Corp 164 ResrchRptScenario

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THE GARTNER SCENARIO 2006:THE CURRENT STATE AND FUTURE DiRECTioN oF iT


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THE GARTNER SCENARIO 2006:THE CURRENT STATE AND FUTURE DiRECTioN oF iT

TABLE OF CONTENTS

4-11 The Economy, Business Climate and the State o the IT Industry

11-27 Tasks IT Proessionals Must Complete by 2009

27-28 Conclusion

Ken McGee, Bets Burtn, Davd W. Cearle, Jeff Cmprt, Jacke Fenn, Rbert A. Handler,

Kath Harrs, Janelle B. Hll, Dale Kutnck, And Kte, Mark P. McDnald, Ja E. Pultz, Mark

Raskn, Chrstpher Ambrse, F. Chrstan Brnes

This report is in three sections. The frst provides a background to the actions that IT organizations

should undertake during the next three years. The second describes the specifc tasks that CIOs and

their managers must perorm. The third is a compendium o emerging trends that will change the IT

industry in the more distant uture.

KEy FiNDiNGS

CIO budget increases remain less than 3% or the ourth year in a row.

Huge and complex demands or IT are largely going unmet.

The astest IT growth opportunities during the next 10 years will grow rom

a vast array o newly emerging business and society trends and demands.

RECoMMENDATioNS

During the next three years, CIOs and their IT executives must:

Lead their organizations to establish a track record o creating value

aster than reducing IT costs by 2009

Complete automation o IT operational processes

Attain corrective phase security status

Operate all revenue-generating channels in a Web 2.0 architecture

Complete enterprise platorm migration by 2009

Retire 10% o their applications

Model critical customer- and supplier-acing business processes

by the end o 2007


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ResearchPublication Date: 27 October 2006 ID Number: G00144450

2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any formwithout prior written permission is forbidden. The information contained herein has been obtained from sources believed tobe reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. AlthoughGartner's research may discuss legal issues related to the information technology business, Gartner does not provide legaladvice or services and its research should not be construed or used as such. Gartner shall have no l iability for errors,omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed hereinare subject to change without notice.

The Gartner Scenario 2006: The Current State andFuture Direction of IT

Ken McGee, Betsy Burton, David W. Cearley, Jeff Comport, Jackie Fenn, Robert A. Handler,Kathy Harris, Janelle B. Hill, Dale Kutnick, Andy Kyte, Mark P. McDonald, Jay E. Pultz, MarkRaskino, Christopher Ambrose, F. Christian Byrnes

This report is in three sections. The first provides a background to the actions that ITorganizations should undertake during the next three years. The second describes thespecific tasks that CIOs and their managers must perform. The third is a compendium ofemerging trends that will change the IT industry in the more distant future.

Key Findings

CIO budget increases remain less than 3% for the fourth year in a row.

Huge and complex demands for IT are largely going unmet.

The fastest IT growth opportunities during the next 10 years will grow from a vast arrayof newly emerging business and society trends and demands.

Recommendations

During the next three years, CIOs and their IT executives must:

Lead their organizations to establish a track record of creating value faster than reducingIT costs by 2009

Complete automation of IT operational processes

Attain "corrective phase" security status

Operate all revenue-generating channels in a Web 2.0 architecture

Complete enterprise platform migration by 2009

Retire 10% of their applications

Model critical customer- and supplier-facing business processes by the end of 2007


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Publication Date: 27 October 2006/ID Number: G00144450 Page 2 of 29

2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

TABLE OF CONTENTS

1.0 The Economy, Business Climate and the State of the IT Industry.............................................. 41.1 Economic Growth ........................................................................................................... 41.2 CEO Priorities................................................................................................................. 51.3 CIO Priorities .................................................................................................................. 61.4 The State of the IT Industry............................................................................................ 7

2.0 Tasks IT Professionals Must Complete by 2009....................................................................... 112.1 CIOs: Establish a Track Record of Creating Business Value Faster Than CuttingCosts by 2009..................................................................................................................... 112.2 IT Operations Managers: Complete Automation of IT Operational Processes by 2009132.3 IT Security Managers: Attain "Corrective Phase" Security Status by 2008 .................142.4 IT Business Intelligence Managers: Create a Business Intelligence CompetencyCenter by 2008 ...................................................................................................................152.5 IT Outsourcing Decision Makers: Apply a Multisourcing Discipline to All SourcingArrangements by 2009 ....................................................................................................... 172.6 IT Architects: Operate All Revenue-Generating Channels in a Web 2.0 Architectureby 2008...............................................................................................................................182.7 Application Development Managers: Complete Enterprise Platform Migration by 2009192.8 Application Development Managers: Establish Cross-Project, Enterprise-LevelApplication Management Before 2009 ...............................................................................202.9 Application Development Managers: Retire 10% of Applications by 2008 ..................212.10 Business Process Improvement Managers: Reinsert People Into All Customer-Facing Business Processes by 2008 .................................................................................222.11 Business Process Analysis and Planning Managers: Model Every Mission-CriticalCustomer- and Supplier-Facing Process by 2007..............................................................222.12 All IT Managers: Transform the Organization From "Technology First" to "BusinessFirst and Technology Second" by 2009.............................................................................. 23

3.0 Emerging Technology, Business and Social Trends.................................................................243.1 Build the Real-World Web ............................................................................................243.2 Create Road Maps for Emerging Business ..................................................................253.3 Create Business Innovation Roles ...............................................................................26

4.0 Conclusion ................................................................................................................................. 27

LIST OF TABLES

Table 1. CIO Priorities in 2006 .......................................................................................................... 6

LIST OF FIGURES

Figure 1. Annual GDP Growth Rates, 2006 ...................................................................................... 5Figure 2. CEO Priorities in 2006........................................................................................................ 6Figure 3. Gartner Executive Programs IT Budget and Business Growth Rates, 2006..................... 8Figure 4. IT Spending Growth in the United States and Western Europe, 2005 .............................. 9


