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REINVENTING CORPORATE IT

FROM THE HBR.ORG INSIGHT CENTER “REINVENTING CORPORATE IT” | II© 2013 Harvard Business Publishing. All rights reserved.

REINVENTING CORPORATE IT The HBR Insight Center highlights emerging thinking around today’s most important business ideas. In this Insight Center we’ll explore the radical new era that corporate IT is entering. Major new developments—cloud computing, big data/analytics, mobile technology, increasingly complex supply chains, a globally distributed workforce, etc.—mean that CIOs and their staffs are being asked to support businesses in very different ways. We’ll discuss what they must do now to adapt.

1 A System for Speaking IT Truths to CEOsby Robert Plant

3 Shadow IT Is Out of the Closetby Jill Dyche

5 Three Ways to Make Your IT More Nimbleby Brad Power

7 The Metamorphosis of the CIOby Jim Stikeleather

9 How to Compete When IT Is Abundantby Aaron Levie

11 The CIO in Crisis: What You Told Usby Jim Stikeleather

13 You, Too, Can Move Your Company Into the Cloudby Nathan McBride

15 CIOs Must Lead Outside of ITby Martha Heller

16 IT Cannot Be Only the CIO’s Responsibilityby Donald A. Marchand and Joe Peppard

17 Exploit IT for Strategic Benefitby Jeanne Ross and Cynthia Beath

19 Why Can’t a CIO Be More Like a CFO?by Deborah H. Juhnke

21 Is Your Organization Ready for Total Digitization?by Peter Weill and Stephanie Woerner

23 Are We Asking Too Much of Our CIOs?by Terri L. Griffith

24 The Real Power of Enterprise Social Media Platformsby Michael Schrage

25 Today’s CIO Needs to Be the Chief Innovation Officerby Daniel Burrus

27 The Future of Corporate IT Looks a Lot Like Googleby Jeanne G. Harris, Allan E. Alter, and Kelly L. Dempski

29 Platforms Are the New Foundation of Corporate ITby Mark P. McDonald

31 Should Your CIO Be Chief Digital Officer?by George Westerman

33 Avoiding the Schizophrenic IT Organizationby Donald A. Marchand and Joe Peppard

35 Move Beyond Enterprise IT to an API Strategyby Thomas H. Davenport and Bala Iyer

36 How IT Professionals Can Embrace the Serendipity Economyby Daniel W. Rasmus

38 IT’s C-Suite Problemby Andrew Horne and Brian Foster

39 The Building Blocks of Successful Corporate ITby R. “Ray” Wang

40 IT on Steroids: The Benefits (and Risks) of Accelerating Technologyby Bent Flyvbjerg and Alexander Budzier

42 IT Has to Deliver Great Tools—and Teach People to Use Themby Andrew Horne and Brian Foster

43 Google’s CIO on How to Make Your IT Department Greatby Walter Frick

45 The New CTO: Chief Transformation Officerby Daniel Burrus

46 IT Doesn’t Matter (to CEOs)by Robert Plant

48 A Board Director’s Perspective on What IT Has to Get Rightby James I. Cash, Jr.

50 C’mon, IT Leaders. Take a Chance! by Jim Stikeleather and Sanjib Sahoo

52 Yes, Managing IT Is Your Jobby Brad Power

54 IT Governance Is Killing Innovationby Andrew Horne and Brian Foster

55 CIOs: Scenario Planning Can Save Your Job

by Daniel W. Rasmus

57 Do You Have the IT for the Coming Digital Wave?by Didier Bonnet

59 Webinar Summary Making the Leap: Creating the Next Generation CIOFeaturing Terri L. Griffith, Ph.D.

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FROM THE HBR.ORG INSIGHT CENTER “REINVENTING CORPORATE IT” | 1© 2013 Harvard Business Publishing. All rights reserved.

A SYSTEM FOR SPEAKING IT TRUTHS TO CEOSBY ROBERT PLANT

It was while my father was very sick last year that I learned some-thing important about telling painful truths.

Toward the end of his life, he was taken care of at a hospice, a world that was new to me. I was impressed by the way he was treated there—like a human being, not a product in a factory—and by the staff’s approach to delivering bad news. There’s a lot of bad news in a hospice setting, and it’s delivered in a straightforward yet thoughtful manner that defuses the anxiety and even eases some of the pain.

I was curious about the doctors’ and nurses’ skill at speaking about difficult matters, and in response to my questions the staff intro-duced me to the small but growing literature on palliative care. I came to understand the reason for a phenomenon I had been aware of for years: CIOs who are MDs tend to be much better at stating unpleasant truths about IT systems than are nonmedical CIOs. It’s because, as doctors, they’ve been trained to speak truthfully in fraught situations, and some of them have had a lot of experience delivering bad news to patients. One of my MD-MBA students told me he had done more than 50,000 colonoscopies, each of which inevitably required delivery of news—sometimes good, sometimes bad. Over my 15 years of teaching a course on IT in health care, I’ve seen that for CIOs who are MDs the skill of delivering difficult mes-sages becomes part of their tool set for communicating effectively with senior management.

One of the protocols that’s used for teaching medical students how to break bad news goes by the (perhaps unfortunate) acronym SPIKES (setting up the interview, assessing the patient’s perception, obtaining the patient’s invitation, giving knowledge, addressing the patient’s emotions, and establishing a treatment strategy). I was so taken with it that I’ve adapted it for my exec ed classes to help CIOs learn how to speak difficult truths more easily and effectively.

Believe me, this skill comes in handy in the chief information offi-cer’s line of work: CIOs often have to tell CEOs that the large portfo-lios of legacy applications driving corporate operations are bound to fail sooner or later and need to be replaced. CEOs don’t want to hear that. They want to believe that companies have better things to do with their money than change what appear to be stable and well-functioning systems. They haven’t learned the lesson of Comair, whose legacy crew-scheduling software failed on Christmas Eve

2004, costing the company $20 million and stranding 200,000 pas-sengers when 3,900 flights were delayed or canceled.

Here’s my seven-step adaptation of SPIKES for CIOs who need to find the words to tell the boss that those legacy applications are disasters waiting to happen (sorry, no cute acronym):

1. Understand the CEO’s perceptions. Determine the CEO’s grasp of the legacy systems issue in order to make the business case for change. CIOs need to engage with the CEO’s informal influencers to gain insights into the visibility of this topic in the C-suite. Addition-ally, CIOs should review all prior presentations to the board and the CEO involving the systems in question. Was a risk assessment pre-sented? What were the areas of focus—technical, process, human capital, risk? What actions were taken? What was the effect?

2. Hold the calls. Although doctors sometimes have to interrupt sensitive meetings to respond to emergencies, it’s preferable for bad news to be delivered in one uninterrupted, focused session (which I learned directly from the palliative care literature and SPIKES). The CIO needs to work with the CEO’s PA to ensure that a sufficient amount of time is available for the meeting; that there will be only one agenda item; and that there will be no diversions, phone calls, or interruptions.

3. Enlist a business ally. The bad news usually isn’t one-dimen-sional; if a technology is out of date, the processes being used by the workforce are probably outdated too. So rather than present the problem as a technical matter, which would reduce it to the level of a help desk issue in the minds of many executives, make it a busi-ness problem. Enlist the advocacy of a senior member of the busi-ness unit that would be most threatened by any outage, down time, or lack of opportunity caused by the system. Bringing in a colleague from the business side will show that alignment issues have been considered and that the issue goes beyond the data center.

4. Stick to the facts. Rather than try to educate the CEO about tech-nology, focus on the portfolio of risks associated with the legacy system. Failure rates, costs associated with down time, the number of companies using this version of the system, the time since the system was supported by a vendor, the number of staff people who understand the whole system, and the status of the original vendor are examples of data points that, if delivered with clarity, can pre-vent the issue from being placed on the back burner.

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5. Don’t improvise. Avoid the temptation to develop “what if” sce-narios on the fly. Prepare a set of best-, typical-, and worst-case scenarios in advance and bring them out if requested. Developing vague scenarios only weakens the impact of the presentation.

6. Insist on immediate action. While it is best to avoid telling the CEO how to perform his or her job, it is important that the meeting be infused with a sense of urgency and that a time line for correc-tive action be presented.

7. Have a clear next step. The goal is for the CEO to make solving the problem a priority and place the issue on the “must do” list for execution. Have a specific plan for getting to the goal.

CIOs can take a lesson from the doctors and nurses who so compas-sionately took care of my father during his last days. Encouraging unrealistic optimism through falsely upbeat messages may appear to ease the patient’s suffering in the short term, but it only makes things worse in the end. For CEOs as well as for patients and their families, truth is a kind of medicine.

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SHADOW IT IS OUT OF THE CLOSETBY JILL DYCHE

Five years ago, “shadow IT” efforts were the dirty little secret of organizations. An impatient marketing or finance manager would, on the sly, secure some extra budget money and hire a contractor to build a little database that tracked mailing addresses or top-line financials. Slowly but surely, as the little database grew bigger and bigger, the manager would wedge the cost into his or her operating budget. Other managers might take notice and start building their own databases. Then came the cloud, which only heightened frus-tration with IT’s lack of velocity in delivery, and managers flocked to outside vendors to automate various business processes, from customer relationship management to supply chain reporting to social media analytics.

Now shadow IT has burst out of the closet and is waltzing around the corporation, leaving IT departments rushing to do damage con-trol. Lines of business are now getting their own official technol-ogy budgets for nonstandard software products. Departments can automate a business process in the time it would take to enter IT’s development pipeline. Shadow IT has been freshly labeled “depart-mental IT.”

