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The IT Organization of the FutureDriving Business Change

by Jeanne W. Ross, Stephanie L. Woerner, Stuart Scantlebury, and Cynthia Beath

This article is an expanded version of a research briefi ng pub-lished in December 2009 by the MIT Sloan School of Manage-ment’s Center for Information Systems Research (MIT CISR). Here we focus more deeply on IT organizations that help drive business change, the shi ing role requirements in such organ-izations, and the management practices that develop the needed competencies to exercise these new roles eff ectively.

As companies build digitized process plat-forms to replace large portfolios of isolated,and o en redundant, systems and process-es, they are fundamentally transforming the business.1 But business transforma-

tion demands leadership. Where does that leadership come from?

MIT CISR and The Boston Consulting Group recently surveyed the CIOs of 104 companies on the changing IT organization—and this question featured prominently. One of the survey’s key fi ndings was that CIOs believe that business leaders are not positioned to lead IT-enabled business transformations. In fact, only 33 percent of the CIOs surveyed consider their company’s senior executives eff ective at driving business value with IT. And only 40 percent consider their senior executives eff ective at prioritizing IT investments.

If, despite the emergence of a digital or information econ-omy, business leaders are not able to drive the digitization of business processes, the need for IT to do so becomes acute. And the rewards for IT organizations that capably fi ll this role, as well as the benefi ts to their companies, are sizable. Indeed, CIOs of companies that are building and leveraging digitized process platforms are much more likely to describe the IT unit’s role as “business change driver” rather than “order taker.”2 What characterizes

these IT organizations—the ones that are not just sup-porting transformation but driving it? And what benefi ts have they realized? We summarize our fi ndings below.

Why Should the IT Unit Drive Business Change?

MIT CISR has written about CEOs who led a technology vision in their companies,3 but these instances are the exception. More o en, the CIO—in partnership, to be sure, with his or her counterparts on the business side—provides pivotal leadership both in developing a vision for and in implementing a digitized process platform.4

The benefi ts to companies in which the IT unit acts as a change driver are substantial. According to our survey,

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1. We define a digitized process platform as a coherent set of busi-ness processes, along with supporting technology, applications, and data.2. We relied on respondents’ descriptions of their architecture ma-turity to assess whether IT was building a digitized platform. For more information, see Jeanne W. Ross, “Maturity Matters: How Firms Generate Value from Enterprise Architecture,” MIT Sloan CISR Research Briefing, Vol. IV, No. 2B ( July 2004, revised February 2006). MIT Sloan CISR working papers and research briefings are available for download at http://cisr.mit.edu.3. See, for example, K. Nagayama and P. Weill, “7-Eleven Japan Co., Ltd.: Reinventing the Retail Business Model,” MIT Sloan CISR Working Paper No. 338 ( January 2004); and C. Gibson, “Turnaround at Aetna: The IT Factor,” MIT Sloan CISR Working Paper No. 362 (August 2006).4. See, for example, J. Ross and C. Beath, “Campbell Soup Company: Harmonizing Processes and Empowering Workers,” MIT Sloan CISR Working Paper No. 374 ( June 2008), “Building Business Agil-ity at Southwest Airlines,” MIT Sloan CISR Working Paper No.369 (May 2007), and “Information and Transformation at Swiss Re: Maximizing Economic Value,” MIT Sloan CISR Working Paper No. 373 (December 2007); and J. Ross et al., “United Parcel Service: Business Transformation Through Information Technology,” MIT Sloan CISR Working Paper No. 331 (September 2002).

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such companies spend a smaller percentage of their IT budget running—as opposed to building—systems. The 45 IT units described as order takers spent, on average, almost 70 percent of their IT budgets on running their systems, compared with only 62 percent for IT units that fi lled the role of business change driver. The spending ra-tio is important because we found that companies that apportion more of their IT spending to new initiatives, rather than to sustaining initiatives, had a signifi cantly higher overall return on assets and higher net margins relative to their competitors.

In addition, IT units that act as change drivers enjoy fast-er realization of the business benefi ts from new systems. On average, business change drivers reported an interval of nine months between the project’s start date and the delivery of business value. This is 33 percent faster than in companies where IT’s role is that of an order taker.

