As Published In May 2005

The Evolving Business
By Marta Bright

HP's Ram Appalaraju on the people, processes, and technologies that form the adaptive enterprise

Ponder the concept of true and natural adaptability, and your mind might consider the chameleon. A true wonder of nature, this diminutive reptile possesses the ability not only to change the color of its hide to suit its surroundings but also to use its independently rotating eyes to see what's behind it and next to it—and what is coming from in front. Imagine the possibilities! Is there a lesson to be learned from the chameleon? In the literal sense, the answer is yes—evolutionary success is often a combination of several different factors. The ability to adapt to changing markets—and even more important, the ability to see those changes coming quickly enough to react appropriately—is critical to survival in the fiercely competitive business world of today. The concept of IT/business alignment, always a top concern for business and IT executives, is truly focused on making sure that inevitable changes resulting from new government regulation, mergers, acquisitions, or any other type of disruptive activity are channeled into constructive and strategic paths.

When the time came to talk about adaptability in business, we went straight to an expert source, Hewlett-Packard Company. HP knows a thing or two—and then some—about competing in a global market as an adaptive, agile, and successful enterprise. In the wake of its merger with Compaq in 2002, this global company took command, adapting all manner of business and budgetary processes to fit its ever-changing business environment.

To discuss specifics about what an adaptive enterprise means in the context of business, technology, and innovation, Profit caught up with Ram Appalaraju, vice president of HP's Adaptive Enterprise Program Office. An expert on business agility, Appalaraju sets the record straight on what businesses need to consider and do in order to become an adaptive enterprise, a company where IT and business are synchronized and where change is swiftly and seamlessly accommodated—and even anticipated. "Our expertise targets global corporations, the large enterprises that are driving significant and strategic changes and innovations," says Appalaraju. "It's very much about understanding their key assets, the information technology that they use, the possibilities that exist out in the marketplace, and how they can use technology to further their business goals."

PROFIT: How would you define the concept of the adaptive enterprise?

APPALARAJU: Before defining what HP calls the adaptive enterprise, I would first address several bigger questions. For example, when considering the role of the CIO, I would want to know how that person demonstrates and delivers value to his or her business. I would also want to know how that value is shared and what it does to provide the business with a competitive edge. Additionally, I would endeavor to know how that business intends to transform itself from its current state to a future state. HP defines the adaptive enterprise as business and IT synchronized to capitalize on change. To that end, defining the adaptive enterprise begins by understanding that being adaptive is not just about technology or processes. Operating as an adaptive enterprise and becoming an adaptive enterprise are about people and processes coming together through technology.

PROFIT: Are you suggesting that companies should change their attitudes toward IT in order to become adaptive?

APPALARAJU: Yes, that's critical. Companies need to look away from a capacity approach to IT and toward a value approach. In other words, they should embrace IT, but not at the expense of innovation. At HP, we work with CIOs to help them understand what initiatives and efforts they need to put in place to reduce costs around business and IT maintenance. Actually, it's not uncommon for companies to be spending 60, 70, or even 80 percent of their overall budget on the maintenance aspects of IT and barely 10 to 20 percent on innovation. Clarity about IT maintenance spending allows companies to understand how their remaining cash can and should be spent on innovation. This can be accomplished whether they have a limited budget, a flat budget, or a growing budget.

PROFIT: Do you believe some companies are more prepared for and adept at embracing change in order to operate as an adaptive enterprise?

APPALARAJU: I think companies that possess what I call a proactive way of thinking about change management tend to be more adaptive. Some companies are very good at performing on the operational side, executing on reactive cost cutting. You can do that only for so long. The reason for change should be to do something innovative and substantial from which businesses can truly benefit. What is that benefit they want—higher revenue, higher gross margins, higher customer satisfaction, access to new markets, and access to more customers? For any business, those are the classic things on which you always are measured.

PROFIT: What are some of the core business issues driving change and the need to adapt to change?

APPALARAJU: Businesses have multiple needs, including regulatory needs such as implementing the Sarbanes-Oxley Act. Another example would be a pharmaceutical company needing to comply with a series of Food and Drug Administration regulations. When these needs are paired with things such as mergers and acquisitions, they represent huge business drivers that can and should promote a tremendous amount of change. The desires to implement new processes and transform existing processes are also major drivers for change. As a company, HP went through quite a bit of change after the merger with Compaq. We transformed ourselves into a single, homogenous company both operationally and from an IT perspective. This helped us not only save costs but also add tremendous value to each one of our business units, making each one more efficient and nimble and allowing us to take on new challenges.