It’s not as if IT departments aren’t busy. It’s just that they’re often busy doing what they’ve always done, maintaining operational systems while reacting to the demands of an increasingly tech-savvy user community. Cumbersome legacy system maintenance, hardware and software upgrades, and tire-kicking in the name of research take up far too much of IT’s time—time that could be spent building valuable business applications. Show me an IT depart-ment at a 30-year-old Fortune 500 company and I’ll show you a large group that is supporting increasingly costly, outdated, and unwieldy infrastructures with no time to focus on driving revenues and enhancing the company’s brand.

How do we change this? Should it even be changed? Have business units earned the right to assume traditional IT work? These questions will confront executives within and outside IT for the remainder of the decade as corporate governance extends to IT expenditures.

Understanding the Skepticism

To understand how the IT department has lost its way, it’s impor-tant to understand how the rest of the organization views its activi-ties. The chart below characterizes four types of IT efforts.

The bottom left quadrant connotes building and maintenance work required for large systems from proprietary billing systems

to legacy mainframe applications. Businesspeople view these ini-tiatives skeptically, considering them “black holes” where money goes in and nothing comes out. In the upper left quadrant are the multiyear rollouts, like large enterprise resource planning or sup-ply chain modernization endeavors. While these can streamline business processes, they often become bloated, delivered late and over-budget—reinforcing the organization’s negative view of the IT department.

Conversely, in the lower right corner, a range of smaller yet well-bounded work efforts usually fall under the rubric of departmental solutions, and can be delivered quickly. They’re simpler to imple-ment than their enterprise-wide counterparts and businesspeople see them as worthwhile and cost-effective. A large insurance client of mine recently added a new data visualization tool to its business intelligence tool box. The displays are so fresh and intuitive that even business users wed to their spreadsheets have been request-ing the tool.

Finally, even large projects can be broken up into what a banking client of mine calls “human bites.” Such projects may ultimately be significant in scale, but have been scoped into discrete units of delivery. Done right, these have the power to win over skeptics, but all too often they lose momentum or offer additional lightweight technical functionality that is meaningless to businesspeople

Of course there’s another side to this story. IT departments are constrained by budget cuts and hamstrung by often-outdated par-adigms of executives who care more about keeping the lights on than automating new processes or adopting friendlier user tools. CEOs remain reluctant to invite CIOs to the executive table, insist-

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ing that IT is a cost center, not the innovation incubator it could be. Case studies on companies that have failed to invest in IT innova-tions, and on the resulting business impacts—usually disastrous—abound.

As CIOs pitch new IT projects and their teams undertake delivery, cost and effort estimates can vary wildly. The risk of overinvest-ment, miscalculated scopes, or inflated costs is proportional to an initiative’s projected value.

IT as Process Creator

One solution is to begin applying a structured taxonomy to pro-posed IT initiatives based on quantifiable metrics like complexity, breadth of need, and return on investment. Categorizing projects in a sustained and structured way can inform development pro-cesses, resource decisions, new vendor conversations, and hiring strategies.

The COO of a specialty retailer recently led his IT and operations teams in a series of facilitated workshops to determine success measures for 47 proposed initiatives. Out came a scoring process the teams could use to prioritize and budget new projects. The result? Executives no longer needed to probe about why certain projects were approved while others were mothballed—the choices were based on weighted measurements.

Another answer is to extract money—say, 10%—from existing infra-structure budgets and apply it to new technologies and focused innovation. This approach unleashes investments around nonstan-dard toolsets that could be rapidly deployed, gradually fostering a culture of innovation.

Finally, changing central IT’s role can generate widespread support. IT can transform itself from “we build everything” to “here’s how to build it,” and thus be viewed as a competency center focused not on technology but on process creation and refinement. IT deliv-ering straightforward development methodologies to business departments, and coaching them on how to build their own sys-tems, streamlines deployment, ensures domain expertise, eases organizational tensions, and drives economies of scale.

Such changes aren’t easy. But amidst continued funding battles and organizational alignment struggles, they might make things easier than they are today.

FEATURED COMMENT FROM HBR.ORGI find Jill’s article and the posts some of the best I’ve

read/seen on this topic. It will be interesting to see where this goes. —Warren

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THREE WAYS TO MAKE YOUR IT MORE NIMBLEBY BRAD POWER

If you want to improve how your organization develops, delivers, and supports its products or services, it’s hard to avoid changes to the information systems that enable those processes. Yet I often see organizations that try. Why? Because they have suffered from delays and high expenses in changing information technology, some choose a manual workaround that is less efficient. Others believe they should first streamline a broken process and only then make changes to information systems, if still necessary.

IT can make business processes much more efficient, and lock in process improvements. Yet IT can also limit speed and flexibility. Companies like CSX, Morningstar, and IBM show how IT can be more friend than foe to process changes.

To highlight these issues, let’s consider a large, multinational energy company that has spent billions of dollars in the past six years to implement global standard processes across more than 100 countries in its “downstream” business (refining and retail). The company has built its standard processes for making and fulfilling customer orders on standard information systems. These standard systems forced business units around the world to adhere to new policies and “best practices.” The new system also provides top management with operational performance data across countries, such as the percentage of “perfect orders”—those delivered on time, in the correct quantity, and with a correct invoice.

But this new IT platform could easily put the brakes on the com-pany’s next round of process improvements. Executives must rec-oncile a range of global requirements from over 100 countries into a single software system, where before they previously had one for each country. Then, the IT organization needs to roll out releases and support a consistent global platform.

How can IT organizations be responsive when their companies need to improve business processes to answer customer needs and seize market opportunities? And how can organizations do this over the long haul, not just for a moment in time?

I see three ways an IT organization can be highly responsive to managers who must make process changes:

1. Have a highly collaborative working relationship with process improvement leaders, and adopt their techniques. At CSX, the $11 billion railroad, the Operations Process Excellence group has a collaborative relationship with the IT group. Assistant Vice Presi-

dent John Murphy told me that CSX’s process improvement leaders have found that by documenting processes and using “lean tech-niques”—the voice of the customer, demand management, just-in-time, level scheduling, small lot sizes, mixed model production, and cross-training—the IT organization can implement technology changes faster.

2. Prioritize IT resources to be able to make process changes quickly. Anu George, chief quality officer at Morningstar, a leading provider of independent investment research, explained this to me. “Technology is integral to our business. Our operations, quality, and technology teams work very closely with each other to drive process improvements that enhance the overall customer experi-ence. For instance, we recently developed a customized interface to improve the quality of our investment criteria write-ups, which took about two to three months. Barring huge system overhauls or migrations, our IT developments happen fairly quickly.”

But in having adequate IT resources to make system changes quickly, Morningstar isn’t typical. Most IT organizations are over-run daily with excess demand for their services. And many are faced with repeated urgent demands that create a culture of fire-fighting and leave only 10% of their resources for process improve-ment initiatives.

To free up more resources for process improvement, IT organiza-tions could apply improvement techniques internally, as CSX did. A large, diversified energy company reduced its nondiscretionary IT costs from over 80% of its IT spending to 60% in three years by employing much more rigorous governance of minor projects, elim-inating the “IT walkup” window, and establishing consistent vendor service levels and better deals. The result: It unleashed many mil-lions of dollars to support critical process improvement projects.

3. Build an IT infrastructure that makes changes easy and turns over control to line managers. The IT organization can design applications in ways that allow them to be changed more easily. It can also give users web applications, data, and analytical tools so they can manage processes themselves. Susan Watson, vice presi-dent of enterprise process simplification at IBM, is responsible for driving best practices in business process management across this $107 billion business spanning 170 countries. “In my current job as process transformation leader, I’m focused on how IT technologies can enable process changes,” she told me recently. For example,

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IBM today uses software that lets business users make pricing changes in proposals in hours or days instead of the weeks it used to take when changes had to be done as an IT project. “We now have a set of pricing business rules, and business users have control to quickly change prices,” Watson said. The system was rolled it out to 32 countries in a few months. “New technologies are enabling us to give the business back to the business. That is key to our ability to transform.”

What ways have you seen IT groups become more responsive to business process changes?

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THE METAMORPHOSIS OF THE CIOBY JIM STIKELEATHER

As we all know, the very nature of the enterprise is changing. This is the result of the rapid shifts that have been occurring in the busi-ness world over the past few years—the commoditization of goods and services, the individuation of value, the transformation of the workforce—which I discussed in my previous blog post. In order to keep up with these changes and to succeed, future enterprises will need to have three clear characteristics: they will be socially enabled; they will operate as digital business ecosystems, offering innovative services and products as rapidly and inexpensively as possible; and they will view innovation not as an optional advan-tage, but as the only advantage.

This is very different from the way large businesses have operated for decades. Originally, business consisted of neighbors exchanging the products of their labors, dedicated craftsmen travelling from town to town, and localized general stores. Eventually, businesses became department stores, specialty stores, and malls, and finally, today’s e-businesses and networked organizations that support them. Traditionally, they have been hierarchical, fixed, integrated, transaction-based, and risk-averse. Only a small percentage came up with anything that was truly innovative.

Tomorrow’s businesses will have a very different makeup, and the CIO must lead the charge in the face of these changes. As Erik Bryn-jolfsson said, to succeed in the future, “We must reinvent our orga-nizations and our whole economic system.”

What does it mean to be a socially enabled enterprise?

Companies are comprised of business units, work groups, com-munities of practice, and alliances with suppliers, partners, and customers. The role of management can be broadly thought of as controlling the processes that tie these components together to produce value. Until now, the goal has been to standardize and optimize transactions among these components to reduce costs and achieve efficiency. Most of these benefits have been achieved.

