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  1. Key Issues 1. What key trends and events will drive new IT investments during the next five years? 2. What technology advances and changes will have the most significant impact on IT deployment decisions? 3. How can organizations harness and exploit IT despite ever-increasing complexity and volatility?

  2. The Rules Key Issue What key trends and events will drive new IT investments during the next five years? IT’s Changing Destiny Evolving IT Investment Drivers and Technology Cycles High Era IV: IT Reshaping Business Models Ubiquitous Computing IT Impact On Business Structure Era III: Value Creation and Business Effectiveness Internet/Network Computing Era II: Productivity and End-User Empowerment Client/Server Computing Era I: Automation, Cost Control and Efficiency Mainframe/Midrange Computing Low 1950 1960 1970 1980 1990 2000 2010 2020 Source: GartnerGroup

  3. Strategic Planning Assumptions By 2003, competitive business pressures drive (at least) 40 percent of large multinational enterprises to adopt an IT-enabled virtual-enterprise business model (0.8 probability). The “Plug and Play” Virtual Organization • Competitive Differentiators • Market Agility • Organizational Flexibility • Speed/Time to Market • Customer Intimacy • Critical Business Challenges • Emerging Business Models • External Interdependencies • Redefining Roles/Functions • Inventing New Business Processes External Inputs Suppliers Business Partners Industry Networks Enterprise “Mother-Board” Internal Inputs/ Functions • Critical IT Challenges • Application Integration • Application Sourcing- Build vs. Buy vs. Outsource • Market Intelligence & Knowledge Transfer • Efficient Infrastructure Management • Bulletproof Security and Privacy Sales & Marketing Customer Service Product Creation Market Place Dynamics Finance and Operations Process Outsourcing Product Fulfillment Customer Group A Customer Group B Source: GartnerGroup

  4. Strategic Planning Assumptions By 2004, extra-structure IT investments surpass infra-structure IT investments for 75 percent of medium-to-large enterprises (0.7 probability). Through 2004, people and process will account for 80 percent or more of unplanned downtime (0.8 probability). Causes of Unplanned Application Downtime eBay 6/12/99 outage: 22 hours Operating System Failure Cost: $3-$5 million rev. hit 26% decline in stock price Charles Schwab & Co. 2/24/99 through 4/21/99 - (4) outages: at least 4 hours Upgrades/Operator Errors Cost: ???; Announced $70 mil. in new infra. invest. $s Technology Failures Operator Errors Dev. Bank of Singapore 7/1-8/99 - Processing Errors Incorrect Debiting of POS due to System Overload Cost: Embarassment/loss of integrity; interest charges ATT 4/13/98 outage: 6-26 hours Software Upgrade Cost: $40 million in rebates Forced to file SLAs with FCC (frame-relay) 20% 40% 40% AOL 8/6/96 outage: 24 hours Maintenance/Human Error Cost: $3 million in rebates Announced $80 million in new infrastr. invest. $s E*Trade 2/3/99 through 3/3/99 - (4) outages: at least 5 hours System Upgrades Cost: ???? 22% stock price hit on 2/5/99 Application Errors

  5. X-Mart Strategic Planning Assumptions By 2006, 25 percent of consumer spending and 70 percent of business-to-business commerce (in developed economies) will be Web-involved (0.7 probability). Through 2002, less than 15 percent of E-commerce businesses that use the Internet as their exclusive marketing and sales channel will be profitable (0.7 probability). Through 2002, global use of the Internet as a sales and marketing channel will lag US adoption rates by an average of 18 to 24 months (0.8 probability). E-Commerce Across Industry Segments Investment by Leaders Banking Entertainment Telecom Healthcare Consumer Prod. Manufacturing Home Services Advertising Logistics Travel Book Selling Transportation Retail Grocery Office Supplies Electric Utilities Publishing Automotive Manufacturing Government Services Retail Dry Goods Recreation and Leisure Cards and Gifts Stock Trading Gaming EC will impact marketing, selling and customer service EC will impact structure of offerings and how delivered EC will restructure the entire industry Information as a Percent of the Total Offering Source: GartnerGroup