Finally, scores on IT employee-satisfaction surveys are higher in business-change-driving IT units. The enhanced satisfaction translates into recruitment advantages. In-deed, CIOs in IT units that drive business change report-ed signifi cantly greater eff ectiveness in recruiting the talent they need.

Characteristics of IT Units That Drive Business Change

The diff erences between business change drivers and order takers are quite stark. They are particularly evi-dent along a number of dimensions, including the fol-lowing:

Shi ing Role Requirements.◊ In general, CIOs told us that internal IT staff roles are shi ing away from applica-tion development and toward process analysis and engineering, business relationship management, proj-ect management, and architecture design and imple-mentation. Future role requirements are perceived by both order takers and change drivers to be largely the same, apart from the role of business relationship management. Order takers place greater importance on this role than do business change drivers, perhaps because business change drivers have, in many cases, incorporated the responsibility for business relation-ship management into multiple roles. But business change drivers report signifi cantly higher formaliza-tion and maturity of these roles, suggesting that they will be better able to deliver these important capabili-ties. (See Exhibit 1.)

More formalization

Less formalization

5

4

3

2

1Enterprisearchitect1

Businessrelationshipmanager1

Projectmanager1

Businessanalyst1

Programmanager

Businessprocess

engineer1

Vendorrelationshipmanager1

Productmanager,

IT services1

Datamanager1

Businessapplicationdeveloper

Technologyfellow

Business change drivers Order takers

Veryimportant

Less important

5

4

3

2

1

Exhibit 1. Formalization of 11 IT Roles

Source: BCG and MIT CISR survey, December 2009.Note: The bars represent the perceived importance of each role across both samples; the lines represent the extent to which role expectations are formally defined in the two samples.1There was a statistically significant difference between the two samples.

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High firminvestment

Low firminvestment

5

4

3

2

1

Comprehensive, multiyear

strategic IT workforce

plan

Definedcareer pathsfor IT general

managers leading to CIO

Definedcareer pathfor technical

experts

Resource pools, like centers ofexcellence,

rather than “hard assignments”

Rotations from IT into

businessfunctions

Internallyprovided

training and education

programs forIT staff

Rotations from

businessfunctions

into IT

External training

and educationfor IT staff

Business change drivers Order takers

Exhibit 2. Companies’ Investment in IT Professional Development Practices

Source: BCG and MIT CISR survey, December 2009.Note: Differences are statistically significant for all but “external training and education for IT staff.”

Focus on IT Staff Development.◊ Business change drivers tend to invest more heavily in their people than do order takers. They develop workforce plans and mul-tiple defi ned career paths, provide internal and exter-nal training programs, and off er rotations between business and IT roles. (See Exhibit 2.)

Centralization.◊ The trend toward centralization is some-what more pronounced in IT units that drive change (83 percent of business change drivers reported a cen-tralized structure versus 78 percent of order takers). In their centralized IT units, business change drivers hold tighter reins on IT—reporting 26 percent lower levels of unauthorized “shadow” IT.

Shared Services Model. ◊ Business change drivers deliver, on average, 60 percent of their IT services as shared services and place more emphasis on alternative ser-vice levels, related prices, and clarifying service units than do order takers. In addition, business change drivers have more responsibility for other services, such as facilities management, supply chain, human resources, and fi nance. And internal company surveys

suggest that, in comparison with users of IT services at order takers, internal users at business change driv-ers are generally more satisfi ed with the services they receive.

Outsourcing. ◊ As IT units increase their emphasis on driving business change, they increase their outsourc-ing of not only application development and mainte-nance but also operations. The causal relationship is not clear—it is possible that IT units increase their emphasis on driving business change as they out-source more.

Eff ective IT Governance. ◊ Relative to order takers, busi-ness change drivers report signifi cantly higher eff ec-tiveness of governance mechanisms, such as standard-ized project methodologies, post-implementation reviews, and service level agreements. In companies where IT is a business change driver, nearly 60 per-cent of the senior business partners can describe the organization’s IT governance. In companies where the IT unit is an order taker, that proportion falls to 46 percent.

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Adopting the Mindset of a Business Change Driver

The fi ndings from this and previous MIT CISR research suggest that, as part of a company’s transition to greater digitization, IT staff must shed an order-taking mentality and work to identify ways in which they can contribute to business success. One CIO we interviewed is pushing this shi by reminding both the business and IT people that they wear the same company badge and thus have shared goals. IT and business leaders can drive business value by focusing on those goals.

