extract from modern it leadership

CUTTER CONSORTIUM

Modern IT LeadershipSurviving Chaos and Delivering Value

by Jurgen Appelo, Stephen J. Andriole, Robert D. Austin,

Jason Bates, Martin Bauer, Ron Blitstein, Eric D. Brown,

Robert N. Charette, Moshe Cohen, Christine Davis, Gene De Libero,

Lynne Ellyn, Bob Furniss, Bob Gariano, Pam Hager, Vince Kellen,

Dorothy E. Leidner, Martha J. Lindeman, Tim Lister, Thornton May,

Patrick E. Moroney, Thomas H. Murphy, Ken Orr, Gabriele Piccoli,

Johanna Rothman, Robert D. Scott, Borys Stokalski, and Mark Woodman

www.cutter.com

39

CHAPTER 4

Back to the Future: The Future Roleof the CIO

by Robert N. Charette, Fellow, Cutter Consortium

One of the first modernera CIOs, if not the first, was Bank of America�s

legendary A.R. Zipf. Together with his colleagues, Zipf developed the electronic

recording method of accounting in the early 1950s, and in so doing, not only

revolutionized banking but the IT industry itself. Zipf �s roles and responsibilities

at BofA centered on the automation of laborintensive, jobspecific, functional

tasks, which soon became the same objective of other CIOs across all

industries that followed in his footsteps.

In the late 1970s and into the early 1980s, corporations had completed most

functional tasks that could easily be automated. The role of the CIO shifted

toward automating crossfunctional tasks, as well as replacing or updating

legacy systems to the next generation of information technology. This proved

a much harder and costlier endeavor than many Clevel executives expected

� or CIOs told them to expect. CEOs and boards of directors (BoDs) were not

pleased as a result.

By the beginning of the 1990s, the focus of corporate IT efforts shifted once

more, but this time to interconnecting the islands of automation that previous

automation efforts had created. The step increase in technological and

managerial complexity again increased the costs involved as well as the

likelihood of IT failure, which in turn escalated CEOs� and BoDs� discontent

with CIO performance.

Dissatisfaction with CIO performance grew so intense that some suggested

the acronym �CIO� should stand for �Career Is Over.� At the financial company

Paine Weber, for example, there were eight CIOs hired and fired between

1985 and 1991 alone. A severe recession at the time only intensified executives�

demands on CIOs to deliver value from IT investments. Industry and academic

observers opined that if CIOs wanted to survive, they needed to rapidly

become business managers rather than merely technology experts. As one

economist said in 1991, �If the CIO cannot reduce his own cost structure, then

he is destined to extinction. Information technology has to be directed, bottom

line, to productivity enhancement.�1

CIOs got the message, at least intellectually. A 1992 survey of CIOs by CSC

Index showed that aligning IT and corporate goals was rated as their number

one mission and something that CEOs and the BoDs demanded.2

Let�s fastforward to today.

The current period of financial distress has again placed CIOs under the

spotlight, and they are being asked the same question that their predecessors

from the early 1990s were asked: �What value is our company getting for its

IT investments?� In a bit more déjà vu, the alignment of IT with the needs of

the business remains the number one priority of CIOs, CEOs, and BoDs.3 Why

is it, CEOs and BoDs are asking their CIOs, that after 20 years you still can�t

solve this problem?

And to top off this historical symmetry, this is a period � like the early 1990s �

in which there is a fundamental shift occurring in IT that is as potentially

wrenching as was that era�s move to networked systems and outsourced

systems. The rise of cloud computing, software as a service, social media,

and so on raises the question of who should be responsible for a corporation�s

IT: itself or a third party?

All of this has put the CIO back in the hot seat and prompts us to ask, �What,

if any, is the future of the CIO?�

If CIOs are to have any future, they will need to fundamentally rethink what

their roles and responsibilities are. In fact, I contend that modernera CIOs

have never correctly framed what their roles and responsibilities should be,

which is one of the reasons that ITbusiness alignment remains such a high

priority issue for CEOs and BoDs 20 years after it was first raised. I further

argue that a major reason for this framing error lies in decisions that were

made more than 50 years ago and continue to haunt CIOs today.

Going a Step Back in Time: What Is Automation?

To better understand the predicament CIOs face today, we need to book a

journey back to a period of mostly forgotten but important computing history.