  6. Key Issue What technology advances and changes will have the most significant impact on IT deployment decisions? CIO Priorities: Top 10 Technology Issues Europe Asia/Pacific North America 1999 Build “Net” Capabilities E-Commerce Applications Installing Enterpr. Packages Effective Network Mgmt. Y2K Testing/Remediation (tie) E-Commerce Infrastr. (tie) 1999 Build “Net” Capabilities Test Year 2000 Problem Improved Service Levels Exploring E-Commerce Refurbishing Legacy Apps. 1999 Build “Net” Capabilities Exploiting Data (Mining/Wareh) Test Year 2000 Problem Build IT Infrastructure Install Packaged Bus. Apps. 2000-2004 Extranet, Intranet, Internet E-Commerce Infrastructure Packaged Apps. Transitions Multiplatform Integration NT Deployment Strategies Security & Privacy Network (reliable/low-cost infra.) Middleware/Messaging Collaborative Computing Data Mining/Warehousing 2000-2004 Packaged Apps. Transitions Workplace Transformation Mobile/Remote Access Multiplatform Integration E-Commerce Exploitation Security & Privacy Exploiting Data (Mining/Wareh.) Distrib. Process Mgmt. Workflow Network (reliable/low-cost infra.) 2000-2004 E-Commerce and ”Net” Infrastructure Packaged Apps. Transitions NT Deployment/Integration Mobile/Remote Access/PDA Security & Privacy Network (reliable/low-cost infra.) Consumer Prod. Integration Middleware/Messaging Exploiting Data (Mining/Wareh.) User Interface Evolution Note: 1996-1999 lists of top CIO issues based on survey work with European, North American, Asia/Pacific and Latin American commercial clients of GartnerGroup’s IT Executive Program (ITEP) -- which at year-end 1998 totaled more than 900 members worldwide. 2000-2004 top CIO issues based on GartnerGroup forecast. Source: GartnerGroup

  7. Strategic Planning Assumptions Between 2003 and 2006, discontinuous technology advances beyond network computing will lead to an era of networked, context-dependent information devices (0.7 probability). Beginning in 2007, spontaneous computing architectures will lead to untethered point-of-need access to real-time information, people and services (0.6 probability). Business Impact of Technology Discontinuities Spontaneous Networked Contextual 2007–> 1997–2002 2003–2006 Wireless LAN/WAN Speech/Natural Language Dialogues Agent Intermediaries Wearables Any Time Access Multitasking Mobile Decision Support Point-of-Need Access Untethered Culture Technology Discontin- uities Network Computing Architectures Location Transparency Speech Recognition for Telephony Connection Interrupt-Driven Just-in-Time Information Delivery Consumer Web Access Network Access and Speed Flat-Screen Displays “Always-On” Devices Automatic Platform Adjustment “Follow-Me” Profiles Synchronization Microtasking Mobile Information Access Broad Consumer Interactive Access Device Management Impact Issues Source: GartnerGroup

  8. Strategic Planning Assumptions Through 2004, managing heterogeneous environments across all major technology segments will remain the biggest enterprise integration challenge (0.8 probability). Technology Directions: Platform Infrastructure (1999-2004) 2004 Forecast(P=0.7)ImplicationsSurprises ??? (P=0.3) Client - One primary business prof. - Continued shift from “cost of - MSFT broken up (P=0.2); device (2-spindle Wintel laptop) purchase” to “cost to support” - Non-MSFT and/or browser- - Palm/OS share drops below - TCO continues to risebased clients grab 30%+ 50%; multiple alternatives - !00% of wireless devices market share address unique needs (voice) - have internet connectivity - Network Computing becoming prevalent; but NC’s fatten-up Server - “Big 4” (IBM, HP, CPQ, Dell) - Technology and price are - Linux acheives 40% + own 80% of Wintel server mkt. no longer key decision criteria market share - Enterprises with less than 500 - Users must find alternative - W2000 fails to meet MIPS installed are abandoned means for support 90% + of enterprise by mainframe vendors application requirements Network- Policy-based networks - Major network vendors/carriers - Wireless grows from less improve network mgt. TCO must source professional svc’s than 5% of traffic in ‘99 to by 20% in type A’s & B’ for policy implementation to 15% in ‘04 - Converged data, voice, video - multi-vendor networking - Telecommuting backlash services save 20% declines; 6-7 major telco’s and 4 major equipment camps Storage - Enterprise “Virtual I/O” -SANs are critcal pipe-lines for - NGIO et al displaces Fibre is still an illusive dream. E-Commerce channel - Most external storage networked -Disk space (rather than tape) - Disk capacity doubles per year becomes primary backup media - Shared file systems mainstream - Proprietary lock-in issues Source: GartnerGroup

