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IT as the Indispensable Partner - 20 Questions with Dave Watson


Dave WatsonIn today’s social, mobile, and cloud-driven IT world, the CIO (Chief Information Officer) has been labeled many things.  Leading an IT organization in times of relative calm is no easy task – to do so during industry upheaval and rising government regulation is even more challenging.  Rare among IT industry executives, Dave Watson has been both a CIO and an executive within a fast-paced SaaS software business.  Having sat on both sides of the IT supplier/buyer table, he brings a unique perspective to IT management and the challenges facing CIOs today.  IT industry executive and CIO Dave Watson joins us for 20 Questions – an MGI Research Interview Series with leading technology industry executives, innovators, and investors. ...(more)


For a full copy of the interview with Dave Watson, CLICK HERE.

Dave Watson is a senior IT executive with 25 years of delivering business solutions across a variety of business areas. From 2007 and until recently Dave was theCOO and CIO of MedeAnalytics. Dave joined MedeAnalytics from Kaiser Permanente in 2007. At Kaiser, Dave served as senior vice president and Chief Technology Officer, with direct responsibilities for long-term technology strategy, systems architecture and information security services across Kaiser’s hospitals, medical groups and insurance companies, serving nearly nine million members in nine states. Prior to Kaiser, Dave served in a variety of executive IT roles in the life sciences sector at Baxter Healthcare and at Allergan, Inc. Before his tenure in healthcare, Dave worked for recognized industry leaders such as Northrop Grumman and Mattel. Dave is a graduate of the University of Pennsylvania’s Wharton School’s Executive Development Program and holds a bachelor’s degree from the University of Southern California. Away from the office, Dave enjoys spending time with his family, deep sea fishing and advising a select group of healthcare and technology startups.


Andrew Dailey:  Welcome to MGI Research’s 20 Questions – interviews with leading technology executives, innovators, and investors.  Today’s guest is Dave Watson.  Welcome Dave.

Dave Watson: Hi Andrew, thanks for having me.

Andrew Dailey: You’ve had quite a career – you were part of the spin-out of Edwards Life Sciences from Baxter, were CTO of Kaiser Permanente during the implementation of EHR (electronic health records), and most recently have been a part of a SaaS company in the health care industry.  What do you see as the three key challenges facing CIOs today?

Dave Watson: There are many challenges facing CIOs today but the three I focus on in no particular priority are:  relevance, innovation and velocity. Relevance has a lot of moving parts but the essence is that you are contributing to business success.  To the extent that business leaders may view “IT people” as indistinguishable, relevance is grounded in business competence and relationship skills.  Innovation can have many parents but the CIO must stay current in technology and business trends and have some capacity to sponsor (even to suggest) experiments with the business.  Finally, velocity is more important than it has ever been.  The age of multi-year implementations is passing because business cycles are compressing and will not tolerate long IT cycles.

Andrew Dailey: Innovation versus cost savings – how should CIOs and business executives view IT – as a cost center or key enabler?

Dave Watson: Neither.  If IT is viewed as a cost center it fails the relevance test and deserves to report to the CFO and be subject to the financial optimization anvil.  IT as a "key enabler" is definitively higher on the company's Maslow hierarchy and demonstrates more value to the business but, - IT as the "indispensable partner" is where the fun is and is very hard to achieve.  The table stakes for admittance are effective management of finances and delivery, but to become the “indispensable partner” requires business acumen and influencing skills that many IT teams have not developed.  The indispensable partner has achieved relevance and demonstrated innovative thinking and velocity.

Andrew Dailey: What do you see as the most promising technologies to help organizations drive both cost savings and innovation? Which ones are the easy wins, and which ones can be game changers?

Dave Watson: Social, mobile and cloud all make the list of promising technologies for different reasons.  I think none of them are easy and they all can be game changers.  There are two important points to make with respect to this question:  First, the bigger theme that is critical is the consumerization of IT (e.g., BYOD among others).  Consumerization (think app stores and the like) is setting new expectations about cost and availability at the same time it is wreaking havoc with control-oriented IT models.  The second point is going to annoy many product people since I view their new technology as an invention while the adoption of the product into a business is the innovation.  For example, given all the digital venues now available for interaction and outreach, how will healthcare leverage these capabilities to reduce cost and improve care outcomes (i.e., keep you healthy)?

Andrew Dailey: You have worked inside of some very large organizations, as well as some relatively small, entrepreneurial ventures.  Many large organizations envy the speed and agility of start-ups, and yet are unable to replicate the pace of innovation and entrepreneurial velocity of a start-up.  What’s the secret to cultivating innovation and speed within a big organization?

