Tag Archives: McKinsey

McKinsey on Protecting Info in the Cloud

The rise of cloud computing is well documented by many sources. Enterprises can gain both risks and rewards by taking this step. Mc Kinsey recently released a useful report, Protecting information in the cloud, on the topic. They report that the rewards include both decreased IT costs and increased agility. Their research found examples of 60 to 70 percent savings by moving from custom-developed internal applications to SaaS alternatives sourced from the public cloud. They also found that 63% of business leaders felt the cloud makes their organizations more business agile and responsive.

To mitigate risk, large organizations are often building and managing private-cloud environments for basic infrastructure services, development platforms, and whole applications. Smaller businesses are generally using public-cloud services such as Amazon, as they lack the scale to implement their own private clouds.

The risks include concerns over the security of sensitive data and exposure to regulatory infractions. Even those who are building private clouds are concerned with putting sensitive data into a single space.  However, there is also a risk to not taking advantage of the cloud as competitors may gain cost and agility advantages. McKinsey writes that avoiding the cloud is a not a viable business option in today’s environment.

The cloud is now big business. IDC estimates that spending on third-party-managed and public-cloud environments will grow from $28 billion in 2011 to more than $70 billion in 2015. Total spending is much larger as these figures do not include spending by large organizations on their private clouds. McKinsey reports that their research indicates that 80% of North American institutions are planning or implementing cloud environments to host critical application. Most are doing this by building private-cloud environments.

Because of the nature of purchasing cloud services, business units can bypass IT departments and go directly to SaaS vendors. In fact, attempts by IT to block usage may encourage business users to go to less secure options. We have found that attempts to prohibit desired goods and services of all types, including alcohol, have led to bad side effects. Regulation by IT, in this case, is a better answer.

In addition, software developers are using IaaS and PaaS solutions for testing code and sometimes for hosting applications. We have been running a related Wednesday series on the use of git for hosting software in progress. See for example, CVCS vs DVCS and the Pros and Cons of DVCS git.

So how do you benefit from the cloud and reduce your risks? McKinsey offers several service models. They note that “Public cloud” and “private cloud” can be useful simplifications, but there are other models. One option is on-premises managed private-cloud services. Here third-party vendors provide a service, working like an external cloud offering, but located inside the organization’s fire wall and dedicated to its use. Another option includes different flavors of private cloud use.  A third choice is the use of community clouds that are shared by several organizations.

McKinsey recommends implementing a mixed cloud strategy. For example, a public cloud is useful for developing and testing software, since these efforts often do not involve sensitive data. In contrast, any application content that contains personally identifiable customer information requires careful consideration before it is be hosted in a public-cloud environment.

Risk management needs to become more sophisticated and nuanced. There needs to me more analytics and monitoring. Controls can be implemented by the cloud platform itself. For example, sensitive data can be blocked from exposure until regulatory concerns have passed. The cloud will not go away. It is now a matter of getting control over its use and matching an organization’s multiple requirements to its multiple options.


McKinsey on Preparing for a New Era of Knowledge Work

McKinsey continues to offer useful reports on the value of the connected enterprise (aka social business, enterprise 2.0). See for example our post – McKinsey Projects Business Value of Social Business at a Trillion Annually. One of their latest reports is: Preparing for a new era of knowledge work. They conclude that “Global competition, emerging skill shortages, and changing demographics will soon force companies to use their most highly paid talent more effectively.”

McKinsey notes that the trend for technology investments went from production floors to offices, where a wide range of transaction-based jobs could be standardized or scripted. Then these jobs could be either automated or shifted to workers in low-wage countries, or both. However, as they noted in 2006, much of the value in organizations lies in these transactions but in the interactions of knowledge workers, the “skilled professionals who together serve as the engine of the knowledge economy.”

This interaction work is the fastest-growing job category in developed countries, where it already accounts for a large proportion of jobs. For example, in the US interaction jobs account from 41%, transaction jobs account for 44% and production jobs account for 15%. In Germany it is: 37% interactions, 38% transactions and 25% production. While in China is: 25% interactions, 31% transactions, and 44% production.