  9. Strategic Planning Assumptions By 2004, 80 percent of internally and externally-focused applications will be based-on (or extended-by) Internet derived technologies and standards (0.7 probability). Technology Directions: Application Infrastructure (1999-2004) 2004 Forecast(P=0.7)ImplicationsSurprises ??? (P=0.3) Electronic- Platform adjustment & “follow - Authentication issues - 50% of med/large enterp. Workplace me” profiles emerge for nomads - Infrastructure, Infrastructure! recentralize personal apps; - No single uniform authorization - Human impact (info glut, “3270” rules (p=0.2)! method for access to bus. apps queue mgmt.) - Bleaching the blue collar - Intuitive design supercedes -Integration with enterprise - Internet implodes under content richness for New Media apps an imperative its own weight (p=0.1), Application- 60% of AD performed by ESPs - No AD silver bullet - Backlash against “vanilla” Developmt. - Internal AD skills: 3GLs 40%; - “Mass or focus” defines packages/templates; return 4GLs 30%; OO/Java/Web 30% enterprise AD strategy to “build” strategy (60% - Integration is the new AD - Procurement/contract mgmt. share of AD) - Regulation and new acct. rules key AD competency rewrite AD economics Middleware - 75% of new apps use off-the- - Vast expansion in real-time AI, - End user rebellion as job Database shelf apps integration middleware accelerate business processes creativity diminishes (p=.2) & NSM - The Global 2000 cease buying - Zero latency moves to a RDBMS as indep. acquisition must-have-to-stay-in-business - Continued NSM Consolidation strategy Enterprise- 70% of strat. biz app decisions - Big get bigger; share of top 5 - SAP Implodes Business are front-office/value chain/CRM ERP ISVs grows to 80%; but - MSFT aggressively enters Apps.- New players emerge to can’t be all things to all clients low-end enterprise apps address trading partner systems - ERP market leadership market (HR, Financial Acct), - 20% of large enterprises defined by vertical expertise gaining 15% share implement a front-office suite to - ERP vendors stumble, but - Siebel becomes ERP/CRM enable a CRM strategy eventually dominate CRM powerhouse (via acquisition) Source: GartnerGroup

  10. Strategic Planning Assumptions Through 2005, no single packaged solution will represent more than 40 percent of a company’s application requirements (0.8 probability). By 2004, more than half of all Type C enterprises will externally source at least 60 percent of their business application portfolio and IT Infrastructure (0.7 probability). Business Process Sourcing and Integration Type B Type A Market-wide Collaborative Commerce High Type C Business to Consumer .COM ‘99 CRM ‘05 .COM ‘05 Frontoffice / CRM CRM ‘99 CRM ‘99 Process Scope Integration Intensity Supply Chain Mgmt. / B2B SCM ‘99 SCM ‘05 ERP ‘05 ERP ‘99 Backoffice / ERP Enterprise-wide Low Template / Component Application Subscription Configured Package BPO Built Package More Customized More Commoditized Source

  11. Key Issue How can organizations harness and exploit IT despite ever-increasing complexity and volatility? CIO Priorities: Top 10 Management Issues Europe North America Asia/Pacific 1999 Solve Year 2000 Problems IT/Business Strat. Planning Align IT & Business Goals Reducing IT Costs Measuring IT (Value/Efficiency) 1999 Solve Year 2000 Problems Reducing IT Costs Measuring IT (Value/Efficiency) IT Organization (Cross Border) Project Management (tie) Alignmt./CIO Reports to...(tie) 1999 Lead the IT/Business Planning Process Solve Year 2000 Problems Align IT & Business Goals Recruit & Retain IT Staff Manage IT Efficiency 2000-2004 M&A (in)Digestion (infra, staff) Evolving IT’s Role (How used, how involved?) Revitalizing Existing IS Staff “Sourcing” Management Adapting to EuroLand Long-term Funding Better Metrics (effect, contrib) Process & Project Mgmt. Using Information Effectively IT Skills (Recruit, Retain, Reskill) 2000-2004 Business/IT Fusion Demonstrating Bus. Value “Sourcing” Mgmt. (IT services) Reducing IT Costs (infra, staff) Business Event and/or Process Outsourcing IT Skills (Recruit, Retain, Reskill) IT Governance/Organization Process/Project Mgmt. M&A (in)Digestion (infra, staff) Knowledge Exploitation 2000-2004 Business/IT Fusion IT Skills (Recruit, Retain, Reskill) Business Continuity Extracting Business Value IT Governance/Organization “Sourcing” Management Reducing IT Infrastr. Costs M&A (in)Digestion (infra, staff) Data to Info. Mgmt. Knowledge Exploitation Note: 1996-1999 lists of top CIO issues based on survey work with European, North American, Asia/Pacific and Latin American commercial clients of GartnerGroup’s IT Executive Program (ITEP) -- which at year-end 1998 totaled more than 900 members worldwide. 2000-2004 top CIO issues based on GartnerGroup forecast. Source: GartnerGroup