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Figure 5. End-User Spending on IT Products and Services, 2005 and 2006 .................................10Figure 6. Total Worldwide IT Spending Growth Rates, 2005-2007................................................. 10Figure 7. Establish a Track Record of Creating Business Value Faster Than Cutting Costs .........12Figure 8. Complete Automation of IT Operational Processes ......................................................... 14Figure 9. Attain Corrective Phase Security Status ..........................................................................15

Figure 10. Create a Business Intelligence Competency Center .....................................................16Figure 11. Apply a Multisourcing Discipline to All Sourcing Arrangements ....................................18Figure 12. Operate All Revenue-Generating Channels in a Web 2.0 Architecture.........................19Figure 13. Establish Cross-Project, Enterprise-Level Application Management............................. 21Figure 14. The Origin of IT Workers, 2006 and 2010......................................................................24Figure 15. Emerging Technologies..................................................................................................25Figure 16. Emerging Business Trends ............................................................................................26Figure 17. Emerging Demographic Trends ..................................................................................... 27


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Figure 1. Annual GDP Growth Rates, 2006

0%

2%

4%

6%

8%

10%

Fran

ce

Eurozo

ne

German

yU.K.

Japa

n

Cana

da

Australia

U.S.

South

Korea

India

Chin

a

Grow th

Source: Global Insight

1.2 CEO Priorities

Using insight gained from Gartner's own Gartner/Forbes survey as well as an array of other CEOsurveys, we have compiled our understanding of the most consistent priorities facing today's chiefexecutives. Figure 2 lists those CEO priorities. At the top of the list are concerns about growth.Strong economic growth in the past has shifted to increased concerns about a slowdown in thefuture. Second is increased competition. As well as feeling the pressure of competition in theirindustries, many CEOs have to compete harder for resources. While the concern aboutcompetition is nothing new, the origin of the competition is. CEOs have expressed concern aboutcompeting with companies located in much lower-cost regions of the world, especially withindeveloping economies. Also, many basic commodity inputs that have long been relatively stablein price and supply now require more attention.

IT occupies third and fourth place on the CEO priority list. The Gartner/Forbes survey suggeststhat IT is perceived as valuable by CEOs when it increases speed to market, fosters innovation,provides real-time information, improves productivity and uses information as a competitiveweapon. But CEOs are also concerned about IT inhibiting change: IT leaders who can make onlyincremental changes seem to be creating inertia.

Information overload is CEOs' fifth concern: Senior managers want to reduce time-consumingjuggling of information to maximize a precious business resource management attention.Mergers and acquisitions are the sixth priority. As weaker players merge or are acquired, CEOsof stronger companies want to protect themselves from takeover. Compliance is the seventh

priority, especially the time, money and personnel required to attain and maintain an enterprisewithin a climate of regulatory compliance. The number of regulations and agencies continues toincrease, often causing turmoil and increased workloads for already overburdened corporatestaff. Finally, CEOs are expressing an increased interest in having projects or any additionalfunding justified by an analysis of the return on assets. In this regard, we see the desire forgrowth in action and with very specific growth targets in mind. Because return on assets is therelationship between annual profitability and total assets, any manager seeking funding for a


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project must be prepared to explain how the investment will enhance profit growth at a rate fasterthan growth in asset value.

Figure 2. CEO Priorities in 2006

1

2

3

5

8

6

7

4

Growth

Competition

IT as an Enhancer

IT as an Inhibitor

Information Overload

Mergers and Acquisitions

Regulation

Return on Assets =Annual Net Income x 100Total Assets

1

2

3

5

8

6

7

4

Growth

Competition

IT as an Enhancer

IT as an Inhibitor

Information Overload

Mergers and Acquisitions

Regulation

Return on Assets =Annual Net Income x 100Total Assets

Source: Gartner (September 2006)

1.3 CIO Priorities

In the latter part of 2005, Gartner's Executive Programs organization conducted a survey of morethan 1,400 CIOs to determine the new priorities and budget changes they were expecting in

2006. Table 1 indicates their priorities and compares them with findings in 2005 and 2004.

Table 1. CIO Priorities in 2006

To what extent is each of the following CIO actions apriority for you in 2006?

Change From2005

Rank2006

Rank2005

Rank2004

Delivering projects that enable business growth Same 1 1 18

Linking business and IT strategies and plans Same 2 2 4

Building business skills in the IT organization Up 3 9 1

Demonstrating the business value of IT Down 4 3 2

Attracting, developing and retaining IT personnel 5 * *

Applying metrics to IT organization and services Down 6 4 14

Improving the quality of IT service delivery Same 7 7 3

Having flexible technology infrastructure 8 * *

Improving IT governance Up 9 10 11

Consolidating the IT organization and operations Down 10 8 **


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To what extent is each of the following CIO actions apriority for you in 2006?

Change From2005

Rank2006

Rank2005

Rank2004

*New question for 2006.**New question for 2005.


A growing number of CIOs and their organizations are in the midst of a transformation frominternally focused departments that contain costs to ones that support growth. In 2005, CIOsfocused on contributing to business results, often in the form of improving and integratingbusiness processes and delivering more-effective business intelligence. In 2004, CIOs preparedfor the upswing in economic growth. Now it's time to deliver IT's contribution to growth.

Why? Simply put, CIOs and their organizations must deliver more value than the business canbuy in the marketplace, or they face becoming another commodity. They are doing it by deliveringsecure, high-quality IT services and, in some cases, by extending those services into businessprocesses.

This transformation requires CIOs to excel in three distinct, but related, roles:

The senior technology executive responsible for leading the IT organization

The technology leader responsible for applying IT to enterprise issues and challenges

A member of the executive team who needs to develop business, technology,leadership and personal skills

The 2006 CIO agenda defines the requirements for IT contribution. This changes theconversation between IT and the business from discussions about enablement to plans forcontribution. "IT enables the business" is a phrase often used to describe IT's relationship to thebusiness, but it must be updated to reflect the future value proposition for that relationship.