Now, management needs focus on enabling and optimizing the connection, communication, and collaboration among employees, customers, and partners. As those new dynamic business networks form (and dissolve), management moves from trying to plan and direct them toward preparing and mentoring them on the chal-lenges the business faces; from staffing and controlling them to engaging their participants and framing their interactions; from imposing structure and authority to encouraging activity and direc-tion to emerge.

This will lead to new business models, new processes, more mean-ingful business interactions, innovation, improved and faster deci-sion-making, and a more agile organization. Companies that fail to facilitate these interactions will stagnate with old processes and strategies, and eventually fail.

What does it mean to operate in a digital business ecosystem?

A digital ecosystem is a business community of organizations and individuals transacting across a distributed, adaptive, open, social, technical system with collaboration, transparency, constant evolu-tion, self-organization, scalability, and sustainability. This is not a new idea. Each participant focuses on its customers (including members of the ecosystem) and what it does best, while distrib-uting all other enterprise activities dynamically and fully to other participants, so participants can deliver value to each other’s cus-tomers with rapidity and agility. In the same way that markets have always outperformed command economies, the transactional effi-ciencies possibly lost are more than made up for by the ecosystem’s value effectiveness.

Digital business ecosystems dynamically create and operate value chains that extend their participants’ markets. This allows the smallest of firms to compete globally with the largest of firms. The European Commission believes that digital business ecosystems are critical to Europe’s future competitive ability, and the key to realizing “this promise of fostering the development of those tech-nologies, systems, applications, and services that are critical to achieving higher growth, more and better jobs, and greater social inclusion.” Also, the concept of digital business ecosystems has drawn more academic, business, economics, process, scientific, mathematic, systems theory, and engineering attention than has any other business idea.

What does it mean to view innovation as the only competitive advantage?

The nature of competition is changing. With the evolution of cloud computing, even the smallest, least-funded organization in an out-of-the-way town can appear and deliver like the largest. Any need or demand can and will be met faster than ever. Traditional economic frictions and barriers to market entry are disappearing. The downplayed downside of this convenience is that there is usu-ally no long-term profit from such ventures.

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When enterprise value propositions are racing to the bottom, to commodization, and to the limits of efficiency-driven margins, there is one form of profit left: monopoly profits. Those moments in time when you have an offering that no one else has—a unique value proposition. Such propositions come from innovation. This is why innovation is so important and takes up so much room in press and annual reports. Innovation is the key to the future—inno-vation in business models, business processes, and products and services. Only innovation can break the chains of commoditiza-tion that a global and frictionless economy encourages. Innovation is the only insurance against irrelevance. It’s the only antidote to margin-crushing competition, the only hope for outperforming the economy, and the only way to truly amaze and delight your cus-tomers.

The Rise of the CIO

CEOs don’t think CIOs understand the business and how to apply IT in new ways to benefit the business. CIOs must become aware of the changes in the business world and the enterprise and how these changes are affecting the roles in the C-suite and their own leader-ship roles. They must then help lead the enterprise’s evolution to a socially enabled environment and a digital business ecosystem, and provide the platform upon which innovation is encouraged, nurtured, and manifested.

But CIOs also need to not get caught up in the technology trap. Changing technology alone will not cause the changes discussed here; changing management will. The CIO’s role becomes one of helping management change by supplying vision, direction, and supporting technology. Gary Hamel asserts that management inno-vation is the critical component and starting point for all innova-tion—in terms of operations, technology, product, strategy, etc. He also identifies many validating examples, including the history of consistent military competitive advantage: those able to break with the past and imagine new ways of motivating, staffing, train-ing, and deploying warriors. The key is not size, scale, technology, tactics, or strategy—though each provides a transient advantage for a short time. Adaptable, agile management above all sustains com-petitive advantage.

The contribution of CIOs to all this is to rise up and enable, facili-tate, and accelerate its uptake by their organizations. It is the CIO who is the one person in the organization to best understand how the organization operates, since every transaction passes through his or her systems. It is the CIO who best understands where the technology is going and how it can be applied, both to develop new methods for generating existing value, and to rework old methods to generate new value. Therefore, it is the CIO who should guide and mentor the rest of the organization into its 21st-century model. In the last post of this series, I will explore how exactly the CIO should begin this process.

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HOW TO COMPETE WHEN IT IS ABUNDANTBY AARON LEVIE

“You only gain an edge over rivals by having or doing something that they can’t have or do,” wrote Nicholas Carr 10 years ago in his controversial HBR article “IT Doesn’t Matter.”

Carr predicted that an organization’s ability to compete through investing in information technology was about to change dramati-cally. When “the core functions of IT—data storage, data processing, and data transport—have become available and affordable to all,” he wrote, IT would cease to be a source of competitive advantage.

This was not yet reality at the time of Carr’s article. The IT boom of the 1980s and early ’90s had brought information technology to the corporate masses, unleashing the first full-scale technology revolution in the enterprise. To stay competitive, businesses rapidly embraced PCs, and the subsequent transition to the client/server era.

The original IT department was formed to centralize a unique expertise that could purchase, implement, and manage technology in the enterprise. And given the complexities involved in building up competitive IT weaponry, businesses won by outspending and out-resourcing their opponents. Only the largest of enterprises could afford the best technologies, and even for those with the larg-est bank accounts, IT strategies were limited to basics like CRM, ERP, or e-mail.

Today, though, Carr’s prediction is coming true. We’re in the early days of yet another seismic shift in IT, this time driven by mobile devices, the cloud, and a demand for technology experiences that match the simplicity of the consumer world. We are moving abruptly from an era of IT scarcity to one of abundance.

This end of IT scarcity begs an interesting and important question. How do companies differentiate in a world where access to technol-ogy is no longer a competitive advantage?

Information Eats the Enterprise

With the swipe of a credit card, the customer support team can move to Zendesk or Desk.com; the HR team lives on Workday; the business intelligence group moves to GoodData or Domo; the finance team logs into Netsuite; the marketing department orbits around Marketo and Salesforce’s marketing cloud. Whereas in the client/server world managing these disparate systems would have taken up the vast majority of a company’s IT budget and time, today

an organization can be on dozens of job-specific, tailored solutions in days. The cloud enables enterprises to efficiently implement best-of-breed services while serving the varied needs of a business.

But here’s the surprise twist: Whereas many feared—and Carr more or less predicted—that the cloud would drive the extinction of the IT organization, the sudden avalanche of technology is actually making the IT function more important than ever before. Rather than serving as an adjunct to the core business, or merely a cost center, IT is becoming intrinsic to the very products and services that every company offers.

Why is this? Mainly because, as Marc Andreessen puts it, “software is eating the world.” A recent Accenture report concurs, claiming that every business is now a digital business:

Every industry is now software-driven; as such, every company must adopt IT as one of its core competencies. Here is Nike using wireless sensors and web technology to create a performance-tracking system that allows it to create new services to monitor, and to improve and create new training routines for athletes. There is Ford, using sensor data to monitor both how a car operates and the driver’s behavior, and seeking to apply analytics to improve the experience for the next generation.

As software eats the world, information is eating the enterprise. Access to the right information at the right time from anywhere will transform every business and every industry. Competitiveness in IT will come from connecting employees and partners in mean-ingful ways to bring products to market faster (how does a supply chain process shrink from days to minutes?), supporting customers with new experiences (can my thermostat talk to my energy pro-vider?), and surfacing the right people and knowledge to generate better ideas (how do I find experts across my organization that I’m not connected to?).

IT abundance will affect every job, product, and customer interac-tion. We’re seeing retail outlets supply store employees with iPads chock full of product catalogs to improve in-store consultation, enabling them to be instant experts on the latest goods and ser-vices. Flextronics uses Workday to provide visibility into its global workforce of 200,000 employees, allowing it to move around tal-ent and projects at a moment’s notice. Kimberly-Clark utilizes Salesforce’s Chatter to connect to its customers for development

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of products. Education publishing businesses are digitizing their entire supply chains, creating an end-to-end experience that con-nects everything from the creative and production process to the delivery to and interaction with students.

In this transition from a world of IT scarcity to abundance, competi-tive advantage has little to do with unique access to technology and everything to do with unique access to—and use of—information. When technology is near-ubiquitous, it’s the connection between people and information that drives business forward. Organiza-tions that capitalize on this trend will ensure that as information eats the enterprise, they’ll be the ones satiated.

FEATURED COMMENT FROM HBR.ORGExcellent article. I agree that there is a complete revolu-

tion in software and the cloud—because now all en-terprises have access, not just the lucky few corporate giants. It is completely changing the game for midsize

companies as well as start-ups. —M. Parker

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THE CIO IN CRISIS: WHAT YOU TOLD USBY JIM STIKELEATHER

Enterprise IT is in crisis—no doubt about it. Our research, con-ducted in partnership with Harvard Business Review, The Econo-mist, CEB (formerly the Corporate Executive Board), Intel, and TNS Global, finds that corporate leadership has lost confidence in the CIO as a strategic partner and views IT as a commodity rather than a difference-maker.

Clearly the roles of CIO and the IT organization need reinvention—and that’s the conversation we’ve been having over the past few months in webinars and posts. (See also here, here, and here.) This conversation has generated a lot of interesting discussion via blog comments, e-mails, and face-to-face interactions at conferences and meetings, and has revealed a few more insights that should fac-tor into our evolving thinking.