The term �automation� as we use it now is relatively new, etymologically

speaking. The term was coined in 1946 by Del Harder, a VP of production at

Ford Motor Company in Detroit.4 At the time, Ford wanted to rapidly increase

its automobile production to meet the huge, pentup demand for cars that

arose with the end of World War II. To meet the demand, Ford engineers

developed for its huge Rouge Plant an advanced method of mechanizing the

©2010 Cutter Information LLC

MODERN IT LEADERSHIP: SURVIVING CHAOS AND DELIVERING VALUE40

materialshandling process used on its automotive assembly and production

line through the application of conveyors and what Harder called �automation

devices.�5 This new approach proved hugely successful from both cost and

time perspectives. For example, where it used to take 400 Ford workers 40

minutes to machine an engine block, the newly automated production line

required just 48 workers and fewer than 20 minutes.6 �Detroit automation,�

as it soon became known, also became synonymous with any operation that

removed a human decision maker from the production process.7

The concept of automation fired up the imaginations of engineers everywhere.

It rapidly became clear that the fledgling computers of the time might be able

to automatically control the automation process. This was in contrast to the

mechanically based devices used in Detroit automation. In addition, advances

in computer automation technology, especially in the area of processcontrol

sensors such as electrooptical reading devices, were expanding the potential

pool of laborintensive tasks for which �computer automation� could be used.

A major tipping point in the application of computer automation came in the

early 1950s in the US banking industry, which was then in crisis. Americans�

use of checking accounts had exploded after World War II, with some 8 billion

personal and commercial checks being written in 1952 alone. Banks were

finding themselves swamped by the sheer magnitude of the task of manually

processing all these checks. For example, a typical check needed to pass

through two or more banks and be reviewed at least six times before it

was cleared for payment. In some cases, banks were being almost literally

physically overwhelmed with paper checks to process, and, as a result, were

afraid to expand. Making matters worse, the bank personnel who did the

check processing were lowwage clerks who disliked the work � a personnel

turnover rate of 100% was not uncommon at many banks.

Senior managers at Bank of America, then the largest bank in the world

and the one with the biggest problem to solve, were the first to realize that

computer automation might be a solution.8 Beginning in 1950, BofA embarked

on a project to automate check processing, called �electronic recording

machine � accounting,� or ERMA. To automate the manual process of check

processing, BofA had to develop new hardware, new software, and new

business processes.

On 22 September 1955, or �ERMA Day,� BofA announced to the world

what it had done, thereby changing the banking and IT industries forever.

BofA demonstrated how computer automation could be used to transform

whitecollar work, as Detroit automation was doing for bluecollar assembly,

production, and manufacturing work.9

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CHAPTER 4 · BACK TO THE FUTURE: THE FUTURE ROLE OF THE CIO 41

The person credited with ERMA�s success was A.R. Zipf.10 What Zipf had

done at BofA � and equally important, how he did it � was seen as the

prototype for automation of other industries. Zipf was BofA�s chief computer

technology enabler; his job was to enable BofA to make use of the new

computer technology to increase efficiency and reduce its manpower costs.

BofA competitors, who all wished they had thought about using automation

first, soon began hiring technologists to fulfill a Zipflike �CIO� role in their

banks, and the idea of the CIO also quickly spread across other industries.11

Consequently, the expectation (of senior management and others) that the

CIO�s primary role is that of chief computer technology enabler was set early

on and has never left. Andres Fortino of NYU�s Polytechnic Institute suggests

that while the CIO�s role may have expanded since Zipf �s time to include

the functions of strategist, relationship architect, information steward, and

integrator, at the end of the day, if the first and foremost responsibility of being

the technology enabler is not met, the days of a CIO are quickly numbered.

Another Zipf legacy is that the CIO�s view is still primarily aimed (and dictated

by executive management) not at improving the customer�s experience so

much as reducing internal business costs. This inward focus, as I will shortly

argue, is another reason for the short employment longevity of most CIOs.

The final Zipf legacy was that the success of automation was, and still is,

judged on its ability to reduce business operational costs through personnel

elimination. Again, as we will shortly see, this is a false economy.

These three expectations, which are all rooted in the legacy of Zipf and BoA,

are the criteria against which corporate executives still primarily judge the

value of IT and CIOs � to the detriment of everyone.

Risk, Profit, and IT

For the past 20 years, senior executives have complained that IT in their

organizations does not properly support or align with business strategies

and goals, and that this situation is mainly the CIO�s fault. This view displays

a surprising lack of understanding by both senior executives and CIOs about

what automation actually does.

