Companies like IBM and Wal-Mart are already doing amazing things with Enterprise 2.0 technologies. Why are so many others reluctant to take the plunge? In the second of our 3-part series of extracts from his book "The Next Wave of Technologies: Opportunities in Chaos" (Wiley, 2010), Phil Simon explains why organizations hesitate to embrace new systems — until it's too late. (See our interview with Simon here.)

The potential of Enterprise 2.0 technologies is hardly unproven. Open source (OS) software, SaaS, cloud computing, social networking, service-oriented architecture (SOA), BI, and other exciting new technologies are enabling organizations to do amazing things right now. Beyond merely reducing costs, they are already doing the following:

  • Reducing product development times.
  • Allowing organizations to better understand their customers.
  • Expediting innovation and new product development.
  • Enhancing employee communications and productivity.

Nor are these technologies being deployed exclusively by nimble startups such as LinkedIn. Old-school corporations such as IBM and Wal-Mart are classic examples. The former got religion in the 1990s on collaboration and OS software. Indeed, it is not hard to imagine IBM as a shell of its current self if then-CEO Lou Gerstner had not fundamentally changed the organization's thinking and culture.

The story of Wal-Mart's use of customer data is both well documented and simply astonishing. For years,Wal-Mart has used data mining technology to unearth remarkable customer insights. A New York Times article written one week before Hurricane Frances in 2004 summarizes one fascinating discovery with respect to expected weather and consumer purchasing behavior. Reporter Constance L. Hays writes that experts mined the data and found that the stores would indeed need certain products — and not just the usual flashlights. ‘We didn't know in the past that strawberry Pop-Tarts increase in sales, like seven times their normal sales rate, ahead of a hurricane,' then-CIO Linda Dillman said in a recent interview. ‘And the pre-hurricane top-selling item was beer.' "

IBM and Wal-Mart are merely two examples of organizations that are simply doing amazing things with Enterprise 2.0 technologies. As they say, however, the exception proves the rule.

So, let's return to the original question: What is stopping so many organizations from jumping into these largely uncharted waters with both feet?

Four things spring to mind:

1. Financial Considerations. The meltdown of the financial system and the subsequent pronounced recession is a significant but not exclusive factor in explaining many organizations' resistance to numerous new technologies. Organizations' IT budgets were expected to grow between zero and 2.3 percent in 2009, according to Peter Sondergaard, senior vice president of research at Gartner Research. This range is considerably below recent norms. Another study by research firm Computer Economics found that one-third of organizations cut their IT budgets for 2009.

In an effort to reduce costs, many organizations have gone way beyond trimming the fat; some have cut down to the bone, shredding essential IT personnel, canceling current projects, and putting the kibosh on future ones. However, simple economics and budgetary realities alone do not tell the whole story. We have to dig deeper.

2. IT Project Failure Rates. The failure rate for IT projects is conservatively estimated to be 60 percent. Particularly in the ERP sphere, these systems and their technologies have been relatively well understood for at least the past decade. This is not to say that ERP is a completely static technology. However, the basic precepts of paying employees, running financial reports, and tracking inventory have not fundamentally changed over the past ten years.

The political and financial costs of a failed IT endeavor are enough to deter many senior executives from improving their organizations' applications, systems, and architectures. New technologies such as enterprise search and retrieval (ESR) offer enormous promise. Until these new toys become mainstream and mature, many organizations will remain reluctant to adopt them and may pass altogether.

3. Uncertainty Over the Future. Aside from and related to fear of failure, many organizations and their decision makers simply do not know enough about these new technologies to implement them in an effective manner. New software, platforms, and services can do many powerful and transformative things. However, absent a clear business purpose, properly defined business requirements, sufficient resources, and the like, these technologies will likely not achieve their intended goals.

What's more, many senior executives are not familiar with new technologies. As a result, they are justifiably risk-averse about adopting them. For example, consider a chief information officer (CIO) who uses a social networking site such as Facebook to connect with friends. It is not difficult to sign up and add friends; one can be up and running in no time. The same CIO knows that this process is fundamentally different from implementing a new and untested social networking tool designed to promote collaboration, communication, innovation, and improved employee productivity inside the organization.

Even assuming a successful new IT endeavor, there are no guarantees that the technology will have staying power. No chief technology officer (CTO) wants to spend millions of dollars on an IT initiative that turns out to be antiquated after a mere two years.

Historically, two types of organizations have helped organizations make sense of new technologies (or at least tried): large consulting firms and software vendors. Let's ponder the biases of each group. Consultants like me can offer guidance, but perhaps many organizations have viewed us suspiciously in the past. After all, we have a strong incentive to advocate all types of far-reaching (read: expensive) technological changes for our clients. For their part, traditional software vendors have always encouraged their clients to go in specific directions, again with a vested interest.

During the Great Recession, clients did not listen to either group to the same extent, as the financial results of each group reflected. With signs of the recession abating and the number of technological choices on the rise, the best advice for organizations on how to navigate these waters may not stem from traditional sources.

4. The Software Establishment. The late 1990s and early 2000s represented the halcyon days for many large software companies and consulting firms. ERP vendors such as SAP, PeopleSoft, Baan, and Oracle thrived as many organizations finally realized that their internal applications were antiquated and needed to be replaced by a single, integrated solution. The 1990s also represented the acme of Microsoft's hegemony. For their part, many systems integrators (SIs) such as IBM, CSC, D&T, Accenture, and PricewaterhouseCoopers (PwC) saw revenues and profits climb as their clients needed partners to help them implement new technologies.

Today, however, two things are certain. First, the heyday for many traditional technology heavyweights has long passed. Second, beyond their clients' shrinking IT budgets, many old guard technology vendors today are facing a number of significant threats to their revenue streams:

  • SaaS
  • OS software
  • A new breed of independent software vendors (ISVs).

Reprinted with permission of John Wiley & Sons, Inc. Phil Simon, The Next Wave of Technologies: Opportunities in Chaos, 2010.

Phil Simon's latest book is "The New Small: How a New Breed of Small Businesses is Harnessing the Power of Emerging Technologies" (Motion Publishing, 2010). More information here.