The rapid growth in interaction-based jobs will soon lead to a global shortage of skilled workers for these slots. The US is predicted to be 1.5 million short by 2020 and China over 20 million short. These shortfalls will require companies to use their highly skilled interaction workers more effectively. This necessitates better technology support and increased technology investments, as ell as new management moves.

However, McKinsey notes that technology has tended to complement, not replace, labor in interaction work. So until recently, many of these jobs have been performed in the same way for decades. This cannot continue. To address this need there is an increasing array of tools to support these interactions under the category of social business. However, I would add that for these interactions to be incorporated into workflow and provide real value, there needs to be application integration between the technology that supports the transactions with the new tools that support interactions (for more on this see – The Business Value of Application Connectors and Integrating the Interactions with the Transactions).

McKinsey offers a number of suggestions to deal with this changing market and job requirements. First, they say to break down the job tasks of interaction workers and to find those that can be passed off to lower level people. The rise of nurse practioners to support overworked doctors is a good example that I have seen in action. McKinsey also noted paralegals, a similar move. They believe the trend to disaggregate jobs in all fields will pick up speed as skill shortages take hold and this makes sense.

Next, they suggest to “go viral” and, at the same time, make jobs more flexible. This is where technology can play a stronger role. They note that “thanks to broadband, cloud computing, and a burgeoning market for online collaboration tools, many more jobs that once required in-person interactions can be performed anywhere.”  McKinsey adds as many as 25% of all US jobs could be performed remotely. In their 2011 survey of 2,000 US businesses, one-quarter of them said they had future plans to use more remote workers.

They mention that many younger workers like the flexibility this type of work brings. I would add that this preference is not limited to the young. I have been working remotely for some time now and would not want to go back to an office. To emphasize what I wrote before, this arrangement will not work unless the “connected” enterprise is actually connected. This requires significant application integration.  This is why we at AppFusions are dedicated to making these integrations easier to achieve.

McKinsey concludes with some good advice for senior execs. You need to communicate and over communicate to make sure your wide spread workforce is on the same page. You need increased coordination of the many multiple project efforts that workers engage in. Senior execs also need to become better listeners to better understand the needs of workers, as well as harvest and share their ideas. Technology can help with these last two tasks. Finally, execs need to give up control and let their highly skilled workers use their skills effectively. Two-way trust is essential here. It can also pay off (see for example: Doing Well by Doing Good: Humanizing the Enterprise). 

Rising Business Complexity Underscores the Need for the Connected Enterprise

Last week I wrote about the potential positive benefits of the connected Enterprise and social business. McKinsey found quantified benefits from the connected enterprise in both 2010 and 2011. Now they have doubled down on their forecasts for the business value of connectivity. See my post, McKinsey Projects Business Value of Social Business at a Trillion Annually, for a look at the bright side potential of the connected enterprise.

There is also a dark side potential for the disconnected enterprise. Forbes provides a number of recent examples in its article by Ron Ashkenas on, Wanted: Chief Complexity Reduction Officer. It notes how there is increasing complexity in the business world and documents how a number of formerly “best in class” companies such as Toyota, BP, and Johnson & Johnson took “huge hits to their reputations (and balance sheets) in ways that no one could have predicted.” This was largely because their dysfunctional internal communication failed to warn of early danger signs and ailed to provide an adequate way to respond to these crises.

For example, “Toyota found that its highly centralized, engineering-centric communication structure slowed down its ability to understand early warning signals about quality.” They added that, “Similarly, BP‘s response to the massive Gulf oil spill was clearly slowed down by its inability to easily coordinate the different businesses and functions involved in the crisis. You could also argue that J&J’s manufacturing problems can be traced partially to a fragmented organizational structure with diffuse accountability for quality and customer communication.” I also know that BP was one of the pioneers in knowledge management in the 90s, achieving significant success through shared learning. I stopped hearing about these efforts in the 2000s as management apparently went a different direction.

The Forbes article notes that a recent IBM study found that: “standout” companies (those who consistently improve operating margins) seem to be those that build “operating dexterity” and “reinvent customer relationships” without waiting for a crisis.” A cornerstone of this dexterity is the connectivity that McKinsey extols. It allows organizations to first learn about risks before they become disasters and to then provide a more coordinated response to reduce these risks.