1.4 The State of the IT Industry

Figure 3 shows Global Insight's projections of the degree to which companies in each industrysector were expecting to increase revenue. It compares those rates with the increases in IT

budget anticipated by CIOs from companies in the same sectors. The CIOs' figures wereobtained from Gartner's 2006 Executive Programs survey. The results from that particular surveyshow that IT budgets from those Executive Programs clients will grow at rates below revenuegrowth rates in every industry sector.


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Figure 3. Gartner Executive Programs IT Budget and Business Growth Rates, 2006

0% 1% 2% 3% 4% 5% 6% 7% 8%

Financial Services

Government

Healthcare/Pharma

High Tech

Insurance

Manufacturing Projected IT BudgetGrowth 2006

Projected Business

Growth 2006

Source: Global Insight and Gartner Executive Programs (September 2006)

As well as increasing by less than company revenue, IT spending is expected to grow at a lowerrate than expenditure in other areas of the business. Our Executive Programs CIO surveyrespondents expected their IT budgets to increase by 2.7% in 2006.

A much broader and slightly more favorable view of projected annual IT budget changes by theend of 2006 comes from "U.S. IT Spending and Staffing Survey, 2005" and "Western Europe ITSpending and Staffing Survey, 2005." Figure 4 shows results from those surveys.


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Figure 4. IT Spending Growth in the United States and Western Europe, 2005

0%

1%

2%

3%

4%

5%

6%

United StatesIT Spending

Up 5.5%

Western EuropeIT Spending

Up 3.0%

Source: Gartner Dataquest (November 2005)

To provide a global view on the current state of the IT industry, Figure 5 shows the amount ofworldwide spending within the following specific IT categories:

Computing hardware

Software

IT services

Telecom

These spending levels were derived from "Gartner Dataquest Market Databook, June 2006Update." Within each category, we are depicting the amount of spending as well as the percentchange expected for 2006 versus levels achieved during 2005. Note that these figures includespending by businesses, governments and consumers.


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Figure 5. End-User Spending on IT Products and Services, 2005 and 2006

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Computing

Hardware

Software IT Services Telecom All IT

Billions of Dollars

2005

2006

-0.2%

8.0%

3.5%

6.0%

4.7%

Note: Percentage figures indicate growth rates between 2005 and 2006.Source: Gartner Dataquest (June 2006)

Figure 6 also depicts information from "Gartner Dataquest Market Databook, June 2006 Update"and identifies past results and forecasts for worldwide IT spending.

Figure 6. Total Worldwide IT Spending Growth Rates, 2005-2007

0%

2%

4%

6%

8%

10%

2005 2006 2007

Annual GrowthTotal IT Spending in 2006 = $2.78 Trillion

Total IT Spending in 2007 = $2.91 Trillion

7.5%

4.7% 4.8%

Source: Gartner Dataquest (June 2006)


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2.0 Tasks IT Professionals Must Complete by 2009

Now that we have provided an overview of short-range forecasts for the economy and business-sector growth, CEO concerns, CIO priorities, IT budget growth, and worldwide IT spending, it isclear that huge and complex challenges lie ahead for many IT organizations. Although IT budgetgrowth will be modest at best for most organizations, CIOs and their staffs will still be expected to

support efforts that directly contribute to business growth.However, despite modest increases in IT fund allocations, CIOs can still significantly contribute totheir enterprise's quest for growth. Those efforts can begin by acting on the projects that alreadyappear on most unwritten "to do" lists, but that rarely find their way onto the "official" lists.

To help CIOs take the most productive near-term steps to directly support delivering businessgrowth and effectiveness to the enterprise, we have identified eight IT executives and matchedthem with the single most important action they must complete by 2009. We won't waste timeusing lukewarm terms like "consider," "understand," "plan for" or "identify." Instead, we talk aboutspecific tasks and completion dates. Executives who complete tasks will be well on their waytoward becoming genuine contributors in organizations where the drive for growth is the toppriority.

Finally, while growth can be defined in many ways, the same is true for success. Therefore, whileeach task will contribute to growth, we have provided the added insight of indicators that show themost likely results to be realized once each task is completed. These indicators of value creationare in four areas: saving money, efficiency, effectiveness and agility.

Here now are the specific tasks that IT executives must complete, beginning with the CIO.

2.1 CIOs: Establish a Track Record of Creating Business Value Faster ThanCutting Costs by 2009

CIOs and their organizations must increase their contributions as businesses, under pressure togrow, expect more from IT. CIOs are now expected to provide high-quality, secure and cost-effective services. They must deliver a record of performance to establish their position and theircontribution to the business.

To do this, CIOs will need to create business value faster than the market and technology canreduce costs (see Figure 7). This means that they have to establish a record of success. How?CIOs must:

Be equally successful at delivering current operation and improvement in the businessand at creating change by working on the business:

Gain clarity on business expectations from IT (enabling or contributing)

Improve operational, development and delivery processes to put more resourcesinto transformational change

Increase the business impact of new applications

Make IT's contribution earlier in enterprise decisions by increasing their involvement inproduct and corporate development processes:

Use their understanding of operational issues to reduce the risks inherent in productand corporate decisions


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Strengthen the ability of the enterprise to increase the number of customers andmarket share by strengthening the information value chain

Change the sources of IT talent as the workforce moves from being focused solely ontechnology to looking at the business first and technology second:

Build up their skills in business process, information management and relationship

management to work effectively in a networked business

Increase the percentage of employees hired from the business side (rather than theIT side) fourfold to get the right mix of business and technology skills

Indicators of value creation:

Saving money: Low

Efficiency: Low

Effectiveness: High

Agility: Medium

Figure 7. Establish a Track Record of Creating Business Value Faster Than Cutting Costs

2009

Enabling

At Risk

Contributing

2006

ValueCreated

CostReduced

$$$ $$$

ValueCreated

CostReduced

$$$

$$$

ValueCreated

CostReduced

$$$

$$$

2009

Enabling

At Risk

Contributing

2006

ValueCreated

CostReduced

$$$ $$$

ValueCreated

CostReduced

$$$

$$$

ValueCreated

CostReduced

$$$

$$$



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2.2 IT Operations Managers: Complete Automation of IT OperationalProcesses by 2009

Given the slow rate of IT budget growth, the next three years will place an extraordinary amountof pressure on IT organizations challenged to continually show members of the enterprise thatthey deliver sufficient value to warrant remaining an intact organization. To do this, IT executives

must do more than just cut costs. They must deliver value that is measurable and of significantimportance to the enterprise. We believe that there are at least three main dimensions ofbusiness value that clients must deliver during the next three to five years.