Even before BofA completed ERMA, the late management theorist and

economist Peter Drucker was defining what automation truly meant, as

opposed to the colorful descriptions in popular newspapers and magazines

of the time that depicted automation as �pushbutton factories� run by giant

electronic brains. According to Drucker:12



n Automation is not about computers (or any machine for that matter); it is a

concept of how to organize work.

n Automation does not require computers to work; it can work �perfectly

well� without them. Computers are a result of the process of automation,

not its cause.

n Automation is about information and how it is used to make decisions

(by humans or other computers).

n Automation adds value to information, which means that whatever

(or whoever) is using that information must possess the (increased) skills

to make use of it.

n Automation does not eliminate people; it just shifts them to other

informationintensive related work. BofA may have reduced the number

of lowskilled check processing clerks it had, but it also had to increase

the number of highly skilled programmers it hired.

Having this conceptual understanding of automation was important if

computer automation was going to be used to its full business potential,

Drucker wrote. But reaching that potential meant a number of misconceptions

about business also needed correction. First and foremost, he said, the only

valid purpose of a business is to create a customer, which is done by offering

something of value that someone desires.13 But what does value mean?

Exchanging Risk and Opportunity

Here we need to consult the seminal work of economist Frank Knight, found

in his pathbreaking 1921 book, Risk, Uncertainty, and Profit.14 What Knight

showed was that all exchanges of goods and services are exchanges of risk

and opportunity between parties to the exchange. For instance, a supplier of

a good takes on the risk (i.e., makes the investment in time, money, people)

to offer that good for sale. Customers will buy that good if it represents a lower

risk than making that good themselves (i.e., making the investment in time,

money, and skill needed to duplicate the good being offered). In other words,

a supplier of a good or service eliminates or mitigates the risk of its customers.

Profit, therefore, is the payment received for taking on the customer�s risk.

The greater the risk reduction, the greater the potential profit to be made.

We can take this notion a bit further and categorize what is exchanged as

being investments in information, control, and/or time.15 For example, let�s

say I need to understand the feeding habits of the great apes. I could travel

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to Africa, then journey to where the great apes live, set up camp, and do my

research. Of course, this presupposes I actually know something about great

apes and their feeding habits. On the other hand, I could, say, buy a book by

Jane Goodall and read about it. She has taken on the risk caused by my lack

of information, control, and time all for a potential cost of $19.95 to me. On

the other hand, if I am interested in the feeding habits of Amazonian parrots,

Jane Goodall can�t help me. In this instance, her risk will not be rewarded.

Returning to automation again, if the fundamental purpose of a business is

to create a customer, which it does by reducing its customers� risks, then IT�s

ultimate purpose must be to help a business create a customer by reducing

those customers� risks. In BofA�s case, automation was used to reduce BofA�s

internal strategic, operational, and financial risks. However, it did little directly

to lower its customers� risks � those risks that were mitigated were more of

an afterthought.

If we were to take a look at how automation has generally been applied in

business and, especially, government, we can see that its focus � with a few

notable exceptions � has been on reducing internal organizational risks.16

Only with the advent of the Internet are customer risks coming more to the

fore in terms of what automation should be used for. I will discuss this a bit

more later.

This focus on using automation to support only part of the exchange of risk

and opportunity � namely, the supplierside risks � helps explain why the

ITbusiness alignment disconnect still persists in corporations. By focusing

primarily on reducing internal organizational risks (primarily financial ones),

CIOs are missing the other half of their job � using automation to reduce

their customers� risks.

Clevel executives contribute to the disconnect because they don�t explicitly

focus their corporation�s IT operations on reducing their customers� risks

either. One can see this whenever corporations get into trouble; the first

thing they do is call for internal cost cutting, usually by the IT department,

not investment in the creation of new products.17

Some companies do understand. Apple has such innovative products and

services as the iPod, iTunes store, and iPhone. What makes them innovative?

Each reduces � and continues to reduce � their customers� risks. Notice

how each product individually as well as collectively gives Apple customers

the information they want, under their control, quickly, and at a price they find

acceptable. Apple is very good at reducing the three root causes of customer

risk: the lack of information, control, and time.



Mayo Clinic�s Dr. Henry Plummer: The Model of the Future CIO

Another organization that focuses relentlessly on reducing its customers� risks,

in Drucker�s sense, is the worldfamous Mayo Clinic in Rochester, Minnesota,

USA. It has been doing so since 1892, and it has been using automation for

that purpose almost as long.

The Mayo Clinic was founded by the brothers Dr. William J. Mayo and Dr.