Looking closely at the technical infrastructure required to support dexterity, we believe that application integration is one of the cornerstones of the connected enterprise. For example, is your issue tracking tool integrated with your collaboration tools to better monitor, manage, and mitigate potential risks?

This is why Appfusions has created plug-in connectors for Atlassian’s JIRA, the issue tracking tool used by 85% of the Fortune 100, to such collaboration and content management tools as IBM ConnectionsIBM Sametime, JiveBoxAlfresco, and Google Docs. We are continuing to build more plug-in application integrations to support the connected enterprise and help organizations better realize the bright side of social business.

McKinsey Projects Business Value of Social Business at a Trillion Annually

For the third year in a row, McKinsey has offered us some interesting and thought provoking data on the business impact of social media, both inside and outside the enterprise.  In 2010 they reported, Enterprise 2.0 finds Its Payday. Similar results were found in 2011. In both cases, they found significant quantified benefits from the business use of social media.

Now they offer new research, The Social Economy: Unlocking Value and Productivity through Social Technologies. They found, “that social technologies, when used within and across enterprises, have the potential to raise the productivity of the high-skill knowledge workers that are critical to performance and growth in the 21st century by 20 to 25 percent.”

It is these knowledge workers that are producing an increasing amount of value within the enterprise and have long passed tangible assets as the main source of wealth for organizations (see  (see Daum’s Intangible Assets and Value Creation).

When I refer to “knowledge workers”, I am referring to all types in a typical corporation – from the technical writers, the web masters, corporate bloggers, and even engineering and product management that work transparently, documenting their visions, requirements, and efforts in shared organizational collaboration systems.

However, McKinsey also notes that businesses are not yet fully taking advantage of this potential for new wealth. The consumer Web led the way with social technologies and these tools are now being widely adopted for business use across industries. McKinsey found that by 2011, “72 percent of companies surveyed reported using social technologies in their businesses and 90 percent of those users reported that they are seeing benefits.”

In this early stage of mass adoption, McKinsey notes that, “businesses have only just begun to understand how to create value with these new tools.”

This is not unusual for a new disruptive technology. They estimate this potential to be more than $1 trillion annually. The opportunity is by no means limited to the market facing uses that have led adoption, such as Facebook and Twitter collaborations that sparked the trends, and showed how the value can be further proliferated and realized across an organization’s value chain.

I find productivity enhancements beyond marketing to be some of the more transformative aspects of social technologies, as they do not simply change they way we market, but fundamentally change the way we work.

Technology, via the Web, has made us more social, increasing the connections between people. This has affected individuals, extended families, and even whole societies, as several revolutions have been realized through the use of social media. Now the potential to make businesses more social offers the same transformative potential. McKinsey noted a number of years ago that the value within enterprises lies more in the interactions between people than the transactions.

This is even more true today, as intangible assets account for an increasing amount of corporate wealth. They offer several specific ways this wealth could occur. First, there is increasing customer engagement and harvesting of customer insights. This extends to crowd-sourcing new ideas and products, as well as providing better communication and collaboration with business partners.

Diving further inside the enterprise the socialization of business lowers barriers between functional silos, and even redraws “the boundaries of the enterprise to bring in additional knowledge and expertise in extended networked enterprises” while extending the capabilities and reach of highly skilled workers.

McKinsey notes that the potential is almost limitless as “almost any human interaction that can be conducted electronically can be made “social,” but only a fraction of the potential uses have been developed (e.g., online content sharing). Today, only 5 percent of all communications and content use in the United States takes place on social networks.”

They add that “social” is a feature, not a product so social features can be applied to almost any technology that involves interactions between people. Social technologies provide a means for employees, partners, and customers to publish, share, and consume content within a group. In doing this, the social tools create a record of interactions and/or connections that can serve a variety of uses.

McKinsey estimates that over 60% of the value creation opportunity offered by social technologies lies in improving communications and collaboration within and across enterprises. However, obtaining such gains – that could be as high as a 25% productivity improvement – requires significant transformations in management practices, organizational behavior, as deployed platforms and integrations.

A large part of this requires treating workers as people and not as tasks or assets. The network mentality needs to be based on both technical and behavioral transformation in order to create the truly networked enterprise. Creating a sense of trust is one foundation for this change as discussed on this blog (see Doing Well by Doing Good: Humanizing the Enterprise).