  12. Business Value • Business Process Improvement • Organizational Alignment • Customer Service • Competitive Position • Employee Productivity • User Interface, Usability • Access to Corporate Data Total Cost Technology Communications User Labor Training,Services IT Labor Strategic Planning Assumptions By 2004, fewer than 30 percent of mid-to-large size enterprises will require a full-service (internal) IS organization (0.8 probability). Through 2004, at least 35 percent of mergers or acquisitions will fail to achieve business objectives due to poor IT planning and inadequate due diligence (0.7 probability). IT Management Trends • IT Planning/Risk Management • Architecture and Standards • Resource and Skills Management • Program and Project Management • Customer/Relationship Management • Information/Data Management • Vendor (and ESP) Management • Asset/Financial Management • Contract Management IS Core Competencies Business Value vs Total Cost • Broker of Services • Selective Outsourcing • Modular Organizations • Technology • Infrastructure • Type • Cost • Age • Support • Contracts • Terms & Conditions • Scalability • Termination • Applications • Portfolio • Functionality • Technology • Interfaces • Valuation • Age • Support Role-based Shared Services • Staff • Skills • Compensation • Geography • Contracts Hybrids (Central/Decentral) • M&A Plan • People • Technology • Financials • Schedules Centralized Organizational Structure ‘60s ‘80s ‘90s ‘00s ‘70s Mergers and Acquisitions Planning, Due Diligence and Integration IS Organizational Evolution Source: GartnerGroup

  13. Non-IT Staff 100% - Business users 90% 80% - Business process outsourcers 70% External IT Staff 60% - Systems integrators, consultants 50% - Infrastructure outsourcers 40% 30% - Contract employees 20% - Decentralized IS staff 10% Internal IT Staff - Central IS staff 0% 1998 2001 2003 Sources of IT Skills Strategic Planning Assumptions Through 2003, the effective unemployment rate in the IT industry will be substantially negative (globally); for every 10 full-time hires required, only 7.5 IT professionals will be available, albeit with regional variations (0.8 probability). By 2002, 70 percent of mid-to-large enterprises employ selective IT outsourcing to help control costs, increase productivity or gain access to resources (0.7 probability). By 2004, 60 percent use ESP prime contractors to manage the complexity of “bundled” subcontractor services (0.8 probability). IT Skills and Sourcing Trends “Strategic Alignment” Time Line Service/ Solution “We shop at the PWC mall” 2000 Application “We’re an SAP shop” 1990 Middleware “We’re an Oracle shop” 1980 1970 Platform “We’re an IBM shop” 1960 ESPs as “Channel Masters” • Establish clear goals with strong consensus • Create “supporting” terms and conditions • Define “relative” service level agreements • Develop effective measurements and metrics • Conduct periodic performance audits • Demand continuous improvement! • Aggressively monitor and manage Solution Shareholder Value ROT Business Integration ROA ROI TCO Cost Support Product Utility Technology Integration A “Step-by-Step” Approach Shifting ESP LandscapeCreating and Sustaining Market Differentiation Effectively Leveraging ESPs

  14. Summary • Industry Trends • Value creation” and business effectiveness (Era III) becomes the leading drivers of new IT investment, rather than traditional catalysts that focus on efficiency & productivity (Era’s I & II) • An IT-enabled (“virtual enterprise”) business architecture emerges; 25 percent of consumer spending and 70 percent of business-to-business commerce become Web-involved (by 2006) • Aligning the business and its IT capability means moving “beyond the turf wars”; the quest for “value” from IT demands that the business routinely measures itself • Business contingency planning becomes the primary focus of Year 2000 and EMU efforts Technology Themes • Eighty percent of applications will be based on, or extended-by, Internet derived technologies • Heterogeneous technology integration remains a critical management challenge • “Wintel” maintains dominant desktop share; NT becomes server “target platform of choice”, but is rife with technology challenges at the high end • Personal devices explode in volume, but frustrate attempts at enterprise integration/security • Focus of packaged business applications shifts from the back-office to the front-office • New U.S. software accounting guidelines only accelerate trend toward ESP domination of AD • Bandwidth requirements increase by at least a factor of three; budget demand at least doubles over the next five years; viable “converged network services” emerge • Application integration becomes the primary focus of information architectures • Infrastructure resource management becomes key to lowering enterprise TCO • Information security and privacy emerge as critical enterprise issues due to “virtualization”Management Challenges • The shortage of IT skills remains the No. 1 IT management issue beyond 2001 • The IS organization evolves into a broker of IT services; “selective” outsourcing becomes the norm (under a “prime contractor” model); ESPs become dominant industry “channel masters” • Knowledge management practices, processes and technologies go mainstream