Charles H. Mayo with a philosophy that was unique for its time:

n The interests of the patient always come first.

n A patient�s symptoms or disease has to be treated as a whole.

n Only the combined wisdom of one�s peers can make the first two

objectives come true.

One of the first doctors to be hired into the Mayo Clinic was a young man

by the name of Henry Plummer. In my opinion, Plummer was the first real

CIO of the 20th century. Why? Plummer recognized that if the Mayo brothers�

dictums were going to be carried out, then the medical history of each Mayo

Clinic patient needed to be recorded, stored, and retrieved in a different

manner than was the current practice.

For example, when a patient first visited the clinic, a Mayo doctor would write

up his medical notes in the currently active patient ledger book. On a patient�s

later visit, the treating physician would need to unearth the ledger book in

which the patient�s first visit notes were entered, find where in the ledger book

the notes were written, and then append new information underneath the first

entry. If there wasn�t enough room, the doctor wrote his notes in the margins

of the page.

Adding to the problem was that different medical departments had their own

ledger books to record their interactions with the patient. Naturally, creating �

and especially retrieving � a medical record was an awkward process that

kept a doctor from having the information necessary for the complete

understanding of a patient�s medical history.

To address these issues, Plummer developed a new method of organizing

patient records called a �patient dossier.� Now, instead of a ledger, each

Mayo doctor would record all aspects of a Mayo patient�s visit in a single,

comprehensive file that was forever linked to the patient through a unique

registration number. Whenever a patient left the clinic, the patient�s file was

stored in a central file repository until the patient returned, whereupon it

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would be retrieved, possibly years later. This system provided a means for

maintaining continuity of a patient�s care.

The benefits of Plummer�s system were so evident that soon his approach to

maintaining medical records became the worldwide standard of the medical

profession. His innovations worked very well in large hospitals and small

doctor offices alike, giving doctors nearly a complete longitudinal record of

a patient�s medical history.

To increase the value of patient information further, Plummer helped design

a building in which all clinical medicine departments, laboratories, and the

business office were brought together in one place. Plummer devised an

�information network� inside the building consisting of conveyors and

pneumatic tubes to more quickly retrieve patient information from the

central repository. The mechanical network transported patient and other

administrative information throughout the Mayo Clinic�s various offices and

medical departments. Plummer later devised a medical search indexing

method so that the information contained within a patient�s file could, with

permission, be used to assist in advancing diagnostic research.

It is easy to see that what Plummer did was to automate (in Drucker�s sense)

the Mayo Clinic. Plummer organized the clinic�s work differently, did so

without computers, increased the value of information for decision makers,

optimized the skills of the clinic�s doctors, and allowed them to enhance their

skills and knowledge by enabling them to conduct breakthrough research.

Each effort was aimed at reducing the information, control, and time risks

of Mayo patients as well as those of their doctors.

Throughout Plummer�s lifetime, he and the other doctors at the clinic worked

diligently to try to reduce the medical risk faced by Mayo Clinic patients. Mayo

continues to pioneer medical research, education, and the use of automation

to this day. For instance, Mayo Clinic was one of the first to embrace electronic

medical records as way to increase the quality of patient care by reducing the

problems associated with paperbased medical records. Interestingly, the

�CIO� who is in charge of the electronic health records system is a practicing

Mayo doctor. The Mayo Clinic believes that those applying the technology

should be significantly involved in developing it as a way to, again, reduce a

patient�s risk and increase their quality of care.

Following Plummer�s legacy of innovation, the Mayo Clinic in 1994 began

implementing its Mayo Integrated Clinical Systems (MICS) electronic medical

record system, which became fully operational in 2004. Mayo�s system

supports over 1.5 million outpatient visits and 60,000 hospital admissions every

year; some 15,000 care providers and support staff use the system. MICS also



contains more than 14 million electronically accessible notes and 200 million

laboratory results. An additional 55,000 clinical notes are added to the system,

and 125,000 outpatient orders are made electronically for diagnostic tests,

medications, or consultations every week.

There is little talk at the Mayo Clinic of the problem of ITbusiness alignment

or about whether IT creates value for the clinic. I don�t believe that the Mayo

Clinic has ever had to fire a CIO.

The Future Is Actively Creating the Next CIO Now

It would have been very interesting to see how the history of computing

unfolded if the model of the modern CIO had been based on Plummer

rather than Zipf. Would we still be discussing ITbusiness misalignment

or the continual need to prove IT�s value? I tend to think not.