Dave Watson:  In a word, leadership.  A long time ago, in the midst of the industrial age, management models were developed to control large organizations.  Many of these 19th century mechanisms persist in the face of 21st century capabilities. It is part of what causes the seeming paradox of speed vs. size for large organizations.  The bigger you get, the harder it is to remain nimble - but not impossible.  If you want speed and innovation, you must design your organization to deliver it.  That is a leadership issue.

Andrew Dailey: You’ve also worked within a highly regulated industry (health care/life sciences).  How do you balance the need for rapid delivery of IT solutions while also supporting business requirements like security, regulatory compliance, and global solutions?

Dave Watson:  Let me start by observing that too many companies use topics such as security and compliance as excuses not to achieve velocity.  Many security and compliance people are risk adverse and if you let them they will bring your business to a crawl.  It can turn into too much of a good thing and my approach to this topic is to do the following:

  1. Hire smart security/compliance people who are attuned to the business and understand risk management and mitigation.
  2. Incorporate security/compliance into your processes where necessary by including them as non-functional requirements in your projects.
  3. Security and compliance are risk management issues for leadership to determine.  Do not cede this responsibility to staff or you will get too much security and/or compliance which will act as a drag on velocity.  Set the bar where the business is comfortable that it is reasonable for compliance with the law and protection of customers and the brand.

Andrew Dailey:  What is the biggest lever to drive down IT costs today?

Dave Watson: I would point to two levers.  The first is that many IT organizations are terrible at contract/pricing management.  If you haven't taken a hard look at them, there is probably significant savings to be had in your various contracts (software and infrastructure).  The second is the one that I am shocked by its magnitude - application portfolio rationalization.  It is easy to implement a piece of software but it is a devil's task to kill.  If the business units aren't paying for it, they will continue to take as much for free as they can get.  The rationing behavior is “price is your friend” in these circumstances, especially when combined with strong architecture skills.

Andrew Dailey: Let’s talk about cloud computing and software applications delivered as a service (SaaS).  What have you experienced as the biggest benefits of SaaS?  Any unexpected benefits or upside surprises?

Dave Watson: Three notable upsides:

  1. Rapid time to deliver (helps with velocity)
  2. Preservation of capital (but have a discussion with your CFO about the opex impact of subscriptions)
  3. Leverage IT resources (your software staff can work on other projects)

Andrew Dailey:  What about the downside risks – what have you seen in terms of challenges associated with SaaS implementations?

Dave Watson:  There are three to watch out for:

  1. Contracting - subscription contracts are different and you must be clear about service levels, indemnities, and many other contract terms because you rely upon the SaaS provider to deliver the service - but you'll get blamed if it goes wrong.
  2. Cost Creep - As you consume more, the subscription cost will go up.  What started as a great deal may not be so great after 2-3 years of increasing usage.
  3. Flexibility - you buy into a model and changing it is not easy...or not possible.

Andrew Dailey: Is it possible to broadly adopt SaaS solutions from a variety of vendors, and still maintain control of your IT architecture?  Does IT architecture matter anymore?

Dave Watson: Yes, you can and must maintain control over your IT architecture.  In fact, architecture is as - if not more - important in a SaaS world than before.  The focus of the architecture shifts more to integration as you de facto delegate application design to the SaaS providers.

Andrew Dailey: For a large company with revenues in excess of $1 billion, how much of the application portfolio could realistically run in a SaaS model today?

Dave Watson:  It depends on the business you are in and where you feel the need to control your assets, but I have seen businesses that run almost all of their applications as SaaS.  These have mostly been in sub-$1 billion companies, but with the maturity of a number of the SaaS companies they certainly have the capacity to handle the bigger organizations.

Andrew Dailey: How is IaaS (infrastructure as a service) different from traditional hosting, outsourcing or co-location services? How is it similar?

Dave Watson: I don't see a lot of differentiation.  The distinction to me is rapid provisioning and pay-as-you-go coupled with aggressive pricing models but the traditional providers of these services will be able to close the gaps from their old models to the IaaS model pretty quickly.  In fact, they are all offering cloud/IaaS services in one way or another today.

Andrew Dailey: What are the likely scenarios for the evolution of cloud infrastructure? Will incumbent outsourcing and hardware vendors become a credible force in this market?

Dave Watson:  The incumbents are already moving rapidly into cloud infrastructure because their clients are curious and are demanding it.  IBM, HP, Oracle - they're all doing it and tuning it to their existing clients as a retention play...better to cannibalize the dollars and keep them than let them go to somebody else.

Andrew Dailey: Do you expect private cloud models to gain traction relative to public clouds?

Dave Watson:  Yes, I already see a number of larger organizations converting their hosting infrastructure to private clouds with an eye toward incorporating them into a hybrid model for development, disaster recovery, and rapid expansion (burst) of capacity.  I also see these cloud models putting more pressure on retirement of legacy platforms that do not lend themselves to the economies of the cloud.