PROFIT: When educating a company on adaptability, where do you begin?

APPALARAJU: From a foundation level, we help a company by working with the CIO, whom I consider to be the true agent of change, and then also the various business units. We help corporations understand and identify the initiatives they need to put in place in order to reduce spending in the areas of IT maintenance. By flipping the budget and focusing on spending more on innovation and less on maintenance, a business can begin driving innovation and greater value into the business.

PROFIT: What is going to flip the ratio from maintenance spending to innovation spending?

APPALARAJU: Automation is the key to shifting away from maintenance to innovation. We hear customers saying, "We're doing a massive consolidation," or "We're doing a massive amount of efficiency improvement across the company." Consolidation and efficiency improvements are great; however, the more important question is, what are they doing with the savings they realize? As I suggested earlier, the value comes from automation. It also comes from the ability to bring in new processes. To set the stage for what I mean, specifically, about automation, consider that a lot of companies support a tremendous amount of internal-development efforts. "Internal development" means customization, which is liable to result in people-induced errors. Eliminating customization altogether isn't practical, but nonetheless, companies need to focus on ways to severely minimize customization and increase automation.

PROFIT: What does automation bring to a business?

APPALARAJU: Automation brings tremendous value to businesses because it enables them to access specific benefits such as the best pricing structures or the best new vendors—one that can offer a higher value to the product line or the business process and do it faster than would have been possible before. One of the measurements CIOs have is an IT budget as a percentage of the overall company revenue. This varies by the type of company or industry they are in, but the typical percentage is somewhere between 2 and 4 percent. Those numbers are definitely not going anywhere—they are literally flat, so automation enables CIOs to use more of that 2 to 4 percent on innovation.

PROFIT: What are some of the key pieces of advice you would offer a company as it moves toward becoming an adaptive enterprise?

APPALARAJU: Step one would be for companies to begin understanding and accepting the notion of flipping from maintenance mode to innovation. That includes gaining a clear understanding of what processes need to be automated, as well as getting support and buy-in between the business groups and IT.

The second step involves standardizing. By standardizing, I'm not referring to something that comes out of the W3C consortium. Instead, standardizing means that business operations and IT operations agree on common methodologies across the company, such as, "We're going to use a J2EE platform for application development," or "We're going to follow a particular architecture around certain IT functions." This opens the door not just for procurement benefits and supply-chain benefits; it also adds a tremendous number of integration benefits. In other words, if everybody is adhering to the same standard, then they can virtualize the set of resources, automate them, and make those resources available purely on a need-to-have basis. I would also advocate for modularizing computing assets.

PROFIT: Why do you support modularizing?

APPALARAJU: Modularization is key for two reasons. One, it enhances the ability for partitioning and enhances the utility computing concept. Second, it proportionately distributes resources, depending on need. This helps avoid resource imbalance, which ultimately improves resource utilization. Look at it from this perspective: It's not uncommon for companies to have a lot of seat-licensing capacity, a lot of resources, and still not have them allocated to the right areas when they need them to be. Modularizing is a viable way to really address that issue, pushing utilization from between 10 percent and 30 percent to a much higher percentage and bringing much greater cost savings.

PROFIT: How would you sum up best-practice strategies for becoming an adaptive enterprise?

APPALARAJU: Again, companies need to look away from a capacity approach to IT and toward a value approach. They need to avoid the capacity approach, because it pushes them into the problems of clutter, which includes too many licenses and too many silos and islands of information. To that, I would add a reminder that you can't just set out to automate those islands; you need to restructure your fundamental approach to the way you architect processes. The way you accomplish that is not to simply look at IT and start reallocating budget—you need to look at the business as a whole, perform some housecleaning in the form of simplification, and then begin building in automation. If you don't simplify and just continue buying more licenses and more hardware, it's only a question of time before you reach the stage where you realize, "I've got all these resources, I've got all these budgets, and still my business guys are not happy with what I deliver." That's the point you don't want to reach.

PROFIT: How does a company maintain focus as it begins to take this journey?

APPALARAJU: Companies can and should maintain focus through employing proven methodologies and processes, wrapped by solid governance, and using them to build a systemic approach for adding greater value to their businesses and from their existing IT organizations. That journey is what HP is calling the adaptive enterprise. How a customer transforms into an adaptive enterprise doesn't have a part number or the look and feel of a particular shape. It takes time, effort, diligence, and patience. Don't expect to become adaptive overnight.