Former CIO at Chevron and Caterpillar Predicts Massive Shift in Future of IT Services
CIOs for large, global enterprises are faced with numerous challenges due primarily to the size and complexity of the business. They have to decide which technology investments will keep the company competitive, align it with cyber security protection and compliance, and enable them to manage their own business of IT at a high-level.
Having been CIO for both Chevron and Caterpillar, Randy Krotowski’s experience in establishing strategies aligned with those challenges has been varied, as each company had vastly different goals in mind when it came to technology.
Randy Krotowski: “We’ll see less generalized sourcing companies because the margin on that work is driving down to nothing.”
The main similarity at both Caterpillar and Chevron was focusing on how technology could enable opportunities in the future. “That technological focus drives pretty much everything that you do, from a planning perspective,” Krotowski explained. “In Chevron’s case, we looked at how the business was changing and how technology was evolving before deciding what we would invest in. We made some substantial investments in our core technical capabilities of drilling, exploration, and production, eventually deciding that our goal would be to compete on a technological basis, which meant benchmarking our costs around average.”
Chevron actually made an explicit choice not to be the cheapest IT on the market, according to Krotowski. The goal was to show that their technology was of a higher quality than the competition. With Caterpillar, however, things were different. “Cat milks its assets, so their aspiration over decades was to minimize the amount they spent on IT—they were still using IBM’s Lotus Notes as an email system in 2012,” explained Krotowski. “Cat competed on the business model of premium products and premium service for a premium price, and they were able to attain that without massive investment in technology.”
Even so, when Krotowski joined Caterpillar, their competitors were closing the gap on quality and productivity. The company still had the best dealer network, so could win on service, but Krotowski worked on using technology to provide premium value from Caterpillar’s products in the field. “We focused on a set of technology enabled solutions that would improve the productivity of customer construction sites or mine sites, and predictive maintenance solutions that allowed us to sell more parts,” he said. “We also looked at supply chain integration to drive efficiency, which was a way to reduce business cost.”
In each case, the focus has been on what was important for the business, from reduced costs or improved security, to new business capabilities. “Every company chooses a basis for competition, which should then drive hiring processes, choices of people, leadership development, and the management of technology,” he explained.
Service Industry Evolution
The world is moving toward being able to buy anything as a service, so Krotowski believes there will be no reason for any company to run its own infrastructure in four or five years, as they simply won’t be able to compete, except in certain specialized cases. “Anybody who runs an email server or data center is spending more than they need to or not doing it as well—any company that runs their own infrastructure is going to be at a real disadvantage,” he said, explaining that sourcing companies with existing footprints are in a better position to start providing new services. “It’s funny how the sourcing pendulum swings,” he said. “People chase the lower costs, but they also lose control.”
In his time mentoring, the outsourcing trends that have stood out to Krotowski are the acceleration of the as-a-service model and the level of confidence companies have in the security model today. “One company I work with provides analytics, a data lake, development environment, and machine learning capabilities as a service, and this is happening much faster than I ever would have expected,” he said. “Also, companies are much more comfortable outsourcing their security requirements, whereas five years ago that was a much bigger issue, with most people refusing to go to the Cloud.”
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Having worked with many offshore sourcing companies, Krotowski expects them to shift towards specific specializations in the next decade. He predicts that a chunk of their traditional work will become an as-a-service model, but at the same time they will take on more complex, higher-value work with higher profit margins. “This is happening quite naturally,” he said. “If you look at the Indian outsourcing firms, HCL is clearly becoming more of an infrastructure firm, Infosys is becoming a more leading-edge, innovation based sourcing firm—each one of them is going to focus on a niche and we’ll see less generalized sourcing companies because the margin on that work is driving down to nothing.”
Future Shifts in the CIO Role
Responding to the question of whether the CIO position will become more of a vendor management-type role, Krotowski quipped that, in all honesty, it already is; however, Krotowski believes there is room for CIOs to work with services partners in ways that will enable success. “The other implication of the as-a-service trend is that the operational responsibilities of the CIO will be reduced,” he said. “However, their operational oversight responsibilities will still be high, as they’ll be relying on a lot of people to maintain operations that they have no control over. Their architectural responsibilities will grow because they’ll be knitting together services and capabilities from multiple external organizations.”
Speaking of the relationship management role, Krotowski expects that they’ll have to figure out more complex relationships as the industry develops, explaining that multiple parties in a relationship increase the complexity dramatically, but they have to be expertly maintained. “As a CIO, vendor management is simple because you just lean on them and they can try to upsell services, but relationship management is far more in depth,” he said. “In the future, when those vendors aren’t just selling you software or hardware, it’ll be more like sourcing in the past, with a deeply complex set of relationships to manage.”
Flipping it over to the internal aspect of this future, Krotowski also sees the complexity extending in that direction. “If people can source all of their IT, there will be no need for internal IT, so managing the relationships between the company executives in order to keep everything coherent, maintain security, mange the cost structure, and integrating data, will become the biggest challenges.”
Krotowski wrapped up the conversation with an interesting outsourcing analogy: “People used to grow their own food and trade it, but they’re now outsourcing that process to farms and buying it at the store—so the world will never stay that way for long.”