Andrew Dailey: Most, if not all, of the traditional hardware and outsourcing vendors have announced Cloud offerings, namely HP, Oracle and Dell. Do you believe the major vendors will create compelling cloud offerings and ensure continued user loyalty (and revenue streams)? What benefits can users expect from dealing with an independent cloud infrastructure provider today?

Dave Watson:  I think they will grab a reasonable share of clients.  Many will stay with them out of a sense of safety while others will get locked in through their contracts (you can get rid of your premise equipment IF you move to OUR cloud...).  I think cloud consumers will benefit as a group because the competitive pressure of the new players will raise all boats.  Beyond that, the benefits will come when users pick a cloud supplier who meets their needs (an oblique reference to the importance of architecture and good contract hygiene).

Andrew Dailey: What is the business case for spending budget dollars on a IaaS? What is the ROI and how does your product generate above average ROI?

Dave Watson: The business case for IaaS will be reasonably straightforward - can I purchase the compute and/or storage capacity I need at a lower cost than I otherwise will pay.  More interesting to me is a discussion about PaaS because it exists much higher in the value chain so it should produce a better return than IaaS...but watch the risks are higher too.

For example, if you are using CRM and maybe some other applications from their app store (financials, supply chain, etc.), does it make sense for you to support the applications you write on a platform like  If you begin to converge various SaaS applications around a single PaaS platform as in the example above, there may be a compelling business case for you to go "all in".  The risk is that committing to a PaaS environment takes much more commitment.  The question is whether the reward is greater than the risk.  For many, the answer is becoming yes...

Andrew Dailey: Who do you view as the thought leading vendors when it comes to SaaS, and cloud computing?

Dave Watson: This one may be the toughest question so far. One that I must acknowledge is  With their combination of CRM application, for development (PaaS), and their application exchange is a leading model that is unique and others will need to duplicate - or join.  On the cloud front, Amazon continues to do very interesting things in the IaaS space and has done an excellent job of scaling.  In the late entrant category, Microsoft Azure is interesting if you are consuming a lot of Microsoft technology already...sort of an IaaS/PaaS hybrid.  Beyond these, there is a long list of truly interesting companies in the space - too many to name.

Andrew Dailey: Is the era of Microsoft and Windows everywhere over? What is replacing Windows? Does Apple have a role in the enterprise?

Dave Watson:  Announcements of the death of Microsoft and Windows are premature. Is Microsoft under pressure?  Absolutely, and I love it as should every other CIO in the world.  The competitive pressure will make them and everyone else sharper and their solutions better.

The march toward mobility is obvious to all - meaning Apple (iOS) and Google (Android) running smartphones and tablets.  There is a lot to like about tablets but the problem is they are not yet a total replacement for a laptop running Windows or MacOS as they don't do some things well enough to supplant them.  What has happened is that now I carry three devices - laptop, tablet, and smartphone - with the ability to leave the laptop behind much of the time.  The one to watch that few talk about is Google's play, Chrome.  There is a lot of potential there and it will be interesting to see whether Google capitalizes on it or not.

Finally, - Apple.  I love their designs and devices.  I hate their closed architecture and control freak tendencies.  Their biggest problem is that they are dominantly a consumer company and have not invested in understanding the enterprise or providing solutions that make life in the enterprise easy.  Ironically, Microsoft doesn't understand the enterprise very well at least Apple is in good company.

Andrew Dailey: What advice would you give to a SaaS (or other) vendor trying to sell into the executive suite?

Dave Watson: To be successful with executives, you must know their business and where there pain is otherwise you will either not get to talk to them or you will have a single short conversation and no second chance. Don't forget the CIO.  If you go at a line of business executive, make sure you engage IT as part of your process.  Often, IT has the money in their budget and as Willie Sutton said in response to the question of why he robbed banks, "Because that is where the money is..."

Andrew Dailey: How should organizations be embracing trends like mobile and cloud – where are the most obvious business benefits and what needs to happen organizationally to extract those benefits?

Dave Watson:  First, learn what's possible with these new capabilities.  Second, be clear what problem you want to solve by using them.  Third, don't make it a hobby (several people working part time to "figure it out"); if you want to apply it to your business, protect them during the experiment and encourage them to fail fast and often until they get something usable.  Beyond that, where to apply these trends is highly dependent upon the business you are in - but in all cases you need to know your customers if you expect to successfully engage them via social or mobile modalities.

Andrew Dailey: What are the top three business drivers that you see most often as part of the rationale for cloud-based solutions today?

Dave Watson:  In no particular order:  cheap, fast, and getting capabilities you don't have today.

Andrew Dailey: Why isn’t there more price transparency among cloud vendors, and IaaS vendors in particular? What needs to happen to make prices and TCO (Total Cost of Ownership) easier to understand and compare vs. alternatives?

