CIOs Forge Vendor Collectives to Extract Business Benefits

Shell and other big businesses use their clout to get normally hyper-competitive vendors to work together on IT projects and reveal their R&D plans

1 2 Page 2
Page 2 of 2

Instead, Matula asks vendors to send technical architects and other experts. For example, on a project with HP to develop seismic sensors for finding oil, Shell works with a team of scientists led by an HP Fellow who is also an “enterprise services futurist” specializing in how IT shapes business, society and culture.

A Window Into the Vendor’s R&D

The past five years have been tumultuous for Shell as a global recession and wars in the Middle East have caused its revenues to yo-yo from $319 billion in 2006 up to $458 billion in 2008, down to $285 billion in 2009 and up to $368 billion last year. Net profit margins are about two-thirds of what they were in 2006.

Shell is by no means floundering; it’s the second-biggest oil company in the world, behind Exxon. But to reach Shell’s goal of becoming “the most competitive and innovative energy company in the world,” as CEO Peter Voser puts it, it must not only be more efficient but also more imaginative.

CIO Matula contemplates big questions vital to Shell’s future. In scenario planning out to 2050, for example, the company forecasts a decrease in the use of oil worldwide, replaced in part by natural gas. The trick is getting that gas. Frequently, rock beds that are considered too difficult to mine for coal hold natural gas, but the fuel industry hasn’t perfected the processes of assessing its quality and extracting it. The more educated an oil company can be going into exploration, the more effective—that is, lucrative—new ventures will likely turn out.

Through the vendor ecosystem, Matula’s staff learned of sensor technology that HP Labs had been developing that are 1,000 times more sensitive than those on the market today. Shell’s IT group, like many, understands the large business issues their company faces. But unlike other IT groups, Shell’s has a window into vendor R&D work. The ecosystem engendered extra collaboration with HP, called the Voyager project. “We only found it because we described a problem,” he says, a give-and-take allowed by Shell’s close ties to its trusted IT vendors.

Early field tests have shown promising results, a Shell spokeswoman says.

What Shell wants to do is foreign to some vendors. Microsoft, for example, was at first reluctant to open its R&D doors, Parsley says. He says Shell persisted with its R&D requests and eventually Microsoft agreed to share information about its research. Microsoft now runs a program to connect major customers to its R&D group that Parsley considers “quite promising.”

Microsoft, Cisco and AT&T engineers are working together to improve the compatibility of their unified communications products for Shell, Jones says. So far, the three vendors have developed technology to integrate video from Microsoft’s Office Communicator with Cisco’s telepresence system, underpinned by AT&T’s network, he says.

At Hilton, Webb sets aside funds for exploratory work in areas of mutual interest, such as analytics with IBM and location-based services with AT&T. Influencing product direction can be a big advantage, Passerini adds. P&G last year worked with Xerox on mobile printing software for the iPad, iPhone and iPod Touch. Xerox will sell the software to other customers, but P&G got it first and got it built the way it wanted.

The ownership of the intellectual property that results from such collaborations varies. Shell usually lets the vendor have the intellectual property as an enticement to collaborate, Matula says. It will sometimes retain rights to how software is configured, but not to the application itself. Sometimes Shell will keep the rights to software extensions that it considers a competitive advantage, such as one developed for Microsoft SharePoint that analyzes patterns in oil and gas well data to predict failures.

Shell recently posed what it calls a Grand Challenge, a simple question with big implications. How can Shell improve its application development? In the past, Van Der Weele, who is supplier manager of the key vendors working on this issue, might have asked each vendor to do its own analysis, then had his staff compare the four reports and draw conclusions. Instead, he asked the four to collaborate and write one report recommending improvements. Since each vendor had worked in different areas of Shell, together they covered more ground than any would have alone, he says.

“Even if you get the best subject-matter expert from McKinsey or Gartner, he can have great ideas but not [know] how to do it at Shell,” he says. “This was best-in-class consulting from people who really know Shell inside-out.”

The Wave of the Future

Although forming a vendor ecosystem may seem like something only elite, big-spending CIOs can do, it’s how vendor management will evolve in the next several years, says Andrews from Forrester. Business shifts will demand it. As companies embed technology into products and services, IT needs help keeping up, he says. Then, to get any competitive advantage from technology-laden products, CIOs will want access to vendor R&D. “If vendor management means only cutting costs, it won’t happen,” he says.

Still, a change in approach has to be wholehearted and not just used as a tactic, Matula says. Collaboration—vendors with the IT group and vendors with each other—requires ongoing meetings where business goals are shared by all parties and everyday behavior reflects those changes, he says. (See “Rules of Engagement.”)

“The industry doesn’t naturally collaborate,” Matula says. “But for us, it happens more because we’ve built a social fabric.”

Follow Senior Editor Kim S. Nash on Twitter: @knash99.

Related:

Copyright © 2011 IDG Communications, Inc.

1 2 Page 2
Page 2 of 2
Download CIO's Roadmap Report: Data and analytics at scale