The first of these value qualities is efficiency. Creating the ability for the same people to generatemore output through improved tools and processes reaches all the way from the workers to thebottom line. Second, agility is a top priority in all undertakings. Entering or retreating frommarkets, increasing new opportunities, and avoiding harm are attributes valued by any executive.Third, effectiveness will be among the most common metrics used to define IT success.Quantifying the business benefits directly born from future IT solutions will be a key factor indetermining whether to keep IT staff on the payroll.

Using a layered technique, IT groups can determine where process automation products fit inwith the synchronization of infrastructure resources and business needs. Figure 8 shows the

pyramid to achieve the top layer of business management. At the lowest layer, elementmanagement is dominated by infrastructure manufacturers' tools that are specific to certaininfrastructure components. A new generation of configuration management vendors is creatingtools that operate in multivendor environments and bring rigorous change management and auditcapability to configuration management. Tools at the operations management layer understandthe physical interrelationships between components and provide such features as componentdiscovery, status monitoring, fault management and troubleshooting.


Saving money: High

Efficiency: Medium

Effectiveness: Low

Agility: Low


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Figure 8. Complete Automation of IT Operational Processes

Element ManagementInstallation, configuration and maintenance

of individual infrastructure components

Operations ManagementAdministration, discovery and topology, fault management,

status monitoring, troubleshooting, event console,alarm correlation, root-cause analysis, inventory

Service ManagementBaselining, historical analysis,

service-level agreement reporting,end-user experience monitoring

BusinessManagement

Business serviceviews, businessimpact analysis,

modeling, capacity planning


2.3 IT Security Managers: Attain "Corrective Phase" Security Status by2008

Figure 9 shows the four phases to improving enterprise information security:

Awareness phase: This phase is characterized by a sudden recognition amongbusiness executives that "something must be done" about information security. The start

of this phase entails the constitution (or reconstitution) of a dedicated informationsecurity team, under the auspices of a full-time team leader, often reporting directly tothe CIO. A detailed security policy review often characterizes the bulk of activity duringthis phase. In some organizations, this unfortunately results in "business as usual,"based on the assumption that a policy rewrite will solve the problem. About half ofGlobal 2000 organizations are in this phase.

Corrective phase: Once a consistent vision and strategy have been accepted, theorganization can initiate a strategic information security program. During this phase,security and risk governance processes and structures are revamped, and otherorganizational actions (for example, establishing a security program office and centersof excellence, and appointing security representatives for each line of business) areinitiated. Steps are taken to develop and evolve a strategic information securityarchitecture.

Operational excellence phase: Successful transformation of the way informationsecurity is embedded into the culture of the organization is indicated by moving into theoperational excellence phase. All the key foundations of business-driven security(strategic, operational and administrative processes; effective policy structures;appropriate roles and responsibilities) have been instituted. The organization uses trust


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management as the primary mechanism for deriving business-focused policies andappropriate control measures. Metrics are associated with the major security processes,and these are reported with the emphasis on continuous improvement. The businesstypically understands and accepts the residual risks within specific domains.


Saving money: Low

Efficiency: Low

Effectiveness: High

Agility: Low

Figure 9. Attain Corrective Phase Security Status

20% 40%

20%

Re-establishSecurity Team

Develop NewPolicy Set

Initiate StrategicProgram

DesignArchitecture

InstituteProcesses

Conclude

Catch-UpProjects

Track Technology andBusiness Change

AwarenessPhase

CorrectivePhase

OperationalExcellence Phase

ContinuousProcess

Maturity

BlissfulIgnorance

ReviewStatus Quo

20%

Duration of More Than Three Years


2.4 IT Business Intelligence Managers: Create a Business IntelligenceCompetency Center by 2008

Traditionally, most practitioners have viewed business intelligence as a layered technology tied toa specific database management system and designed to provide executives with reports anddashboard-like views of what departments were doing, how well they were doing it and whereopportunities for growth might lie. But business intelligence's value is more than informationdissemination. Today, leading business intelligence and performance management initiatives areinteractive, flexible processes that begin with the business objectives, the needs and skills ofpeople within the company, and the critical business processes, and then incorporate thetechnology that best serves those needs (see "Key Steps to Making Business IntelligenceStrategic").

The key to integrating these elements is the business intelligence and performance managementcompetency center, which consists of people from the business areas of the company as well asthe company's IT "gurus," working together to drive the appropriate business intelligenceevolution. The center's role is to champion business intelligence and performance management,


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as well as ensure that the business alignment, project prioritization, management and skill issuesassociated with significant business intelligence projects are aligned with technologies andstandards. The competency center must cross boundaries associated with people, technologyand processes (see "Toolkit: Eleven Best Practices for Supporting a BICC"). The creation and theformation of a competency center should become an enduring part of the organizational structure(whether it's real or virtual).

However, its goals and members should reflect changing business and market realities; it mustwork to increase agility. As business goals and vision evolve, the competency center will need tointegrate new visions. As the business intelligence role and business intelligence technologiesevolve from enabling users to measure, decide, manage and optimize to enabling them todiscover and innovate, the center must enable, lead and support this evolution (see Figure 10).The fundamental role of a business intelligence and performance management competencycenter is persistent; its specific tasks and membership are dynamic.