CIOs need to understand business better, but the C-suite should understand technology’s potential better. While the CIO needs to understand the business to add value, equally true is that senior leadership and the board of directors don’t understand how to incorporate technology in their strategies, and some don’t even see the need to do so. As gerajohm commented, “The best executives I have met have had a great understanding of how to use technology to gain competitive advantage and improve operations. They also worked with the CIO to help them understand the business. They worked together to identify the technologies that could improve the company’s competitive advantage versus technologies that were needed to support the business. Once this was done, the exec-utive leadership and CIO focused on implementing technologies that improve the company’s competitive advantage.”

Every other function of the organization is as out of touch as IT. Victorio M. commented, “Reading this post is both humorous and disheartening. Humorous because, as a human resources practitio-ner, I hear similar calls for change within my profession. So it’s not just us! Yet it’s disheartening because it’s yet another organizational function that appears to not be able to keep up with the pace of business, staying stuck in a transactional, as opposed to strategic, frame of mind.” The Management Innovation Exchange is currently running a competition to “hack” the human resources function to enable organizational adaptability. As real space and cyberspace merge, do financial practices like budgeting provide value over their costs of time, money, effort, agility? All the parts of the organi-zation have to come together and build a common language to dis-

cuss their markets and their enterprise. They need to have a com-mon appreciation of each other’s purposes. The CIO must step up and mentor the C-suite on the potentials, possibilities, threats, and opportunities of information technology; but likewise, the HR lead needs to discuss the impact of a free-agent workforce, the head of legal needs to discuss the impacts of open innovation and IP shar-ing, and so on.

As IT steps up as mentor, it needs to mature as well. IT needs to step up, but collaboratively—not as the smartest guys in the room. One commentator said, “About 10 years ago, IT people suddenly became business process experts. Strategy in IT is one thing, but the process experts suddenly began giving advice about areas in which they were not experts and honestly felt they should lead stra-tegic planning for the entire organization.” If IT and the CIO come to the party talking like engineers, only offer convergent lines of thought (analytical, rational, quantitative, sequential, constraint-driven, objective, and detail-focused), and don’t offer a more holis-tic, shaded divergent-thinking point of view (creative, intuitive, qualitative, subjective, possibility-driven, holistic with conceptual abstractions), then they have missed the point.

CEOs sense the problem perhaps more than do CIOs. This is a totally unscientific statement, but it is what I experienced during the two weeks of article writing and the culminating webinar, in which I engaged directly or indirectly with a large number of CIOs, IT managers, and CEOs. There were significantly more CIO/IT con-versations that took place in conference or meeting situations, and the CEOs generally self-selected by reaching out to discuss or gather more information. Unless I pointed out the topic, many of the IT people were generally unaware or just tangentially aware. The CEOs were actively aware, concerned, looking at alternatives such as chief digital officers or creating “not so shadow” IT organizations under the CMO. Few of the conversations originated with IT people, unless they were already engaged in trying to address the issues (another self-selection bias?). A number of the conversations started with the assumption that social engagement, collaboration, and analytics were not part of IT but the responsibility of marketing.

The bifurcation of IT and business is a myth. There have been two paths of discussion around this. One is the concept of alignment. The other is the idea that as IT socially enables companies, the actual concept of management, and how we organize and structure

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work as practiced today, begins to disappear. There were numer-ous discussions around COBIT and ITIL—popular IT process- and service-management frameworks—and there is a lot that COBIT in particular offers. But too often, it turns alignment into supplication, or worse, subservience. The CIO must understand and execute on the differences among leadership, governance, and management. The CIO must lead by showing the way IT can impact the organi-zation both positively and negatively, sometimes leading by how technology is applied in IT itself; and then by influencing and guid-ing the organization in making the right decisions. Then the CIO must direct and restrain the use of technology—how it is devel-oped, sourced, and applied in the best interests of the organization and its stakeholders with appropriate governance mechanisms. Last, the CIO must execute by managing the procurement, provi-sioning, monitoring, and management of the delivery and applica-tion of IT to serve the organization. Several discussions focused in on understanding the difference between delivering IT and apply-ing IT. If you are delivering IT, then you are a surrogate IT company that might not be aligned with the enterprise. If you are applying IT to the business, then by definition you have to be aligned with the business, or fail.

Multiple roles, one company versus one role, multiple compa-nies. Historically, people got to the C-suite by progressing up the career ladder in one discipline, moving among multiple compa-nies until they made it to an executive role in finance, sales, etc. Now, however, the model is changing. In successful companies, top executives rotate among multiple disciplines in increasing levels of responsibility until they advance to the C-suite. Leaders then have a multidisciplinary understanding of the organization, rather than an exclusive, deep knowledge of just one area. And as we are learning, good leaders do not have to be discipline-specific if they engender trust and responsibility in their organizations. Many CEOs expect their next CIOs to come from marketing instead of their, or another, IT shop.

I started looking into the role of the CIO with the assumption that the onus was on CIOs to step up IT’s game to enable their enter-prises to succeed in the future. One observation from all this is that there is an endemic problem across the C-suite: there has been such a longstanding culture of domain and functional specialization focused on efficiency that the overall gestalt of the business and its efficacy at creating and maintaining a customer has been lost.

But that doesn’t relieve CIOs of their responsibility to change IT to enable the business to better change. For aspiring CIOs, the best thing for your career is to leave IT and move to other departments—even if it involves taking a step back. Preferably, these roles need to be part of the value chain, facing either customers or partners, and eventually both. Then, step back into IT. This idea could be true for all departments—for instance, new business managers should come from outside the business function to encourage a holistic view of the business.

For existing CIOs, ask yourself a few questions. Are you generat-ing customer value? Are you (or do you have the potential to be) the best in the world at what you are doing? Are you required to do what you are doing? Based on the answers to those questions, what do you need to stop doing, start doing, or do differently? Where are you spending your time interacting and relating to the rest of the organization? What resources should you have and how should you allocate them? What activities consume most of your efforts and what outcomes are you expecting from them? And last, what are you really focusing on and what questions are really driving you?

The point of all this is to pose these questions to everyone in the C-suite—not necessarily to be answered, but to start the collabora-tive, co-creative process to discover the answers and to continue the conversation.

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YOU, TOO, CAN MOVE YOUR COMPANY INTO THE CLOUDBY NATHAN MCBRIDE

On April 1 of this year, the Department of Defense announced that the U.S. Navy (USN) would embark on a strategy to migrate its ser-vices to the cloud. While there have been numerous cases of big and small companies making this leap over the past few months, this one struck a particular chord with me because of its sheer scope. The USN is an organization utilizing 1,400 systems and 7,000 applications to serve more than 500,000 employees. My company, which is approximately 1.7%, 1.9%, and 0.028% the size of the USN in relative scope, made the transition years ago and it was no small effort, taking almost three years to fully make the transition.

While the USN is relatively mum about its specific strategies, there are references to the fact that it intends to cut its systems in half within 36 months, reducing some overhead cost and moderniz-ing. This is similar to the approach that the CIA has undertaken in moving much of its infrastructure to Amazon Web Services. These transitions, even when scaled down to a company of 140 employees like mine, require a substantial amount of planning, commitment, resources, and time, with little room for error. So it comes as no surprise that whenever I spend time with industry peers who have yet to move to the cloud, there is a palpable sense of fear and over-whelming anxiety about how to even think about the process.

When I’m asked to advise people on how they might craft strate-gies to get to the cloud, I give a four-point overview based on my own experience. It will get you to the starting line, but beyond that each and every strategy will be different depending on a myriad of circumstances in your corporation.

Move only what you have to and start fresh wherever possible

The first thing is to dispatch with the idea that you are going to “move” all your current resources into the cloud. That is just not possible, especially if you have invested heavily in distributed enterprise-class systems and the infrastructure to support them. While it is certainly likely that a good portion of your environment can be virtualized and moved into a platform as a service/infra-structure as a service environment like Amazon Web Services, the move to the cloud should be viewed as an opportunity to leave sys-tems behind and replace them with systems that are lighter, faster, and less expensive.

Tear down and rebuild your security model

If your Microsoft SysAdmin has convinced you that Active Direc-tory is a viable solution for the cloud, or that because you use Active Directory you can only get into the cloud by sticking with solutions that support Active Directory/Windows Azure Active Directory, you need to get a second opinion. When moving to the cloud you have to consider that many solutions do not allow for authentication off of Active Directory and instead rely on more common security protocols such as SAML1, SAML2, OID, and OAuth. Identity access management (IAM) vendors have been forced to consider broker-ing authentication for Active Directory because companies feel that they must stay on it as an internal authentication platform. Nothing could be further from the truth, and if you do your research, you will discover that there is a wealth of options out there. To get into the cloud you need the most robust and extensible authentication model you can possibly build, and by using one you will increase your options for solutions exponentially.

Cost savings are a benefit, not a driver

If you think that you need to get into the cloud to save money, you need to think again. Yes, you will ultimately save money by migrat-ing to the cloud, lots of money in fact, but it takes time to get there and there is the chance that you will actually spend more money up front. When making your pitch to senior management, talk about the benefits of reduced infrastructure, resources, better uptime, business continuity enhancements, mobility, and access ubiquity. If asked about cost savings, be ready to deliver your pitch on how you intend to reduce or eliminate CAPEX spending, reduce person-nel resources, move services to a pay-by-month model—eliminat-ing long-term contracts—and ultimately reduce your annual bud-get by a modest percentage year over year over a three-to-five-year period of time. Do not get caught in the trap of making cost savings one of your drivers for going into the cloud. You will bring a level of scrutiny over your claims on which you will most likely be unable to deliver.