Chris Perretta, CIO of State Street Corpora-tion, told us, “I think the real challenge is whether the job I’m doing is relevant to the things that the CEO really cares about. For instance, I know that our CEO wants to extend lean, which is business process de-sign, throughout the whole organization. If I incorporate business process design into the IT function, then I posi-tion the IT organization in a leadership role. If I retreat, then I am simply a service provider, and we waste a lot of knowledge capital.”

Frank Luijckx, The Dow Chemical Company’s director of business services and environment, health, and safety for India, the Middle East, and Africa, told us that the CIOs in his company have been very active in “shaping the company’s future.” He noted, “The CIOs have been very close to the transformation of the company—they have enabled it, probably because they have the most struc-tured approach to it. I think leadership in information systems is increasingly important. The technology is decreasingly important.” He also said that the company does not do IT projects anymore; rather, it does projects for the company. In a supply chain project, for example, the people who are skilled at doing the IT part and the people who do major product and facilities engineering all work together in one big project organization. Accord-ing to Luijckx, “Our project support center is no longer called the IT Project Support Center. It’s broader and we continue to pull more and more functions into it.”

Luijckx believes that the business leaders may have for-gotten what it takes to run a business, because so much is automated in the background. He told us, “We increas-ingly fi nd that we need to reeducate the business leaders about the engine on which they rely on a daily basis.”

A CIO for a manufacturing company told us, “I think the boundaries of IT are expanding. What we have done well up till now, which is all of the basic plumbing—operations, security, controls, disaster recovery, continuity, and so forth—doesn’t stop being important. As a matter of fact, as you do those things better, you can move up the value pyramid in IT. We started with standardizing and deliver-

ing infrastructure and operations services. Then we moved to shared applications and we helped the business get the most value from them. Now it’s really about expand-ing into process leadership. We went from being a service provider and a process participant to being a process leader, mainly because business processes are increasingly built into the applications. Everything is in-

tegrated, so IT has a greater impact on the defi ning and transforming of processes through the use of technology.”

Recently, this CIO said that his IT organization estab-lished the role of chief business process offi cer, responsi-ble for optimizing business processes—both general proc-esses, such as an internally developed proprietary process that is similar to Lean Six Sigma, and specifi c end-to-end processes, such as hire to retire, bench to plan, order to cash, make to ship, and account to report. The people in his area now have a much higher level of business acumen than was previously typical in the company’s IT unit.

Developing the Capabilities Necessary to Drive Business Change

Ensuring the right talent to realize the IT organization’s ambitions is a critical challenge, many CIOs told us. In fact, only 7 percent of the CIOs we surveyed said that their IT organization’s current skills are an excellent match to their needs—and almost 60 percent reported signifi cant skill gaps. Looking out three years at their pro-jected skill requirements, only 38 percent of CIOs were fairly confi dent about being able to meet them.

Many CIOs also told us that, in particular, they are cur-rently struggling to hire or develop strong IT architects, business process engineers, and business-relationship managers. Part of the problem is a market shortage of such talent. However, a number of CIOs noted that do-main knowledge and existing relationships with the busi-ness areas that IT serves were extremely valuable for

Almost 60 percent

of the CIOs reported

significant skill gaps in

their organizations.

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such roles, and these CIOs felt that it makes far more sense to try to develop those talents internally than to try to fi nd them in the marketplace.

But developing such talent isn’t easy. A number of CIOs said that they had tried to transform good developers into IT architects, only to fi nd that the talents intrinsic to good developers do not necessarily make for good architects. One CIO said that she could identify developers who would make good architects by the con-sistency with which they asked questions about how their projects linked to other projects.

One popular development technique, according to our survey, is to recruit people into the IT organization from the business functions—especially people with project or program management or technol-ogy management expertise. Said Luijckx of Dow Chem-ical, “I think IT professionals are going to have to be more rounded individuals. They probably will come out of the business and go back to the business, and come out of the [IT] function and go back to the [IT] func-tion.” Almost 78 percent of the CIOs who described their IT organizations as business change drivers said that their organization used this approach.