Saving money: Low

Efficiency: Low

Effectiveness: Low

Agility: High

Figure 10. Create a Business Intelligence Competency Center

Business Intelligence and Performance Management Continuum

Decide AlignMeasure Optimize InnovateDiscover Lead

2004: IT Driving BI

BI Platforms

Data Warehouse

Measure

2004: IT Driving BI

BI Platforms

Data Warehouse

Measure

2012: BI and Performance ManagementDriving Business Transformation

Decide

Align

Optimize

Innovate

Discover

Measure

Business Strategy

People Process

Analytic Applications

BI Platforms

InformationManagementInfrastructure

Performance Management

Lead

2012: BI and Performance ManagementDriving Business Transformation

Decide

Align

Optimize

Innovate

Discover

Measure

Business Strategy

People Process

Analytic Applications

BI Platforms

InformationManagementInfrastructure

Performance Management

Lead



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2.5 IT Outsourcing Decision Makers: Apply a Multisourcing Discipline to AllSourcing Arrangements by 2009

Multisourcing is the disciplined provisioning and blending of business and IT services from thebest set of internal and external providers in the pursuit of business goals. Multisourcing fulfillsthe requirements of evolving operational imperatives (such as quality, automation, cost and

globalization) and business disciplines (such as quality, process excellence and corecompetence) see Figure 11. Multisourcing is a revolution in business operations as dramaticas the Industrial Revolution or the advent of mass production a century ago.

Just as we no longer remember those companies that were overwhelmed by the IndustrialRevolution, two decades from now the companies that did not adopt multisourcing will also beforgotten, or at best serve as cautionary tales of failure. We've been outsourcing for a long time more than 20 years. Yet most organizations are ill-prepared to move toward multisourcing andthe discipline that is required. They have a complex mixture of insourced and outsourcedfunctions and, increasingly, an array of approaches for onshore and offshore delivery. The resultis a disparate, tactically outsourced set of services. Companies must move toward a new era ofvalue chains to serve clients and operate businesses (and government entities).

Early adopters of multisourcing will begin a new trajectory that melds the best practices of

strategic outsourcing with the best practices of applying business disciplines and operationalimprovements. Organizations must evolve multisourcing as a core management discipline.Taking the step toward multisourcing is imperative. Multisourcing will be the new norm forsuccessful businesses. The combined forces of a focus on core competence, IT,communications, globalization and hypercompetition will not allow companies to maintain theircurrent practices.


Saving money: High

Efficiency: Low

Effectiveness: Low

Agility: Medium


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Figure 11. Apply a Multisourcing Discipline to All Sourcing Arrangements

TechnologyInnovation

ProcessInnovation

Value ChainInnovation

19901980 2000 2010

MUL

TISOURCING

BusinessDisciplines

Six Sigma

CoreCompetence

Business ProcessRe-engineering

Business ProcessManagement

SourcingActions IT Outsourcing and

Business ProcessOutsourcing

SharedServices/InternalService Company

Global Sourcing/Offshoring

Selective Outsourcing

OperationalImperatives

Quality

EfficiencyMass

Customization

Globalization

Focus


2.6 IT Architects: Operate All Revenue-Generating Channels in a Web 2.0Architecture by 2008

Enterprise architects must act as catalysts that speed the formation of unified businesstechnology strategies and their execution. The enterprise architecture process must switch fromlimiting complexity by limiting choices to accelerating innovation and execution by coordinatingcomplexity. It can do so through unified business and IT strategy, decentralized execution, andloose coupling among all related stakeholder disciplines (see Figure 12). Related disciplinesinclude:

Portfolio management to ensure business alignment and optimize investments

Corporate counsel to ensure appropriate legal considerations are factored into decisions

Risk management to support effective identification, mitigation and elimination ofensuing risks associated with rapid and continual change organization

Change management to manage the pain of organizational change and instill a culturethat is tolerant of change

Multisourcing to ensure that sourcing relationships are flexible enough to support theimpending changes and factor dependencies between myriad partners and internalorganizations

Solution delivery to ensure architected business strategies are understood andattainable

Operations to allow for concurrently engineered and available infrastructure to supportnew models and their supporting technologies


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Security to ensure that appropriate security is factored into new technology-enabledbusiness models early on


Saving money: Low

Efficiency: Low

Effectiveness: High

Agility: Medium

Figure 12. Operate All Revenue-Generating Channels in a Web 2.0 Architecture

Enterprise Architecture

Identify global business opportunities

that exploit long-term markets

Create scale-free strategy integratingIT strategy, business strategy and

compliance strategies

Execute strategy via architected

independence and autonomy

Scale-Free and Self-OrganizingNetwork

Web 2.0Google

WikipediaSalesforceMySpace


2.7 Application Development Managers: Complete Enterprise PlatformMigration by 2009

Discussions about the application portfolio with IT teams across all industry sectors point to astrong trend that, in order to deliver an IT agility that meets the needs of the business, there willneed to be a wholesale re-architecting of the application platform. This is true whether the currentplatform is a package solution such as an ERP, SCM or CRM suite waiting to morph into aservice-oriented architecture implementation, or a custom-developed application portfolio that isno longer capable of supporting the enterprise's demand for significant change.

However, the act of taking the application portfolio and transforming it so that it can support thecurrent and future needs of the business for agility, while remaining robust and reliable, creates asignificant challenge for the whole IT management team and its governance process. This isbecause the traditional approach to application management has been a one-at-a-time approach a silo approach. Each application investment has been considered in its own right, justified onits own return on investment, funded as an individual project and implemented as though it werethe center of the universe. The challenge of re-architecting the application platform demands a


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much more integrated and holistic approach to the portfolio of applications that support theenterprise.

