Chief information officers have long served as the gatekeepers to enterprise technology revenue, but the expanding authority of their role within organizations coupled with an explosion of software applications has forever changed the way enterprise tech is bought and sold.
Vendors like SAP and Oracle used to have to spend weeks — if not longer — locked in boardrooms trying to convince CIOs and other executives of the value of their software. But the payoff was huge: multiyear contracts, often in the tens to hundreds of millions of dollars, to deploy systems across the entire enterprise.
Now, providers are increasingly targeting end users, line of business leaders and other lower-level, non-tech roles as an entry point into the organization — or what industry insiders label as "shadow IT." These business leaders have been buying the software they need on their own for several years, and vendors have noticed, prompting a shift in the way they approach their customers and countermoves from CIOs who need to manage costs and security concerns.
"The world is changing. Cloud is changing buying patterns pretty significantly. It allows companies to start really small and grow in a much more organic function," Confluent CEO Jay Kreps told Protocol. "There's a role for central IT teams, but we see consumption across lines of business … and it's something the go-to-market effort has to take into account."
It's a shift that is happening gradually for some companies and much quicker for others. Right now, for example, 27% of CIOs and related roles say their company is "extremely reliant" on traditional IT to become a data-driven enterprise, according to a July survey conducted by CapitalG, Alphabet's venture arm. That's expected to drop to 17% over the next five years. Meanwhile, in the same time frame, the percent of respondents who expect their company to become "not at all reliant" on IT jumps from 2% to 10%.
The proliferation of software as a service is the best example of this shift. Vendors are increasingly finding success in building products designed for specific industries or job tasks then expanding out to other departments. The model is one providers like ServiceNow, which started in IT and is now selling to HR and other units, are deploying to enormous success.
The phenomenon is forcing some companies to revamp their organizational structure to spread personnel from IT — a unit viewed historically by business leaders as something of a backwater profit drain that could take the blame when systems failed — across the enterprise, embedding technologists closer to end functions like product development, customer service and marketing.
Some are even going a step further. At ServiceNow, for example, in-house technologists even go through the same training as its sales team, according to CIO Chris Bedi, a move that is reminiscent of pioneers like General Electric that realized decades ago the value of aligning IT to the business.
But it's also posing a quandary for CIOs who are grappling with how much buying power to delegate outside their immediate purview.
"We have to shift our mindset from a control organization to an empowerment and enablement situation. But we have to do it in a secured, governed way," said Netskope CIO Mike Anderson. "There's still definitely a faction of the CIO community that is still in that control mindset."
'Custodian of funds'
Alongside the more basic task of managing the IT stack, CIOs are increasingly playing a more important strategic role within organizations. The position has morphed from a proverbial laptop peddler to a central figure in the effort to digitize the enterprise, with renewed and deeper support from the CEO and board of directors.
That's why any large-scale software deployment is going to involve the CIO and other leaders, even if shadow IT buyers have autonomy over smaller buying decisions. So while a developer may feel empowered to purchase an Atlassian license independently on the corporate card, there's no way SAP is going to deploy a new company-wide ERP system without buy-in from the top.
"Part of my responsibility is guarding the galaxy," said Citrix CIO Meerah Rajavel. Still, "you can't be the only technology house in the company. But you cannot be at the other end of the spectrum, where you democratize so anyone can do anything."
Still, employees outside IT have become much more knowledgeable about the tech underpinning operations, a reflection of the proliferation of applications across job functions, as well as increasing efforts to educate workers on the latest and greatest software. It's one reason why low code/no code platforms are becoming so popular: They can make it easier for non-developers with a basic understanding of the tech but deep knowledge of business needs to build their own applications.
There's an increase in "the willingness and the appetite of our business team members to learn more about the technology and … why they need to be co-decision makers on how we prioritize," said Liberty Mutual CIO James McGlennon.
For some, that's changing how budgets are created, an annual process that often pits business leaders against one another vying for a larger share of the available money. But while CIOs may have historically kept a tight hold on the IT purse strings, new tech leaders want to dole out investment for specific pilot projects — or even reallocate those dollars entirely to the business units themselves to decide how to spend.
Enterprise tech vendors like Confluent are capitalizing on this shift. But there are limits to the ultimate success of that sales approach. And providers still need to build products that produce value for the end customer.
At Netskope, a fast-growing security software provider, Anderson relates his strategy to something akin to a venture capital firm, where other teams have to prove why the investment is worthwhile to receive preliminary funding. Just like a startup trying to raise additional rounds, those cohorts have to show a return to justify continued dollars.
"We're the custodian of the funds," said Anderson. "Our job is to pick the right investments … [but] we're not writing the big check up front."
Revamping the org chart
The rise of shadow IT is particularly relevant as organizations look to connect a massive and disjointed application suite. After years of software sprawl, enterprises are trying to get a better handle on exploding application suites for security concerns, as well as to avoid adding yet another bespoke system to the mix.
Most companies have a mandate to make better use of data when making decisions. And one of the first hurdles in that process is breaking down the information silos that exist within organizations. That means beginning to link disparate apps together so data can begin to flow between the systems. For enterprises that want to inject automation to handle basic job functions, create more robust profiles of customers, power more comprehensive corporate dashboards and many other common strategic initiatives, it's a necessary step.
It's why integration has become one of the buzziest words in enterprise tech. RPA vendors like UiPath, integration-as-a-service providers like Workato, software giants like SAP and hyperscalers like AWS are all promising new layers of connection through deeper partnerships, open platforms and robust back-end links. And that focus on connecting the application suite can pose a challenge when it comes to the rise of shadow IT.
"Shadow buyers are only seeing what someone sold them … and they don't realize it doesn't have wheels or a battery," Tibco CIO Rani Johnson told Protocol. "The wheels and the batteries tend to be those integrations."
For some CIOs, the increasing complexity within enterprise tech stacks is one of the most compelling arguments against democratizing purchasing power.
"We have little or no shadow IT," said McGlennon. "It's complicated today. And if you don't do it in the right way you may have an insecure platform, you may not be adhering to all the data regulations [or] we may not adequately back up and restore all the things that we need."
To mitigate the proliferation of shadow IT, some organizations are changing the organization chart and closing the gap between top technologists and other business unit leaders. At Wells Fargo, for example, CIO Ravi Radhakrishnan leads the IT operations for commercial banking, as well as corporate and investment banking, reporting to the head of technology for the whole organization and the CEOs of those two business lines.
"We are preventing that bifurcation of selling," Radhakrishnan told Protocol. "The vendor is [simultaneously] selling the business case to the business and selling the technology case … to the technology leader."
Ultimately, the desire to embrace a shadow IT system by some CIOs and the efforts to block such a pivot by others means enterprise tech vendors will need to train sales teams to respond to both scenarios.
But if there's one function top software providers have no qualms about investing in, it's sales.