The McKinsey report offers ten concrete ways to generate the trillion in increased annual wealth including:

  • deriving customer insights,
  • co-creating products,
  • distributing business processes,
  • offering enhanced customer support, and,
  • improving collaboration and communication to better match talent to tasks.

I would add to also share insights, and focus the collective intelligence of the enterprise on all aspects of the business. There is much more in the report.

One of the foundations for the increased social nature of technology is the ability for applications to share content. Application integration is a cornerstone of this new wealth creation. This is one of the driving principles at AppFusions, as we develop faster and more efficient ways to enable application integration with our partners’ collaboration technologies to better build the networked enterprise that McKinsey describes.

McKinsey concludes that “the benefits of social technologies will likely outweigh the risks for most companies. Organizations that fail to invest in understanding social technologies will be at greater risk of having their business models disrupted by social technologies.”

It is a matter of either riding the wave or being ridden over by those that harness this new means to make better use of human potential to create value. Obviously, we agree.


The Business Value of Application Connectors

There are a number of terms for the approach to collaborative business enabled by the new breed of software tools such as enterprise 2.0 and social business.

Emphasizing connections, McKinsey uses the term, the networked enterprise when they reported on the economic benefits of using what they refer to in 2010 as “collaborative Web 2.0 technologies.”

They found many quantified benefits in 2010 (see The rise of the networked enterprise: Web 2.0 finds its payday) and more in 2011 (see How social technologies are extending the organization). I am sure their next results will show continued growth in benefits in 2012.

For example, in 2010,

  • 77% said the tools increased the speed of access to knowledge,
  • 60% said they reduced communication coats,
  • 52% said they increased speed of access to internal experts,
  • 44% found a reduction in travel costs, and 40% found increased employee satisfaction.

There were similar results in 2011.

A significant foundation for these benefits is connectivity between the rising number of new tools and the established ones. I think another useful term for the new wave of organizational change is the connected enterprise.

Without connections, the benefits are not possible.

I still like to go back to McKinsey’s 2006 paper, The next revolution in interactions, to reflect on two quotes:

In today’s developed economies, the significant nuances in employment concern interactions: the searching, monitoring, and coordinating required to manage the exchange of goods and services.

They said that traditionally the focus of business and IT investments has been on production rather than interactions and added the following.

Social media, with its focus on interactions, is ideal for the new economy based on the connections between these interactions. Six years later, enterprises are now starting to invest in supporting interactions with the new breed of social tools.

Currently, jobs that involve participating in interactions rather than extracting raw materials or making finished goods account for more than 80 percent of all employment in the United States. And jobs involving the most complex type of interactions—those requiring employees to analyze information, grapple with ambiguity, and solve problems—make up the fastest-growing segment.

However, as I wrote in Putting Social Media to Work, to be effective these systems that support interactions have to integrated with the systems of record that support transactions. The social tools also need to be integrated with each other or companies are simply creating more silos of disconnection and benefits are not realized.

Another interesting finding from the 2010 McKinsey study on the networked enterprise was that higher operating margins correlated with the “ability to make decisions lower in the corporate hierarchy and a willingness to allow the formation of working teams comprising both in-house employees and individuals outside the organization.” Connections are again the foundation for these cross-enterprise interactions.

Research from the Altimeter Group (see Social Business Readiness) points to the current need for the technology integration to enable these connections. Altimeter found that many companies have an inability to integrate social data into existing technology systems.

In the companies they looked at, 74% do not have a process in place to support these connections. They struggle with a fragmented technology.

Altimeter states that establishing proper connections is one of steps to becoming an advanced user of social tools. However, this can be a time consuming and costly customer project.

  • What not bypass this effort and bring forward the benefits of the connected enterprise by using out-of-the-box plug-in connectors?
  • Why invest in custom integration efforts to realize the benefits of social business when plug-ins offer a fast and low cost alternative?

Connectors are a major key realizing the business benefits of Enterprise 2.0 and off-the-shelf plug-ins can allow for a major breakthrough in establishing these connections quickly and efficiently.

This is one of the main focuses of this blog. We welcome your input to this conversation.


Post by Bill Ives of the Merced Group, and who also blogs at Portals and KM.