This holistic approach will demand that the IT organization, business users and businessstrategists adopt a new model for IT application governance, IT budgeting and IT strategicdecision making. Gartner recommends that this transformation be addressed as a multiyearprogram that will likely encompass at least seven major work streams:

Inventory: To capture a complete set of inventories of processes, applications,information and existing projects that will need to be considered in the migration process

Governance: To create the enterprise platform migration governance model that will beused to guide the individual projects that constitute the program and that will serve asthe constitutional model for resolving conflicting priorities

Finance: To institute a multiyear budget process that will enable the enterprise platformmigration activities to ride over the turbulence of the annual budget cycle

Architecture: To ensure that the business architecture and IT architecture are managedas a coherent whole throughout the life of the migration process, as well as to guide theproduct and service selection that will be the platform of the future

(Re)sourcing: To develop a structured methodology, based on Gartner's multisourcingresearch, that will enable the appropriate resources to be secured for the transformationactivities themselves, as well as to ensure appropriate management of services that willbe delivered by third parties as part of the transformed application architecture

Project initiation and review: To ensure that there is adequate investment in projectmanagement capability and methodology in order to deal with the surge ofinterconnected projects that will be needed to support the migration activity

Validation and release management: To ensure that the "go live" implementationactivities are planned, tested and delivered in such a way that risks are minimized andthat benefits are gained as early as possible in the implementation process

Indicators of value creation: Saving money: Medium

Efficiency: High

Effectiveness: High

Agility: High

2.8 Application Development Managers: Establish Cross-Project,Enterprise-Level Application Management Before 2009

Application management has focused on software at the project level. The project, oftenequivalent to an application, has served as the basic building block for software methodology,

deployment and prioritization. Business drivers toward agility and business-process centricityforce much greater consideration of business processes that cross multiple applications andprojects. Optimization at the project level is now suboptimization at the enterprise level.

Enterprises must complete a retooling of their prioritization, budgeting and project definitionprocesses to establish an enterprise-level perspective (see Figure 13). Megaprojects must giveway to an emphasis on continuous improvement through resource changes, methodology


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changes and changes in technical architecture that enable higher composition, reuse andintegration. These changes require a stronger link between enterprise architecture andapplication architecture, as well as greater scrutiny of legacy overhang.


Saving money: Low

Efficiency: Medium

Effectiveness: High

Agility: Medium

Figure 13. Establish Cross-Project, Enterprise-Level Application Management

EnterpriseArchitecture

ApplicationPortfolio

BusinessServicePortfolio

Project Priorities

Serialized project prioritization is

suboptimized by missinginterrelationships and synergistic

enterprise value

2006 2009

An enterprise perspective focuseson enterprise value, on a portfolio

of applications and projects, andincreasingly on reuse through a

portfolio of services


2.9 Application Development Managers: Retire 10% of Applications by 2008

Most companies have no standard process for retiring applications and the associated technicalor operational resources. As a result, organizations manage a large number of "orphaned"applications that provide little or no functional business value, yet they increase complexity,consume budgets and degrade performance in the overall IT and operational environment.

Most companies are unaware of the extent of orphaned application software and resources. Most

CIOs admit that the problem exists at some level. Most infrastructure and operations managerssay that 10% of applications may include orphaned applications and that managing theseapplications may consume as much as a tenth of the IT budget. IT leaders responsible for retiringapplications indicate that no one is retiring applications.


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Orphaned applications exist in every organization, and these applications represent "foundmoney." A clean sweep to retire these applications will benefit IT organizations and the businessunits that own the applications.

CIOs should perform a rapid inventory of installed applications on all platforms. They shouldtriage the inventory and prioritize the process to retire orphaned applications. Then, they need toimplement a process to retire applications through project management and application portfolio

management processes.


Saving money: High

Efficiency: Medium

Effectiveness: Low

Agility: Low

2.10 Business Process Improvement Managers: Reinsert People Into AllCustomer-Facing Business Processes by 2008

Virtually no industry sector can escape the effects of ever-increasing rates of business change.Executives are constantly striving to improve their enterprises' agility, and so make them moreable to avoid harm or to seize new opportunities. Companies have to identify those vitallyimportant business processes that are particularly vulnerable to even subtle market changes.

However, of all the individual business processes within a given organization, which ones warrantanalysis and, if necessary, redesign to guarantee the most favorable business outcomespossible? We suggest analyzing all customer-facing processes first. Particular attention should bepaid to elements within a customer-facing process where revenue may be generated or lost,based on how uniquely a company is addressing the needs of individual customers.

Companies should identify when human interaction will increase the probability of a sale orreduce the probability of losing a customer. A likely area of significant change is customer careprocesses that are heavily dependent on IT-based self-service solutions, which will see increaseddegrees of human interaction.


Saving money: Medium

Efficiency: Medium

Effectiveness: High

Agility: Medium

2.11 Business Process Analysis and Planning Managers: Model EveryMission-Critical Customer- and Supplier-Facing Process by 2007

In 2000, a group of 16 IT vendors banded together to create a standard way to depict typicalbusiness processes. According to the Business Process Management Initiative's Web site(www.bpmi.org), the initiative's core objective is to promote and develop open, complete androyalty-free XML-based standards that support and enable business process management inindustry. In May 2004, the group released version 1 of a standard, Business Process ModelingNotation. The purpose of this standard was described in the document's abstract: "The Business


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Process Modeling Notation (BPMN) specification provides a graphical notation for expressingbusiness processes in a Business Process Diagram (BPD). The objective of BPMN is to supportbusiness process management by both technical users and business users by providing anotation that is intuitive to business users yet able to represent complex process semantics. TheBPMN specification also provides a mapping between the graphics of the notation to theunderlying constructs of execution languages, particularly BPEL4WS."