If CIOs want to survive into the future, they will need to think of their job

in terms of reducing the information, control, and/or timerelated risks of

their organization�s customers, and wherever necessary, to remind senior

management that this is their primary job as well.

Luckily for CIOs, this is likely to happen naturally. Cutter Fellow Stephen

Andriole persuasively argues that technology has been �commoditized,

consumerized � and [has] left the building,� as he cleverly states it.18 In

other words, information that used to be under the purview of corporations

and governments has been democratized, and as a result, consumers are

now able to manage the root causes of their risks better than ever before

without the need of corporations or governments. Overcoming the lack of

information to make intelligent risk decisions, for instance, is much easier

today because of the Internet and, more recently, the growth of social groups.

This means that corporations everywhere will need to work harder than

ever to achieve Drucker�s objective of creating a customer. They will have to

provide much more valueadded information to customers and/or focus their

efforts on reducing their customers� control or timedriven risks. Profit �

which, remember, is the payment for mitigating a customer�s risks � is going

to be increasingly difficult to generate.

Andriole also points out that the new business technology alignment

opportunity is through shared or participatory governance, which entails

negotiating shared risk and rewards between corporations and their

customers. This concept, interestingly enough, underlies the Mayo Clinic

model. It is one of the reasons why the Clinic is pushing hard for a national

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electronic health record system based on its founders� operating principle

that increasing the quality of patient care will take all of the nation�s health

professionals acting together as one. The more information there is available,

the more control over healthcare there will be, and thus less time (and money)

will be spent on treatments that aren�t effective.

CIOs would be wise to take the advice of Dr. Emmett Brown, the timetraveling

scientist from the movie Back to the Future, who said, �Your future hasn�t been

written yet. No one�s has. Your future is whatever you make it.� Beginning by

studying the past and understanding how it has handcuffed the present would

be a good place to start.

Endnotes

1Rifkin, Glenn. �Heads That Roll if Computers Fail.� New York Times,

14 May 1991.

2Champy, James. �Mission: Critical.� CIO, January 1992, p. 18.

3Economist Business Unit. �IT Transformation: Creating a Strategy for Success.�

Economist, August 2008.

4The first person now generally credited with the actual term was Nikola Tesla,

who coined the word �teleautomaton,� or remotely controlled automatic

figure or object, in 1893. It never caught on.

5Myer, Steven. �An Economic �Frankenstein�: UAW Workers� Responses to

Automation at the Ford Brook Park Plant in the 1950s.� Michigan Historical

Review, Vol. 28, 2002, pp. 6389.

6Cabadas, Joseph. River Rouge: Ford�s Industrial Colossus. Motorbooks

International, 2004.

7I should note that the mechanization that occurred during the Industrial

Revolution 100 years earlier substituted mechanical power for human

and/or animal power. �Automation� was coined as a way to distinguish

it from mechanization; automation removed a human completely from a

part of the process and its control. The current robotics movement toward

autonomous control aims at removing the human completely from the

process as well as substituting computer control for human control.

8Fisher, Amy, and James McKenney. �The Development of the ERMA Banking

System: Lessons from History.� IEEE Annals of the History of Computing,

Vol. 15, No.1, 1993, pp. 4457.



9It didn�t take long for bluecollar automation to switch over to the use of

computers.

10S. Clark Beise, senior VP of BofA, thought of the idea of automating check

processing.

11It is unclear when the term �chief information officer� came to have its

present meaning. In Zipf �s day, the CIO was a term used to describe the

company�s spokesperson.

12Drucker, Peter F. The Practice of Management. Harper & Row, 1954.

13Drucker. See 12.

14Knight, Frank H. Risk, Uncertainty, and Profit. Hart, Schaffner & Marx, 1921.

15Charette, Robert. Software Engineering Risk Analysis and Management.

McGrawHill, 1989.

16How often does one encounter a situation where the customer is treated

by an automated system as though he or she was incidental? The attitude

of the IT systems designer seems to be that everything would work well if it

wasn�t for the pesky customers. This happens within corporations as well.

17Unfortunately, government has this habit, too. In the UK, for example, the

government is counting on IT to reduce the cost of government, while at

the same time, it is reducing the IT funding necessary to accomplish this.

See Mari, Angelica, �Government Looks to IT for Cost Cutting,� Computing,

9 December 2009.

18Andriole, Steve. �Business Technology Governance � Now and Forever:

Why the Pendulum Finally Stops Swinging.� Cutter Consortium Enterprise

Risk Management & Governance Executive Update, Vol. 6, No. 10, 2009.

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