The CIO of a manufacturing company, for example, told us, “Our head of sales systems for North America is some-one who had been an outstanding technical program manager and happened to be part of the sales force. We recruited him into the IT organization and he brought his business experience and acumen, along with his techni-cal project leadership. We’ve done the same thing in some of our supply-chain areas, where we’ve taken folks out of the supply chain who were strong project and pro-gram managers and made them heads of these applica-tion areas in the IT organization. Though there are some IT people who have been around the block enough to know the business, and who make the leap quite well, largely we’re looking for people who have lived in the business function world.”

Another method used by business-change-driving IT organizations to develop necessary capabilities is formal-ized talent management. Almost 90 percent of these or-ganizations, according to our survey, have defi ned multi-ple career paths, such as general management, technology

expert, and project management. And more than 95 per-cent of these organizations have some type of multiyear IT workforce-development plan. Further, almost all of these organizations use resource pools, centers of excel-lence, and competency centers to some extent. Several CIOs said that their organizations have instituted care-fully developed job families and career ladders, specifying

the skills and learning required for each employee to advance along a path that ap-peals to the individual and that addresses the company’s emerging IT-staff needs.

One of the keys to developing an IT work-force plan and ensuring the right capabili-ties is to defi ne the competencies needed and assess how well the IT organization is

positioned with respect to the number of people who possess those competencies. There are several ways to do this. The CIO of a manufacturer, for example, told us that his organization had developed what he calls an “IT compass.” He elaborated, “The compass highlights 20 competencies that we expect IT people to have.” These competencies include the ability to drive value realiza-tion, understand the business environment, drive innova-tion, develop and integrate applications, and manage a range of elements and functions, including enterprise architecture, service delivery, risk, projects, processes, IT assets, relationships, and talent.

This CIO said that by using the 20 competencies, the organization has developed a series of role profi les. For example, in security service delivery, there are role pro-fi les for analyst, senior analyst, specialist, senior special-ist, and manager. According to the CIO, “For every one of those roles, we go across the 20 competencies and ask what level is required. So, for example, for a business IT director, you need mastery across all the business acu-men skills: driving value realization, understanding the business environment, aligning with other functions, and managing relationships. You probably need some profi -ciency and mastery throughout the functional areas. You need mastery in functional leadership. And you need pro-fi ciency in some of the global capabilities.”

Engaging Business Leaders

Finally, our survey found that business executives o en rely on IT for leadership in digitization eff orts. Thus, IT leaders need to be prepared to step up to the task. But a

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More than 95 percent

of change drivers have

a multiyear workforce-

development plan.

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litany of failed ERP, CRM, and other technology-inspired initiatives bear witness to the limitations of IT leadership. If business leaders do not share ownership of both the implementation process and the outcomes, the IT unit cannot bring about a transformation.

Given that they cannot “go it alone,” IT leaders are work-ing to engage business leaders in the types of visioning exercises, governance processes, and business change ef-forts needed for eff ective digitization. Our interviews indi-cated that CIOs are encouraging engagement by delivering IT services effi ciently and eff ectively. These eff orts build credibility and trust. IT organizations that are not provid-ing excellent traditional-IT services (such as infrastructure, applications, and help desk services) are rarely asked to expand their service off erings into business process design, product design, business-transformation program leader-ship, business strategy, and other activities that business-change-driving IT organizations o en take on.

Beyond building credibility, CIOs in companies where IT drives change spend a great deal of time talking with their colleagues on the business side about business op-portunities that might involve IT. These discussions aff ord CIOs some insight into how IT can make a diff erence.

If a CIO cannot generate widespread agreement among business executives on the desirability of a vision and the IT-enabled business changes it requires, any eff orts to increase business process digitization will constitute a lonely, and ultimately disastrous, journey. But CIOs who create demand for increased business process digitization are likely to create critical leadership roles for them-selves—and potentially a powerful competitive advan-tage for their companies.

Jeanne W. Ross is the director and principal research scientist of the MIT Sloan Center for Information Systems Research. You may contact her by e-mail at jross@mit.edu.

Stephanie L. Woerner is a research scientist at the MIT Sloan Center for Information Systems Research. You may contact her by e-mail at woerner@mit.edu.

Stuart Scantlebury is a senior advisor of The Boston Consulting Group. You may contact him by e-mail at extscantlebury.stuart@bcg.com.

Cynthia Beath is a professor emerita at the University of Texas, Austin. You may contact her by e-mail at cbeath@mail.utexas.edu.