With hundreds or even thousands of individual processes existing in a corporation or public-sector agency, there is always an opportunity to improve the efficiency of how the process iscarried out. But with so many opportunities, where is the best place to start? Gartner highlyrecommends tapping into the power of business process management by first modeling allcustomer- and supplier-facing business processes by 2007. However, once a process isreanalyzed, reformulated and modeled, the benefit from this effort does not end with a moreefficient process and a well-documented graphic depiction of workflow. The other highly usefuloutcome achieved from this effort will be the creation of an interface between the workflow'sgraphical depiction and an executable language. By doing this, the same graphically depictedbusiness process workflow diagram will be entered into operation through a business processmanagement system.

This linkage between the model and the executable means that changes to the model can

immediately become operational. This can dramatically impact business agility. Organizationsmust determine which tasks and decisions in the model need to exploit such agility andimplement technologies to support this level of agility. This may require human workflowmanagement, business services designed around service-oriented architecture, rule engines,business activity monitoring or other technologies to meet the time-to-action requirements.


Saving money: Medium

Efficiency: Medium

Effectiveness: High

Agility: Low

2.12 All IT Managers: Transform the Organization From "Technology First"to "Business First and Technology Second" by 2009

As stated earlier, the average IT budget will grow a mere 2.7% in 2006. On average, budgetsincreased by 15.0% in 1998, 15.9% in 1999, 9.7% in 2000 and 10.1% in 2001. Yet thesespending levels were unique expenses related to Y2K, and were followed by radical slowdownsafter the recession of 2000 to 2001. In 2002, IT budget increases averaged 1.3%, followed by 0%in 2003, 1.4% in 2004 and 2.5% in 2005.

With the projected average growth of 2.7% in 2006, we see nothing on the horizon to suggest anychange to a trend of increases below overall economic growth, as reflected by GDP growth rates.No new "killer applications," new technologies, fundamental changes nor any revolutionary shiftswill appear in the near term that could accelerate IT budgets faster than GDP.

If the lackluster growth in IT budgets continues, enterprise executives will find it harder toconclude why IT services should be delivered by anyone other than external service providers. Tooffset this prospect, successful IT staffs will shift their primary emphasis from technical tobusiness expertise and innovation (see Figure 14). Among the key ways to accomplish this is to


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identify IT's future role in business process management. Becoming true business innovators willensure job security beyond merely demonstrating IT expertise.


Saving money: Low

Efficiency: Medium Effectiveness: High

Agility: High

Figure 14. The Origin of IT Workers, 2006 and 2010

2006(CIO Responses)

2010(Projected)

Other ITOrganizations

Business

External

No Experience

Other

Other ITOrganizations

Business

External

No Experience

Other


3.0 Emerging Technology, Business and Social Trends

This section presents our view of the longer-term future. It first provides an overview of emergingtechnology trends. However, to more accurately present a view of the future, we have augmentedour long-standing coverage of emerging technology trends (a decidedly supply-side perspectiveof the future) with two new areas of research coverage: emerging business trends and emergingsociety trends. These demand-side forces are offered during these times of modest IT budgetand spending growth so that IT vendors and IT practitioners alike may gain greater insight intowhat businesses and people will need in the future and what they will be willing to pay for thatfuture.

3.1 Build the Real-World Web

Increasingly, objects will not only contain local processing capabilities (thanks to the falling sizeand cost of microprocessors), but also be able to interact with their surroundings through sensing

and networking capabilities. Radio frequency identification technology is already driving shifts insupply chain and retail, and emerging camera-based approaches use mobile phone cameras torecognize one- and two-dimensional bar codes. Location discovery is creating new opportunitiesfor locating nearby service providers. Micro-electromechanical systems place tiny moving partsonto a chip to sense and react to the environment.


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The result of the additional sensing and connectivity will be a rapid proliferation of applicationsthat take advantage of this "real-world Web," similar to the flood of ideas (many ill-founded, sometransformational) that have surrounded the World Wide Web (see Figure 15). Businessapplications will center on increasing visibility of physical assets, including equipment, productsand even people. CIOs should seek early tagging and sensing applications where improvedvisibility of items or location will avoid ongoing costs or avert undesirable events.

Figure 15. Emerging Technologies

Wireless Networks

Wi-Fi, Bluetooth, ZigBee

Lookup Services

People, Products, Bar Codes ...

Point-of-Sale ScannerReads Phone Screen

Location

GPS, Galileo

Object Identification

1-D and 2-D Bar Codes, RFID Tags

Sensor Networks

Temperature, Chemicals

Micro-

electromechanicalSystemsDirection, Acceleration


3.2 Create Road Maps for Emerging Business

Figure 16 shows some emerging business trends. Proactive transparency has crept up onbusinesses during the past five to seven years. Innovators are using the trend as a competitiveweapon. A clear example is open-source software, through which powerful new models forcreating business value have been developed.

For public corporations, the globalization of capital flows requires increased disclosure ofinformation. To compete for capital, they must reduce risk to lenders by keeping them betterinformed. In globalized microbusiness, IT is penetrating emerging consumer markets at anincredible rate. Using the Internet, a small company such as Share Microfin can interact withmajor financial corporations around the globe. Companies lend small amounts, perhaps $60 or$70 at a time, to transform the lives of individuals who use the money to start a village business.In this case, business units of ING and Deutsche Bank are forming partnerships with this

innovative institution.

In the "next era of productivity," improvements in productivity from past IT efforts will slow down,causing businesses to commence a new generation of profit-seeking productivity gains inbusiness processes and especially in occupations that have been largely untouched by IT. Of the22 major occupational categories recognized by the U.S. Department of Labor, five clerical


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categories constitute 35% of all jobs in the United States. As with manufacturing and other jobs inthe past, we expect the next era of productivity innovation to target, reduce or eliminate clericalroles and the processes these people perform.

