Enterprise Architecture, IT Strategy & Others

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  • Keep the differentiator and outsource the rest to partners

    Differentiator, differentiator and differentiator are the keys to succeed in any industry and competitive strategy is all around the differentiator. Over the time, the corporations were trying to do everything by themselves and lost focus on their differentiating factors. How many times have you seen a corporation reversing their sourcing strategy because the sourcing strategy had a negative impact to their bottom line? The decision to out source was made without a long term vision. Cost is a factor to the sourcing strategy. But, it should not be the driver to the sourcing strategy. Few companies took cost as the driver for their sourcing strategy and had negative impact to their bottom line.

    Few first hand information, I used to have MCI World Com as my long distance carrier. They were charging lot less than AT & T at that time. I hated MCI customer service (appeared to be out sourced customer service) and always had bad experience. I switched to AT & T even though they charged me more. Phone companies did not realize their customer service is part of their differentiators. AT & T was also not so great at that time in their customer service but better. AT & T was also out sourced their customer service at that time. Similar experience with American Express credit card. Service companies like AT & T, Amex realized that customer service is a differentiator along with core service they provide like phone,internet, credit card service etc. Some good strategy consultant must have had helped them. Now I always have a good customer service experience with AT&T and AMEX and it appears to me that both companies have a best people to talk to their customer to resolve customer issues.

    Corporation should be clear on their differentiator and must not lose focus on that. It is good in theory but it is very difficult to implement particularly when corporations are grown significantly big. One way to keep the entire corporation focused on the strategy (differentiator) is to, only do the work related to the differentiators. If a corporation goal is to generate profit by providing air service to the travelers they need to prepare the list of what are the must have processes to run the business (core business processes), how to differentiate them with their competitors (competitive strategy) and align the entire organization to core business process and strategy. Rest of the functions like HR, Audit, non core IT, Accounting, Finance and etc all required but do not require focus as corporation in those functions. There are companies who make those functions as their core business processes and perform for other companies and do it for living. Get those service from them as SaaS (Software as a Service model), ASP model,etc.

    Out sourcing is a component of sourcing strategy. Sourcing strategy encompass how to the align the employees, partners, suppliers, consultants, temp contractor workers and etc to support the over all strategy and out sourcing is to how to effectively and efficiently get the service from the providers on the non core (not a differentiator) functions. There are different types of out sourcing.

    • Finance and Accounting out sourcing (FAO)
    • Procurement & supply out sourcing (PPO)
    • Business Process out sourcing (BPO)
    • HR out sourcing (HRO)
    • IT out sourcing (ITO)
    • Legal Process out sourcing (LPO)
    • Knowledge process out sourcing (KPO)
    • Engineering service out sourcing (ESO)
    • Sales & Marking out sourcing (SMO)
    • CRM outsourcing

    The moment people hear about out sourcing generally it is interpreted as the jobs are going to India. It could be part of SaaS model (CRMO) using salesforce.com, HRO using ADP, FAO using vendor x and etc.

  • SaaS + SOX = SAS 70 Type II Certification

    IT general controls should be followed for any better managed IT organization irrespective of regulatory requirements like SOX. (period) When it comes to verification of IT general controls for SOX audits (internal or external), it is not the question of best practice nor nice to have, but, it is a must have requirements. Generally in an organization, the testing/verification of IT general control by an external auditors are not performed for all the systems for all the controls. It is tested against a set of applications that are directly or closely related to financial statements. It is common for an organization to classify their systems as SOX systems and non SOX systems. IT controls are strictly followed for the SOX systems (it should be!!)

    SaaS (Software as a Service) model will be widely used in the future and will play a significant role in any future IT landscape. How the SOX requirements can be fulfilled with the SaaS model? How internal and external IT auditors will be able to test the IT general controls if an IT service is provided by an external service provider?

    What is SAS 70 and Type I & Type II report?

    SAS (aka Statement on Auditing Standards) 70 is an auditing standards for the service providers (service organization) to enable the auditors to valuate the service organization’s IT general control and write a report on effectiveness testing of the IT general controls. The audit report of service organization’s can be used by the user organization and user organization auditors.

    Type I Report
    Focuses on the service provider’s IT relevant controls and their objective. Auditors validates the controls and express an opinion on if the controls are fairly presented and suitable to meet the stated objectives.

    Type II Report
    Type I report + assessment of effectiveness of the control over a period of time (not less than 6 months) and report can be provided as a evidence of the effectiveness testing of the IT general controls to the stated objectives.

    Should an IT organization mandate SAS 70 Type II certification from all SaaS service provider?

    American Institute of CPA (AICPA.org) published an applicability document

    The way I understand the document is that the SAS 70 Type II certification is required if the service organization provides a service or transactional operations which are significant to the financial statement. With this understanding, let us say if an organization is sourcing financial controlling and reporting to a service provider (as a SaaS model) then the service organization is required to have SAS 70 Type II certification. If an organization is souring a marketing web site to a service provider (SaaS or ASP model), then the service organization is NOT required to have SAS 70 Type II certification.

  • If Innovation is a solution, What are the requirements?

    Innovation is very much needed in this market. Let us understand the deeper question before seeking innovation from the organization. When I grew up, for almost every day I had one choice for break fast, idli, a traditional south indian dish made of rice. Nobody in the family, asked a question why not cereal one day since no one in the family heard of cereal when I grew up. The break fast creativity revolved around idli since every one in the family were fine with that dish. When you are fine with what you got and you do not have an exposure to alternatives, then there is no requirement for the innovation nor creativity.

    Who was talking about fuel efficient cars in 1998? Who is not taking about fuel efficient cars in 2008? Today, a WSJ report suggested the most required today’s killer applications for Detroit. That is, 40 mpg minivan/SUV, 50 mpg mid size car and 30 mpg truck. I’m sure the smartest automobile engineers from Detroit area will meet today’s requirement in next 3-5 years.

    Great minds are working on the problem. There is a requirement for innovation.

    All fossil fuels are made of hydrocarbons and can we get the hydrogen from water and mix up little carbon and manufacture the octane instead of digging up? Can we add a small catalyst in the existing fossil fuel and let the existing internal combustion engine to use only 1/100th of the octane with catalyst to produce the same energy? Thoughts of this kind are going on millions of minds and facing road blocks.

    There is a real requirement out there for the fuel efficiency and alternatives are limited. Human mind potential is unlimited but the current exposure in altering the quantum configuration is very limited. What a clearly defined business requirement? You can not get more clearer requirement than this.

    One solution to this problem is innovation. Both problem and solution are known, then what is the problem? Innovation is abstract solution must be applied to the problem contextually.

    Take this situation and apply to the information technology organization. First identify the requirements for innovation with in the organization? Is it cost saving, revenue generation, market penetration, agility and etc? As I stated in my other article, for the close business model, there is a need for imaginary boundary for innovation within the organization and the imaginary boundary is clearly drawn by using this requirements.