also, the collation of medical data across the system should vastly improve the power of epidemiological research and public health monitoring.  And the recent progress in the biological sciences—especially in DNA analysis and DNA synthesis—is of course due largely to the advances in computer processing power. 

 

The sector that is probably most ripe for technology-driven change is government.   Traditionally the biggest creator and collector of data, government is beginning to open up. In the US, the Obama administration has ordered the federal agencies to make publically available as much data as they can.  And Tim Berners-Lee, the inventor of the World Wide Web, is helping the British government develop data.gov.uk, a website that will offer free access to a huge amount of public sector data.  The goal is to encourage developers to create new services that tap into this data, for example, by analysing data or by combining different sets of data. 

 

Further in the future, dramatic change can be expected in the way product lifecycles are managed.  Researchers (and some leading manufacturers) are exploring, for example, how product design and production processes can be altered so that the material chains can be made circular as opposed to linear.  Manufacturers, in other words, will be taking responsibility for their products (or rather, the materials they are made of) over their entire lifecycle and thereby reduce waste.  Digital technology will play a key role in this transformation since many products will need to be manufactured with embedded tracking technology.  Also, manufacturers will need the IT infrastructure to manage what in essence will be much more complex supply chains.  

As a result of all these changes, organisations are under tremendous pressure to invest in their IT infrastructure.  Organisations are deploying ever more tools and devices that collect or generate data—e.g. RFID, bar code scanners, VoIP, chat, video, e-commerce sites, document management systems, electronic record systems, etc—which means that they need increasingly powerful infrastructure to collect, store and protect that data, and the software to analyse that data and put it to use.  

 

Most large organisations, however, have two problems: one, the data they collect is still scattered in different systems and hence is not ready to be put to full use; and two, the existing IT infrastructure is not efficiently organised in the sense that a great deal of IT equipment isn’t used to full capacity.  Also, many companies are spending most of their IT budget solely on the maintenance of their existing infrastructure; and this at a time when the demand on that infrastructure is increasing at a rapid rate.  As a result, forward looking organisations are trying to consolidate and centralise their IT infrastructure, and this way improve both the efficiency of their infrastructure and the control they have over their data and information.  Outsourcing becomes a logical next step, partly because a centralised setup is easier to manage by a single supplier, but also because an outsourcing partner can achieve even more efficiencies by aggregating the needs of several clients over their virtualised infrastructure.  This allows them to supply IT resources as a distributed capability, billing clients on a pay-as-you-use basis—which today is referred to as ‘cloud computing’.

Some companies are also beginning to experiment with software services that are accessed in the ‘cloud’, otherwise referred to as Software-as-a-Service (SaaS).   Why tolerate the hassle and expense of software licenses, dedicated servers and developers when you can access from the internet an increasing number of software services for standard business processes such as sales force automation, expense management, invoicing, email, word processing and much else.  

 

Cloud computing in this broadest sense, covering both infrastructure and software, obviously offers major benefits for companies, but it also is a potentially ‘disruptive’ innovation for enterprise IT departments.  Over the years, companies have made major investments in their IT infrastructure.  They own a great deal of expensive equipment and have many people on the payroll to manage and maintain that infrastructure.  Such companies may begin to experiment with Salesforce.com but that does not mean that their legacy infrastructure can be thrown out.  But younger companies like Playfish (not a small fish – the company was recently valued at about $400 million via its acquisition by EA) are able to leapfrog older technologies entirely.  This is an international company with development offices in the US, UK, Norway and China but they don’t have a single landline.  Instead, the company relies on Skype for its telephony needs.  Compare this to the average large enterprise that is currently investing huge sums of money in its WAN infrastructure and data centres, to prepare these for Voice over IP (VoIP) services.  Younger companies have little need for servers or IT infrastructure—no email servers, no file servers, no database servers—excepting the laptops and devices used to access the ‘cloud.’  Obviously this comparison does simplify the issues, especially since organisations have different security requirements.  The law is becoming increasingly complex: the tech site Royal Pingdom estimates, for example, that there are about 10,000 US laws and regulations that pertain electronic messaging and record retention.  But ironically, it is the increasingly complex regulatory environment that is also pushing companies to cloud services, since in this way one is shifting responsibility to companies whose core business it is to deal with such matters.

So what does the future hold for IT departments? How do organisations best manage the technological implications and opportunities for their business? Leading CIOs appear to be convinced that the classic IT department, staffed mainly by technical people, will disappear. For one, IT is becoming everyone’s business. This is because many business processes have already been transformed by digital technology; they are more reliant on data, information and software than ever before.   Hence, people in the business lines are being asked to brush up their knowledge about IT, but more importantly, IT is being asked to think more in terms of business processes and business flows.  Secondly, since an increasing number of ‘IT’ services can be accessed from the cloud there will be less need to develop IT services in-house.  The IT department will become more an aggregator of cloud-based services as opposed to the technology factory it often still is today.  Forward thinking CIOs are concerning themselves more with business strategy and figuring out how strategic objectives are best translated in IT architecture and new business processes.  The IT department of the future will likely resemble an in-house consulting team that is focused primarily on managing the accelerating change that most organisations are bound to undergo.  Technology, whether a commodity in the cloud or not, still needs to be integrated into the business and translated into competitive advantage.  That will take skill; but probably a different type of skill to what most IT departments have in-house at present.