Create a long-term flexible strategy

The last bit of wisdom is to develop the most thorough one-, three- and five-year cloud strategies that you can put down. My one-year

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strategy is very specific; my three-year is slightly less specific because I find that even three years down the road is very hard to see. It’s impossible to see five years into the future, but if you work backward from five years you can, even at a very amorphous level, describe how you would want your environment to look at that point. These should be rolling strategies that are flexible enough to consider the dynamics of the industries you will operate in. Today’s IAM vendor will be tomorrow’s mobile device management ven-dor, and a week from now could be bought by a company in some entirely different vertical. By creating a flexible strategy, you can constantly adapt to these changing conditions in the industry over which you have almost no control.

In considering these four concepts, keep in mind that they are applicable to any size organization and any cloud scope transfor-mation. The more I have considered them, the more I have realized that they are applicable anywhere. It’s no small task, but you can move your company into the cloud if you approach things with a new mind and put aside the technologies of the past.

One last thing to note: In the next five years, new employees com-ing into your company won’t know (or care) how to use Outlook or mapped drives. They won’t care for your PC laptop offering or why your firewall blocks Dropbox. They will have established methods for doing work and they will all involve the cloud. Seventy-five out of the top 100 universities in the latest U.S.News & World Report college rankings use Google Apps as their primary backbone. Seven of the eight Ivies are in the same boat. Do you really want to be the last one at the starting line?

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CIOS MUST LEAD OUTSIDE OF ITBY MARTHA HELLER

The CIO paradox is a set of contradictions that lies at the heart of IT leadership. Be strategic and operational. Stay secure and boost innovation. Adopt emerging technologies, while weighed down by the past. Many CIOs have buckled under the CIO paradox, while others have managed to be effective despite it. In working with these successful CIOs over the years, I have found that they all share a common set of practices, philosophies, and approaches. We are in the midst of a computing renaissance, when all CIOs will need to raise their game and master this same set of practices. Here-with, three items that should have a permanent place on any CIO’s “breaking the paradox” checklist.

Sell the foundation

Most large companies have underinvested in IT for decades. They’ve spent the bare minimum, and that’s been fine, since IT has had to function merely as a “keep the lights on” necessity. As long as the mainframe systems aren’t broken, let’s not fix them. Today, however, technology innovation is creating a drastic change—across all major industries—in the way customers want to interact with their suppliers. Companies can no longer get away with treat-ing IT as a commodity. These companies face a technical debt, and it’s time to pay up.

Most CIOs find it relatively easy to convince an executive team to invest in a technology that increases near-term revenue. They find it considerably harder to ask their colleagues to invest in a major infrastructure upgrade that will take 12 months or more before delivering direct business benefit. But all CIOs need to find a way to convince their peers that without these infrastructure invest-ments, they will be mortgaging their companies’ futures. Through visuals, storytelling, and metaphors that resonate with the compa-nies’ business leaders, CIOs must develop the skill of showing their stakeholders that foundational investments are the table stakes of innovation. If they do not, they will get crushed between the rock and hard place of legacy technologies and business demand.

Grow blended executives

The companies that have underinvested in IT have also underin-vested in IT talent. IT leaders are a unique breed, and they need to possess a heady brew of business, technology, and interpersonal skills. High-performing IT organizations appoint executives to sit at the intersection of business areas and the IT function, helping busi-ness leaders shape their IT strategies and marshaling a technology

team to deliver against that demand. Ideally, these “business rela-tionship executives” would have two heads: one for business and one for technology. Since cloning is still an imperfect science—and these gorgeously blended executives are in short supply in the tal-ent market—companies will need to grow their own.

The most effective approach to developing blended executives is to develop a program that rotates IT people into business roles, and businesspeople into IT. But regardless of which approach compa-nies take, they need to start now. We are in the midst of war for IT talent, and companies that always have to go outside for their IT leaders are at a disadvantage. A far better strategy is to take the people that they have and develop them into blended executives. You know you are on the right track when you walk into a business unit meeting and, from the dialogue taking place, you cannot easily distinguish the IT person from everyone else.

Reach beyond IT

The IT function is not easy to manage. IT is highly strategic, intensely operational, hard to staff, and extremely expensive. CIOs who are successful in running IT tend to develop expertise in important areas including project management, continuous improvement, people development, M&A, and strategic planning. These disciplines are critical to every other department in the com-pany. CIOs who want to be effective in the future will extend their leadership and expertise beyond the IT function. They will set up enterprise project management offices; they will take the reins as their companies’ continuous improvement champions; they will absorb HR and legal and procurement, along with IT, into a new chief shared services officer role. They will step out of their IT boxes because they know it is good for their companies. They will not wait to be asked.

With cloud, mobility, consumerization, and big data, the CIO para-dox is not disappearing; it is growing stronger. The contradictory forces that define IT are getting more acute, and CIOs will work harder than ever to perform. Those who are already struggling under the paradox will continue to struggle. But those who can rise to the occasion, break the paradox, and deliver value in our new technology marketplace will secure themselves a place of leader-ship in what promises to be an exciting new era.

FEATURED COMMENT FROM HBR.ORGShort and sweet! Hitting the bull’s eye! —Sriram Nag

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IT CANNOT BE ONLY THE CIO’S RESPONSIBILITYBY DONALD A. MARCHAND AND JOE PEPPARD

IT is not something that can be managed from a box on the organi-zational chart. Unfortunately, this is not the view in most C-suites. Just look at what most do: They appoint a CIO and give him or her a budget and a mandate to get on with it! Why? As one CEO said to us: “I just want to forget about IT and concentrate on my core business.”

Of course, this response would be fine if the challenge were merely to deploy technology (on time and to budget) and ensure that it continues to function properly for as long as required. It would also mean that outsourcing to a proven tech provider would be a legiti-mate response to perceived problems with IT (get someone with more experience and knowledge to run it for you). Or that the cloud is the remedy for IT’s perceived inability to deliver, its inflexibil-ity, tardiness, and questionable return. (By portraying IT as a utility like water and electricity, with apps on demand, a pay-as-you-use model, and unparalleled scalability, what could be more attractive?)

The reality is somewhat different. This approach may work for business functions like manufacturing or logistics, but it definitely won’t work for IT.

For one thing, what a manufacturing director is and is not responsi-ble for is very clear. So what can a CIO be held responsible for? Tech-nology? This only results in technology that works and is deployed on time and to budget. What about being held to account for the benefits and value from IT spend?

This raises the fundamental question of whether a CIO can really be held accountable for something that will only emerge when his or her colleagues step up to the plate. For example, success-fully deploying CRM software on time and to budget will deliver little unless sales, customer service, and fulfillment processes are redesigned, staff are trained to have the right conversations with customers, data quality improves, and marketers build the right competencies to use all the data that will now be available to them.

Let’s say that a company’s sourcing strategy calls it to move all IT requirements to best-of-breed cloud-based providers. Infrastruc-ture and IT-based services will now be provisioned and delivered directly from the cloud. The question is, will problems with IT go away, particularly the challenges around delivering business value? Of course not! Why? Because the problems with enterprise IT have generally nothing to do with IT. They never have!

What the cloud does is make the technology supply side more effi-cient and perhaps more agile. It may make costs more predictable and shift investments from CAPEX to OPEX. It may even lead to access to leading-edge technologies. But these are generally not where the challenges lie when we look at the situation in most com-panies regarding return from IT spend.

The reality is that the organization still requires a strategy for infor-mation and systems. It still needs to make choices around process standardization and the extent of digitization, define the degree of integration required, and think about innovation opportuni-ties enabled by IT, whether they be process innovation, business model innovation, management innovation, or innovation in the customer experience. And the organization still needs to prioritize IT spend, run programs and projects, manage the IT investment portfolio, orchestrate the organizational change to deliver expected business benefits, and make sense of information.

Accountability for some of these areas resides with the CEO and other members of the C-suite (we are assuming the CIO is a member of the C-suite), and for others with the LOB manager. Some will be shared. What is clear is that they are not the sole responsibility of the CIO. All members of the C-suite need to recognize and embrace their fundamental roles.

What is therefore required is strong governance of IT. Be clear about the decisions concerning IT that need to be made; who gets to make them; how they are made; and the supporting management pro-cesses, structures, information, and tools needed to ensure that they are effectively implemented and complied with, and are achieving the desired levels of performance. Unfortunately, we have found that the focus of governance around IT continues to be on the more operational IT issues of delivering technology capabili-ties and IT services.

The basic requirement for success with enterprise IT has changed little over the decade. There is no magic bullet. The bottom line is that executives need to get their hands dirty and actively engage with their CIOs and IT. Decisions about IT today really have little to do with technology!

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EXPLOIT IT FOR STRATEGIC BENEFITBY JEANNE ROSS AND CYNTHIA BEATH

IT leaders have long embraced the idea that the role of the IT unit, and of enterprise IT systems, is to enable business. However, when we ask CIOs how their “enabling” is going, they consistently respond that sometimes it goes well; sometimes not so much. In the digital economy, as IT becomes evermore integral to the stra-tegic initiatives of firms, “sometimes” is not good enough. Com-panies cannot fritter away their valuable resources, whether in the form of money, systems, or, most importantly, people.

We argue that leaders should stop thinking of IT as enabling and start thinking in terms of fully exploiting IT to strategic advantage. The word exploit makes some IT leaders squirm. But the definition of exploit is “to employ to the greatest possible advantage.” More specifically, the idea is that IT leaders should refuse to allow their companies to request systems that will not be used effectively or that aren’t integral to business success.