Figure 16. Emerging Business Trends

A New Way toCompete for

Investment CapitalProactive

Transparency

ProactiveTransparency

New Business FromLow-IncomePopulations

GlobalizedMicrobusinessGlobalized

Microbusiness

Next Era ofProductivity

Next Era ofProductivity

New ProductivityGains From Jobs"Untouched" by IT

DynamicBusiness

DynamicBusiness

Consumer PricesChange When

Warranted

SocialAnalyticsSocial

AnalyticsForeseeingCustomer

Demand

DesignInnovation

DesignInnovation

"Greenfielding""Greenfielding"

Balance BetweenDesign andEngineering

Learn From NewBusinesses

Source: C.K. Prahalad, "The Fortune at the Bottom of the Pyramid"

3.3 Create Business Innovation Roles

Despite the notion that "IT has changed everything," an objective audit of human activity over thepast 20 years will reveal that it has not. Society remains affected by trends driven by:

Human behavior

Business activity

Business processes

Value to the business

Few forces can match the power of a society seeking to bring about or resist change. Whetherthe issue at hand is a desire to overthrow the government, reshape national priorities, or expresspreferences in food, music or fashion, those in the business of serving people who ignore thewishes of the population do so at their own peril. Often, the signs of change are apparent. In otherinstances, changes occur with an abruptness that leaves the most-seasoned society watchersspeechless. Figure 17 presents major catalysts contributing to changes within societies thatdirectly affect our clients. Users of IT should monitor them, vendors of IT should plan for them,and both groups should take specific actions. The following are some issues that will haveprofound effects on us all:

By 2030, more people will live in urban areas than rural ones.

By 2050, there will be more people 60 years old or older than people 15 years old oryounger.


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By 2050, one in five people will be older than 60 years.

Other issues to explore include the cost of energy, the role of women in society and the future ofwork. Innovative solutions for addressing the issues raised by these trends must come from anew breed of IT professionals.

Figure 17. Emerging Demographic Trends

Accounts receivable

Accounts payable Taxes Inventory General ledger Supply chain ERP And so on

RevenueGeneration

EducationReal-TimeEnterprise

Public/PrivateBack Office

WorldwidePopulation

Growth

Business

ProcessManagement

EmergingSocialTrends

EmergingBusinessTrends

Energy

Healthcare

Consumers

EmergingTechnology

Trends

AgingPopulation

Accounts receivable

Accounts payable Taxes Inventory General ledger Supply chain ERP And so on

RevenueGeneration

EducationReal-TimeEnterprise

Public/PrivateBack Office

WorldwidePopulation

Growth

Business

ProcessManagement

EmergingSocialTrends

EmergingBusinessTrends

Energy

Healthcare

Consumers

EmergingTechnology

Trends

AgingPopulation


4.0 Conclusion

Section 1 of this report describes the IT industry for CIOs and their departments as anenvironment primarily characterized by very modest IT budget growth operating within a worldwhere overall economic growth may also be slowing down. If readers were to simply read Section1 of this report, they could easily (but wrongly) conclude that Gartner is forecasting a bleak futurefor IT practitioners. If other readers were to read only Sections 1 and 2 of this report, they couldsimilarly (and once again wrongly) conclude that a relatively bleak future awaits IT practitioners,but that at least they can remain busy until 2009 completing short-term imperative tasks. Yetdespite some troubling findings described in Section 1 and some long-standing but unaddressedissues that must be resolved in Section 2, in point of fact ourentire report actually portrays a verypositive message for information technology and information management.

We are fast approaching the end of the current era in the evolution of IT. Indeed, we are seeingsigns that suggest the fastest growth and wealth opportunities in the information technology andmanagement industry will shift from a monolithic path of improving the operational, logistical andadministrative performance of once-manual business activities, to a far more complex future

paved with many parallel paths.One path will see the continuation of IT constantly improving the operational, logistical andadministrative business processes that have already been enhanced by IT. This will be the pathupon which most IT vendors and most IT practitioners will travel during the next 10 years. But inanticipation of the approach of the multipath IT era ahead, we identified how clients can help


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prepare for the arrival of this era by specifically identifying certain tasks that must be completedby certain executives by certain dates.

As the legacy path continues, a second and far more rapidly growing parallel path will continueevolving as an increasing number of IT and information management offerings are directedtoward consumers rather than enterprises. These offerings will accelerate the arrival of a daywhen people will become increasingly more dependent on self-service, increasingly more

independent through self-empowerment and increasingly more powerful through self-determination.

Finally, yet another path will evolve, running in parallel with the legacy and IT consumer paths:the path of IT solutions driven by unprecedented demands emanating from emerging businessand emerging society trends. New and threatening business models will make 50-year-old and100-year-old companies shake with competitive concerns. New solutions will address thechallenges presented by societal changes that have never been witnessed before by the humanrace. We are calling the companies meeting these emerging needs members of "the other ITindustry." Therefore, the true power of IT's future lies not with merely replacing solutions forchallenges that IT has already solved, but instead with directing IT to solve challenges where IThas never gone before.

Stability and maturity best describe the current state of the IT industry. Spectacular and truly

exciting times ahead best describe the future direction of the IT industry.

For all three paths described above to reach their true potential for value creation and beneficialcontribution to business and society, they will all require innovators who will see the needs anddeliver them. There is no reason whatsoever why IT practitioners cannot be among those futureinnovators.


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GARTNER HEADQUARTERS

Corporate Headquarters

56 Top Gallant Road

Stamord, CT 06902-7700

U.S.A.+1 203 964 0096

Europe Headquarters

Tamesis

The Glanty

Egham

Surrey, TW20 9AW

UNITED KINGDOM

+44 1784 431611

Asia/Pacifc Headquarters

Gartner Australasia Pty. Ltd.

Level 9, 141 Walker Street

North Sydney

New South Wales 2060

AUSTRALIA

+61 2 9459 4600

Japan Headquarters

Gartner Japan, Ltd.

Aobadai Hills 6F

4-7-7 Aobadai, Meguro-KuTokyo, 153-0042

JAPAN

+81 3 3481 3670

Latin America Headquarters

Gartner do Brasil

Av. Das Naes Unidas, 12.551 9 andar

World Trade Center Broklin Novo

04578-903 So Paulo SP

BRAZIL

+55 11 3443 1509

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