Dave Watson:  You mean like the price transparency we have had in licensed software all these years?!?  Actually, there is more transparency than we've seen in a long time.  This makes the start of a business case analysis easier but nothing can replace the rigor of a well-constructed TCO model prepared to include all the variables associated with each scenario.  In this, there are no shortcuts.

Andrew Dailey: What advice would you give to CEOs who are looking for tools to drive innovation, but have limited budgets for investment?

Dave Watson:  I have never failed to find money for the right investment.  As for CEOs looking for tools to drive innovation, they already have the one they need:  the ability to set a clear MBO [management by objective] regarding innovation tied to executive incentive compensation.  That one has always worked for me!

Andrew Dailey: What project or accomplishment are you most proud of?

Dave Watson:  Successfully implementing electronic medical records (EMR) system at Kaiser Permanente.  It was the equivalent of being the director of NASA in 1963 hearing President Kennedy say we would put a man on the moon by the end of the decade. Nobody had ever successfully implemented an EMR at that scale before, so we just had to figure it out.  Lots of smart people working incredibly hard and it was a treat to be present at the finish line with them.

Andrew Dailey: Under what conditions could the adoption rate of SaaS and IaaS offerings slow down or even halt?

Dave Watson: Large adverse security or operational (availability or performance) events which tarnish the image of SaaS and IaaS that increase the risk perceived by clients could slow adoption.

Andrew Dailey: What’s your vision for cloud computing and its impact on user organizations?

Dave Watson: At this stage of development, I would look to leverage cloud computing wherever economical and I will not allow a software acquisition without including a SaaS option among the scenarios.  Beyond these two, I look for solutions that allow me to do things I otherwise couldn't for the business and find ways to innovate them into the solution mix.

Andrew Dailey: Where do you see business investment and IT spending going? Which areas of IT spend are going to accelerate, which ones will likely decline?

Dave Watson:  Notwithstanding economic cycles, I see spending on IT solutions generally increasing across all businesses because the reliance upon IT continues to grow and it is not a zero sum game.

I see spending decline for telecom services as a result of more aggressive use of BYOD which in most cases shifts costs from the company to the employee.  I see spending increasing significantly in the areas of customer engagement (web, mobile apps, social).

Andrew Dailey: Do you see the business (rather than IT departments) being a more significant driver of spending? Is the traditional IT department dead?

Dave Watson: Business should always be the driver of IT spending but if you mean will the business procure outside IT services instead of IT, I think that some will but most won't.  What will happen is that CIOs that can't achieve relevance for IT will be replaced with somebody who can.

As for IT departments, they must evolve with the business they are a part of just as the business itself must evolve to embrace these new forms of customer outreach and engagement.  To paraphrase one of my biology professors, a definition of death is the absence of change.

Andrew Dailey: Is cloud computing a zero sum game for the IT industry?

Dave Watson: I don't think so.  Will money move around given this new option?  Definitely.  But I also think that there will be opportunities to do things we couldn't before and that will invoke much more than a zero sum equation.

Andrew Dailey:  Which technologies and vendors do you view as the most disruptive?  Which ones should be on the radar of every CIO today?

Dave Watson: There are a number that come to mind but I will offer up one I think we need to watch, the Internet of Things (IoT).  Think about your network and all of the devices that are on it at any given time.  Now, think about all those devices sending telemetry to each other separate from the human interactions we use these machines for today. Imagine how you can use this telemetry, the volumes of data involved and the analytic horsepower required to process it into something meaningful.

If you are an airline CIO, you should be thinking about this for all of the equipment that you support - starting with smart aircraft that have data to share.  If you are a CIO in an auto manufacturer, you should be thinking about the telemetry from all the cars you sell and put on the road - and how you can provide better service to your customers and monetize that information.  If you are a healthcare CIO, you had better be thinking about how this revolutionizes care in the hospital and can extend care of patients with chronic diseases to wherever they are - and keeping them healthy.  IoT and machine telemetry is the next big one and it is closer than you think.

Andrew Dailey: In closing, share a prediction with us - what do you think is going to be the biggest IT-related surprise for business executives and CIOs in 2013?

Dave Watson: My prediction is about the role of the CIO.  Recently, the trade press has been flogging an issue about the CMO (as in Chief Marketing Officer) overtaking the CIO and rendering them irrelevant.  I find the argument amusing but the foundation of truth that causes it that we appear to be leaving the 3rd age of computing (the Internet age) and entering the 4th age of computing (what I'll call the digital business age).  This continuing evolution will require CIOs to sponsor innovation, achieve velocity, and demonstrate relevance to the business in order to provide the beating heart of a digital business.

CIOs who are respected business leaders, who maintain a systemic view of the business, and who have the ability to work across the organization to deliver new capabilities that drive performance for the company will move into truly transformational roles as the consumerization of IT picks up speed.  Whatever these roles will be called is irrelevant but their impact will be enormous.