At a recent CIO roundtable, one CIO said that the demand for IT in his company is infinite. Infinite! And other CIOs nodded in agree-ment. If that’s the case, why would any company allow a business change initiative to fall short of its promised business benefits?

Business change initiatives (those that involve IT projects) engage enormous resources—not just IT and financial resources, but human time and emotion. These are finite resources. As another CIO noted, companies also have limited capacity for change. Every project needs to justify not only the resources it consumes but the alternative opportunities that the company cannot pursue because everyone will be busy implementing the chosen initiatives.

At most companies, business and IT leaders cannot immediately answer the question, “What percentage of your projects fully realize their expected business benefits?” Every manager in the company should know the answer to that question. Case studies at MIT’s Center for Information Systems Research suggest that if people don’t know the percentage of projects that meet their busi-ness objectives, the percentage is probably very low. That doesn’t bode well for business success.

Of course, no company intentionally fritters away critical resources on underused or ineffective systems and business changes. It’s hard to get this right. How do great companies exploit IT? Here are three things that can make a difference:

Perform regular post-implementation reviews. Most companies write up a business case to explain the expected business benefits that justify the investment of company resources in a new proj-ect. But many companies fail to check that the benefits were ever achieved. That kind of follow-up is essential. This is not a matter of figuring out whether a project was on time and on budget (although surely someone wants to learn that as well). This is about engaging project sponsors, system users, architects, and development teams in a clear understanding of the actual value received and how that relates to the business case originally used to justify the project. This exercise often identifies opportunities to drive additional value from existing systems. It also educates everyone involved so that future business cases become increasingly realistic. One finan-cial services company we know reviews the viability of the business case at every major stage gate. If changes in technology or markets are challenging the likelihood that the business case will be real-ized, project sponsors have two choices: stop the project or revise the business case to reflect what they believe they will be able to achieve. This company gets a huge return on its IT investments.

Limit the number of people who can make project requests. Com-panies that use IT most strategically allow only a select group of senior leaders to request a project. For example, at Tetra Pak, the Swiss packaging company, the role of IT is to minimize the cost of business operations and facilitate global growth. To make sure that IT and business resources stay focused on that objective, only the company’s high-level business process owners can submit project requests. These high-level process owners report to members of the senior executive team. The effect is that Tetra Pak is investing its business change resources (IT and non-IT) in enhancing global processes and related data. There are many things companies can do with IT, but if management doesn’t establish priorities, it’s easy to do many things badly. Tetra Pak has implemented standardized processes across 170 countries.

Think speed not functionality. The best way to get value from IT is to finish projects quickly and get people to start using new capabili-ties. USAA, the Texas-based financial services firm, closely moni-tors the average number of days required to complete projects. Since projects differ in scope and complexity, many IT leaders resist using this metric. However, if the CIO forces measurement of the time required to complete projects and then insists on lowering the

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average, people throughout IT—and eventually the business—will start looking for ways to reduce the scope of every project. They will break up big tasks into a set of smaller tasks. That effort will get technology into people’s hands sooner—and accelerate the speed at which the business accrues benefits from IT.

All three of these activities are becoming habits in companies that get great value from IT. They are fully exploiting IT and, in doing so, identifying new opportunities for developing additional IT assets that can be further exploited. A bonus result: IT leaders have a better sense of what makes the business tick, and members of the executive leadership team have a better sense of when and how to make IT investments that matter.

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WHY CAN’T A CIO BE MORE LIKE A CFO?BY DEBORAH H. JUHNKE

Information governance is not IT’s job. But it should be the CIO’s job. It’s time for CIOs to move beyond their roles as chief technol-ogy officers and embrace the name with all its implications: chief information officer.

Why? Because no one is managing the store. The explosive growth of information is accelerating. According to the 2012 IDC/EMC report on the digital universe (PDF), information is doubling every two years. At the same time, technology budgets are static or con-tracting, and non-IT execs want more attention to cost-cutting.

We know this. We’ve heard it before. Yet we continue to ignore it. I’m fascinated by how deftly conversations about information growth turn immediately to hand-wringing over how to store and secure it, avoiding the issue of its creation. The time is ripe for CIOs to take a page from the CFOs’ playbook to ensure both accountabil-ity and responsibility for information creation.

We all know that CFOs are accountable for the financial stewardship of their enterprises. They fulfill this role by delegating responsibil-ity and establishing control systems such as budgets, directives, audits, and oversight to drive fiscal compliance. The day-to-day financial activity within the organization is then executed by man-agement and staff, who shoulder the responsibility—delegated to them by the enterprise as part of their job—to account for funds, both incoming and outgoing. Incurring debt without approvals or other failures to comply with financial controls appropriately results in disciplinary action.

CIOs’ accountability, on the other hand, stops short of informa-tion stewardship and instead focuses only on technology steward-ship, an intermediate step. CIOs are commonly accountable only for information in the middle of its life cycle (storage, security, and availability), and their control systems reflect this. Unlike the world of the CFO, management and staff generally do what they like when it comes to creating and (not) disposing of information, thus creating a cavernous gap in accountability. There are no over-arching frameworks, few controls, little guidance, no audits, and seldom consequences when staff create and hoard information. In financial terms, irresponsible creation and storage of informa-tion is like taking on unsecured, uncontrolled debt. It creates risk and encumbers the enterprise with additional costs to support the resulting digital landfill.

That landfill has been a money pit for corporations and a gold mine, in my experience, for plaintiffs’ counsel and regulatory investiga-tors, leading to per case discovery costs ranging from $621,000 to more than $9 million. That’s a lot of money for digging through old e-mails.

How did we get here?

We came to this place easily and methodically, by providing resources of quickly evolving technology with no constraints. We came here by not establishing data stewardship, which is at the root of organizational confusion about information governance. We came here by allowing the “just keep everything” culture to take hold. Ironically, autonomy in corporate computing does not neces-sarily lead to greater productivity. In fact, our laissez faire approach to computer education—little guidance, hands off, freedom to make decisions—leads to lower productivity absent a system for accountability. Without accountability, unproductive behaviors creep in: spending time on CYA, finger-pointing, waiting for guid-ance, ignoring problems, or waiting too long to act.

Given this failure to establish responsibility and accountability, it is also not surprising that most ECM projects fail, and a large percent-age of IT projects generally fail to realize their potential or go well over budget. I believe the driving factor for these failures is that many projects are conceived and scoped only to address a symp-tom, rather than to address the disease of too much information.

Patchwork attempts to mitigate or repair our broken information management processes do not get to the core of the issue. It is ultimately up to each of us to make a difference. Of course, we are reminded during emergencies, like Hurricane Sandy, of the “bet the company” lawsuit, or—dare I mention—the data security breach. (Can you spell S.N.O.W.D.E.N.?) But when the crisis is over, we go back to the status quo.

There are those who still believe that technology alone solves all problems, thus policy-based governance is unnecessary, and there is no downside to information growth. These proponents fail to account, however, for the three R’s: Regulation, Risk, and Reward.

Regulatory requirements for information governance exist for every enterprise. They must be identified and addressed, and infor-mation management is a huge part of this.

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At risk in most enterprises are databases, shared storage, and e-mail—and the latter two are almost exclusively controlled by end users, both in content and distribution. Risks stem from litiga-tion exposure, privacy and data security breaches, and intellectual property theft, among other problems.

Reward can come from new insights for new initiatives gleaned from our “big data,” but only if it is not “dark data” contaminated with the ROT (redundant, obsolete, and trivial) of 30 years of com-puting. In each of these, unmanaged volume and content are our enemies.

Back to the Future

CIOs must reinvigorate the vision of 1987, when the inaugural issue of CIO magazine stated that “information is a corporate asset to be managed by a top-ranking executive.” CIOs have never broadly achieved their destiny. They have remained, instead, CTOs. I sub-mit that they are—or should be—something different.

CIOs need to move beyond technology myopia to become informa-tion governance leaders and executive partners in policy direction and enforcement. Someone needs to take control, and CIOs are in an ideal position to mandate the structure, direction, resources, and accountability necessary to achieve coherent governance of information assets. If the prospect of tackling the legacy problem is daunting, consider another finance-inspired concept: zero-based budgeting. With “zero-based information governance” tied to bottom-up accountability, we have an opportunity to look for-ward first and stop the bleeding. We can cost-cut by slowing the growth of information and applying a more critical eye to Band-Aid technology requests such as e-mail archives or yet more storage, and thereby also achieve better alignment with long-term business goals.

In my years of interviewing staff across a range of industries, the most common theme has been this: “No one told me what to do, so I did nothing.” Technology is intimidating, particularly to non-Mil-lennials. Think like a parent. Create an environment where infor-mation is treated as a valued asset. Instruct, guide, and expect good stewardship. Be accountable.

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IS YOUR ORGANIZATION READY FOR TOTAL DIGITIZATION?BY PETER WEILL AND STEPHANIE WOERNER

What do the following items have in common: credit cards, stream-ing or recorded music, robots for production, CAD systems, tele-phone networks, digital games, computers in products like cars and vacuum cleaners, sensors, and video consoles used in remote min-ing? Answer: They are all digital and connectable.

This is the world of total digitization: a multitude of digital devices and sensors creating streams of data, as well as any number of digi-tal services and products for both internal and external use, distrib-uted throughout the enterprise, and sometimes, but not always, connected. As the drive toward increased digitization continues, enterprises have to get a handle on this total digitization—and cor-porate CIOs have to step up to the challenge.

Three Approaches to Managing Total Digitization

How are enterprises managing the spread and scope of total digi-tization? We at MIT CISR have found that enterprises are using one or more of three approaches to managing total digitization: convergence, coordination, or a separate digital innovation stacks approach. Each approach has very different objectives and mea-sures of success.

Convergence. This approach brings all digitization investments together and places them under a single executive. At Boeing, all enterprise technology (including digital) investments are man-aged by the CTO, which enables significant synergies. For Com-monwealth Bank of Australia (CBA), convergence involved bringing together operations and IT into a new unit, Enterprise Services (ES), headed by the CIO. ES helped CBA achieve its goal of both reduc-ing costs and becoming number one in customer experience. Con-vergence usually requires the introduction of new organizational structures to create efficiencies and synergies and to increase reuse of resources. Enterprises using a convergence approach will, wher-ever possible, organizationally consolidate the key assets of people, data, infrastructure, skills, and management processes.

Coordination. This approach doesn’t change the organizational structure but adds mechanisms (such as committees or gates) onto a business case process, to increase the coordination of big digi-tal investments across groups such as engineering, operations, or product owners. Leaving the organization structure “as is” reduces

disruption while the mechanisms help facilitate working together across the units. A typical structure consists of separate organiza-tional units supported by a shared infrastructure at the base and connected by customer-facing coordination mechanisms at the top.

For example, BMW set up two committees focused on digitization to deliver on its enterprise goals, including the design and delivery of a custom car within six days. These committees at BMW ensure the creation and smooth hand-off of information. In a coordination approach, the mechanisms all work together to achieve a specific outcome. This approach works well when there are one or two enterprise-wide goals. But be aware that when there are numerous enterprise goals spanning multiple geographies and business units, the coordination approach can lead to a spaghetti-like set of gov-ernance committees and processes. But with just one or two over-arching enterprise goals, the coordination approach helps create a consistent customer experience or, in some companies, ensures regulatory compliance.

Separate Digital Innovation Stacks. Enterprises with this struc-ture and approach believe the key to their success is innovation via local management. Each of the separate stacks—such as the differ-ent product groups, business units, or geographies—is left alone to maximize its own local value without any coordination overhead. Taking this approach (e.g., News Corp.) commits a firm to local innovation, often organized by products or stand-alone businesses. These enterprises have decentralized management and diversified businesses. Capabilities are often duplicated with slight differ-ences in each stack, and there is local accountability for profit and loss. Typically, though, some global risk management is necessary. As digitization increases and customers (and regulators) expect a more integrated multiproduct experience, we expect to see far fewer business units pursuing a separate digital innovation stacks strategy. Diversified enterprises, however, may still find it a useful approach.

Identifying your enterprise’s core strategic drivers is the key to deciding which approach is best to follow. Convergence is about reducing cost, reducing risk, and achieving synergies. Coordina-tion is the right choice for enterprises that are trying to achieve a few enterprise-wide goals such as improving customer experience or asset utilization. Finally, the separate digital innovation stacks

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approach is right for enterprises that believe autonomy helps improve innovation and local customer responsiveness.

We believe that managing total digitization is one of the biggest opportunities and challenges facing enterprises—and their CIOs—today. We are already seeing companies in which the total digitiza-tion spend is over 25% of the operating budget and expect this will become commonplace. In our evermore fully digitized world, you need to strategically manage total digitization or you run the risk of digital anarchy in your enterprise.

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ARE WE ASKING TOO MUCH OF OUR CIOS?BY TERRI GRIFFITH

It is all well and good—and true—to say that the role and mandate of the CIO are expanding. Smart commentators here and elsewhere have described why and how that is happening. But too many orga-nizations are stretching their chief information officers too thin. CIOs are being tasked with managing internal business systems, cloud-based services, big data innovation, data security, and the 24/7 needs of global customers who access company data on personal devices. Effective leadership and management across these areas is possible, but not without providing CIOs with the proper support structures and instituting necessary organizational alignment.

It’s time for a forward-looking but realistic assessment at the expanding role of the CIO, and what it takes to fulfill this success-fully. Not surprisingly, the keys are balance, support, and align-ment. Here are some constructive ideas:

Ray Wang, principal analyst and CEO of Constellation Research Group, outlines four personas of the next-generation CIO:

■■ Chief “infrastructure” officer: “Keeping the lights on” and man-aging existing systems

■■ Chief “integration” officer: Bringing together internal and exter-nal data and systems

■■ Chief “intelligence” officer: Fostering business intelligence and getting the right data to the right people

■■ Chief “innovation” officer: Looking for disruptive technologies to drive innovation

Today’s CIOs must learn to balance all these personas. As Jenni-fer Kenny, CIO of SRI International, describes it, CIOs need to be “whole systems” thinkers and practitioners (that’s business sys-tems, not computer systems). Research focused on the careers of 14 highly successful CIOs found that, beyond the skills needed by all C-level executives (an extensive network, emotional intelligence, leadership, etc.), CIOs especially need:

■■ An integrative mind

■■ Focus and vision

■■ A trusting and trustworthy nature (to better build and nurture cross-functional teams)

Finding people who have such a broad base of skills is problematic, at best. And juggling all these roles and responsibilities leaves CIOs with little time to think about innovation. Bruce Whetstone, an IT

management consultant covering a variety of industries, argues that the CIO already has several full-time jobs, managing infra-structure and the integration of internal and external data and sys-tems (Intel’s CIO, Kim Stevenson, calls those roles “table stakes”), as well as business intelligence. This doesn’t leave much bandwidth for innovation. And Whetstone doesn’t see many companies meet-ing IT halfway. Instead, “people want to blame IT when the data isn’t at their fingertips.” Whetstone argues that companies need to do a better job of empowering the entire organization to access and manipulate data, while at the same time integrating the CIO’s role more seamlessly into business units (and business unit budgets). Indeed, we may begin to see more business unit leaders in CIO roles in the future. For example, at the Las Vegas Sands Corporation—an analytics-heavy business— Rom Hendler serves as SVP, chief mar-keting officer, and interim CIO.

Match the CIO reporting structure to the strategic goals of the organization.

But empowering CIOs and employees throughout the organization isn’t enough.

Tomorrow’s organizations will also need to align the CIO reporting structure to the strategic goals of the organization. Research from Dr. Rajiv Banker and colleagues at Temple University’s Fox School of Business found that organizations with cost leadership strate-gies and CIOs who report to the CFO have higher performance than do peers with CIOs who report to the CEO. However, organizations with product differentiation strategies have higher performance when the CIO reports to the CEO. Alignment with strategic posi-tioning will be key to success.

The bottom line is that before we can ask our CIOs to do more for business, we need to evaluate how the organization can provide the support necessary for all four of the CIO personas to function. The right model for your own company may be to employ a single broad-based CIO who can deliver on all four personas; a technical CIO who works in collaboration with other IT executives with busi-ness backgrounds; or tighter integration across the C-suite, perhaps through formally aligning the goals of the CMO/COO and CIO.

The office and activities of the CIO need to be in tune with the needs of the organization. This is more than a shuffling of responsibilities. Work toward a meaningful redesign that will carry you through the decade.

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THE REAL POWER OF ENTERPRISE SOCIAL MEDIA PLATFORMSBY MICHAEL SCHRAGE

An unusual—and unusually rich—funding opportunity inspired researchers at MIT and several other top-tier research institu-tions to improvise a comprehensive multimedia proposal on a tight deadline. While the schools’ own IT infrastructures and apps proved disconcertingly incompatible, Dropbox and skillfully edited Skypes facilitated exactly the kind of real-time and asynchronous coordination and “version management” needed to quickly deliver a “knock their socks off” plan. They won eight-figure funding.

More humbly, incompatible communications networks and a less-than-proactive IT department drove a company’s supply chain and procurement teams to use LinkedIn, private tweets, and cut-and-paste SharePoints to quickly coordinate go-to-market product changes with key vendors. The ad hoc network enabled suppliers to transparently coordinate and collaborate with each other as well as respond to their customers’ requests.

These real-world vignettes highlight social media’s underappreci-ated and undervalued impact within and between organizations: the power to self-organize. For completely understandable rea-sons, enterprise social media tools and platforms like Yammer, Chatter, Jive, and SharePoint have been branded as great ways to communicate, engage, collaborate, coordinate, update, and share information. That’s largely accurate. But those pretty verbs obscure where the real action is taking place.

Initiators and intrapreneurs aren’t just using social media to make their efforts more transparent and accessible, they’re using these platforms to improvise and organize new ways to get their jobs done. They’re using these tools and technologies to add value to existing processes or, indeed, to create new “just in time” processes (and programs) that the C-suite and other senior managers had never envisioned. Social media inside the enterprise and out will lower the costs and increase the power of individuals to produc-tively coalesce and coordinate on their own initiatives.

In other words, social media tools enable “gray markets” in enter-prise self-organization unanticipated by the organizations that provide them. Sometimes, organizations even experience “black markets” in social media-enabled “self-organization” when their people use unauthorized or unsanctioned platforms like Twitter, Dropbox, Skype, LinkedIn, Google+, and even Facebook to share ideas and coordinate their activities.

Why? For reasons healthy and dysfunctional alike. More than a few organizations provide such poor communications and collaborative tools that the only way people can really do their jobs is to create and maintain their own collaborative networks. Even worse, some individuals and teams in troubled organizations use external social media platforms to facilitate their own “enterprise springs” so they can accommodate and counterbalance the perceived incompetence and/or poor behaviors of their bosses.

Where IT once confronted the spectra of “shadow apps” and “gray market computing,” the rise of social media platforms inside the enterprise and out means that entire managements now see “emer-gent” leaders and processes. These aren’t designed for or planned; they materialize directly from the perceived needs of concerned individuals and teams who now have the ability to self-organize inside the firewall and out because of these media.

That’s (potentially) revolutionary. That’s also why so many organi-zations are understandably suspicious and/or wary of what enter-prise social media platforms might truly represent. Yes, they’re about communication, coordination, collaboration, and transpar-ency. But they’re also about power—the power of individuals and teams to reach within and across enterprises to effect meaningful change.

At Fortune’s recent Brainstorm TECH conference, General Stanley McChrystal (retired) observed that technology had fundamentally changed how America’s special operations command managed its special forces warriors. The technologies of situational awareness put soldiers at the front lines—not the generals in the command centers—in the best positions to decide how to best prosecute their missions. The general recognized that these technologies were bet-ter used to empower rather than to second guess.

The bottom line: The most important impact of social media tech-nologies comes from who—and what—they empower, not just the information they exchange. Do organizations appreciate and understand that these tools put them in the “empowerment” and not just the “better communications” business?

FEATURED COMMENT FROM HBR.ORG[This blog post is] an insightful way of looking at how online communication technology has been evolving

beyond just being a communication tool. —Rahul Kumar

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TODAY’S CIO NEEDS TO BE THE CHIEF INNOVATION OFFICERBY DANIEL BURRUS

Enterprise IT as we have known it is rapidly becoming obsolete, and the traditional role of the CIO is increasingly irrelevant. As game-changing technologies transform every business process, they also give us the ability to create new products and services that were impossible just a few years ago. Therefore, the CIO’s role must shift from protecting and defending the status quo to embracing and extending new, innovative capabilities.

The old way was about technology centricity; the new way is about technology-empowered business strategies. The old way was infor-mation management; the new way is information intelligence. The old way was IT systems management; the new way is platforms that enable new value chains and integrated ecosystems. The old way was cost management; the new way is driving business transforma-tion and accelerating growth.

Today’s world of business is not just changing—it’s transforming. What’s the difference? Change is doing something in an incremen-tally different way. Transformation is doing something so drasti-cally different that it becomes a qualitative, not just quantitative, shift. The moves from wax cylinders to acetate discs to LPs to CDs—these were all changes. CDs to MP3s? Suddenly I can carry my entire music library in my shirt pocket, and my digital music player (which also happens to be my smartphone containing GPS, videos, and so much more) has no moving parts, unless you count electrons. That’s a transformation.

In the early 1990s, Barnes & Noble superstores changed how we shop for books. By the mid-1990s, Amazon was transforming how we shop for books, which then transformed how we shop for everything. As we all know, technology made this transformation possible.

Transformation Drivers

Today, technology-driven transformation is happening all around us. A few weeks ago, I was a keynote speaker at a large international technology conference, and one of the demonstrations to illustrate game-changing technology involved using an iPad and a high-speed connection to fully control three of the most powerful workstations engineers have access to. All were located in different parts of the country, yet with only the iPad wirelessly streaming to a large screen, thousands of people could see what the engineers were seeing and the user could control each workstation as if he or she was there. Doing all this from an iPad was impossible just a few months ago.

I was in China two months ago consulting with CIOs who were not only using software as a service, but were also in the process of implementing hardware as a service, connectivity as a service, col-laboration as a service, and security as a service. And the real excite-ment was around implementing everything as a service. Clearly, IT is quickly becoming an integrated collection of intelligent services that are on demand, on the move, and on any device.

The visual, social, virtual, and mobile transformations that are already happening are creating a new golden era of technology-enabled innovation, and the CIO needs to be leading the charge.

So what has enabled the business environment to go from merely changing to transforming? It’s all thanks to three change accelera-tors: the exponential advances in processing power, bandwidth, and storage. I have been tracking their trajectory for the past 30 years and they have now entered a predictable new phase due to their exponential growth—a phase that will transform every busi-ness process. Think of it this way: Based on the technology-enabled hard trends that are already in place, over the next five short years we will transform how we sell, market, communicate, collaborate, innovate, train, and educate. And if you don’t do it, someone else will. In fact, with all the business processes technology is trans-forming, nothing is transforming more than the role of the CIO.

The New Role

The CIO’s traditional role, which is one of managing information, IT systems, and cost, has itself transformed to creating new com-petitive advantage, new products, and new services. Traditionally, the CEO was the innovator, but many of today’s CEOs—as well as the rest of the C-suite—are unaware of what is technologically pos-sible now or in the future. However, the CIO does have interest to, access to, and the understanding of that type of information and knowledge, which is why the CIO position needs to transform into the chief innovation officer.

Of course, not all CIOs will embrace their new role. As our envi-ronment transforms, human nature is to hunker down because we want to find comfort. Many will be far too busy doing what they have always done. Many will spend a lot of time protecting and defending the status quo. Why? Quite simply, because we’re famil-iar with it. We know how it works. We have an investment in it. It has made a lot of money for us. It got us to where we are today.

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Therefore, the mind-set is that we have to protect and defend it any way we can.

An additional burden CIOs have is the nature of the work itself. They have to maintain the existing system to make sure it’s work-ing, that there are no breaches, that it’s being upgraded, etc. After all, you have to keep the organization running smoothly during the transforming time. But if that’s all you’re doing—maintaining what’s already there—then your role is tied to the past and your rel-evance is decreasing every day. So while you do have to maintain your current and past systems, your new most important role is to drive internal and external innovation. And because innovation is increasingly technology-driven, the CIO is in a perfect position to lead this evolutionary revolution.

The fact is that the ability to innovate has never been more possible and has never happened faster. In transformational game-changing times such as we’re experiencing now, the key rule is this: If it can be done it will be done … and if you don’t do it, someone else will. Likewise, if you don’t change the focus of your CIO role, someone else will.

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THE FUTURE OF CORPORATE IT LOOKS A LOT LIKE GOOGLEBY JEANNE G. HARRIS, ALLAN E. ALTER, AND KELLY L. DEMPSKI

They tweet. They showroom. They pin and like and yelp. And whenever they do, customers accelerate corporate IT’s biggest challenge: to rethink and reinvent itself. The implications stretch beyond any one hot seat in the C-suite.

More than ever, customer experiences are based on a foundation of technology and delivered to a digitally savvy population. Digi-tal experiences come in many guises: mobile apps, websites, how-to videos on YouTube, LCD screens on products (think of exercise machines that track calories burned). Some experiences come through channels that companies can influence but not control, such as social networks and review sites.

Digital experiences unleash more ways for companies to influence and satisfy the customer, and differentiate themselves from com-petitors. But there’s a catch for CIOs and other tech-minded execu-tives: to keep creating opportunities, companies must keep chang-ing the experience or fall behind. Each generation of technologies raises customer expectations beyond the last.

In part, this is because customers will keep raising the bar for satis-faction and attention as they use the new technologies and services. But emerging technologies will also enable customer experiences that are far superior to those of today. For example, companies will anticipate customers’ future needs and act like personal advi-sors. Already, Google Now works on an “anticipate and deliver” basis: the technology delivers information that’s needed before it’s requested. Companies will assist customers as they cross back and forth between physical stores and the online world. Spanish cloth-ing chain Desigual has moved part of the way there, creating flag-ship stores in Paris and Barcelona that only stock samples the cus-tomer can try on different looks, then purchase the clothes online.

Tomorrow’s digital experiences will offer new kinds of value, solv-ing needs that did not exist before in locations that didn’t exist before. When driverless cars roam the freeways, cars are no longer just vehicles. Their interiors will be designed to be whatever pas-sengers want, be it a theater, office, or shopping mall on wheels. And who wants digital gift wrap? An MIT start-up called Delight-fully is betting people who give online gift certificates will appreci-ate it.

The problem for companies is that once customers see something cool, different, or better, they expect to see it everywhere. This puts

immense pressure on the organization to keep up with the compe-tition while trying to innovate in its own right. It’s a digital arms race, and corporate IT and other functions must be battle-ready.

How can companies exploit digital technologies to deliver compel-ling customer experiences time and again? Executives across the C-suite will need to work together with corporate IT and F.O.C.U.S.:

■■ Frame strategy based on a new model of customer interaction. Traditional customer acquisition strategies won’t work because the path to purchase is no longer linear. Customers now find, evaluate, discuss, and buy products nonstop, bouncing from one stage to another. A complaint on Facebook or a recommen-dation on a fan’s website can hasten or redirect a purchase. This upheaval requires a new way of thinking that spans the physical and digital worlds.

■■ Optimize marketing efforts to achieve influence at scale. Word of mouth still influences purchasing behavior. Only now, social networks increase that circle from a few trusted friends and fam-ily to hundreds of people online. By studying what customers do with social media, and identifying their sharing patterns, compa-nies can provide attractive online social content at the right time to the right people.

■■ Create new digital experiences by adopting Silicon Valley’s approach to innovation. The tech staffs at companies like Google, Facebook, and LinkedIn use agile, iterative develop-ment techniques to deliver improvements fast. They quickly test new services and features with actual customers and data. And by tapping crowdsourcing and open source communities, they bring more ideas to the table and turn them into products fast.

■■ Use in-depth analytics to understand customers better. Creating digital experiences built on the cloud and analytics will rewrite how marketing and sales teams work and break down internal silos. For example, when companies capture and analyze their customers’ interests, and integrate them with data from other sources, marketers and developers can better predict and influ-ence consumer behaviors and deliver more personalized expe-riences. Social media and marketing data can also be integrated with warranty data and post-sales and service feedback.

■■ Set up enterprise IT that can design, build, and run digital experiences. The bottom line for CIOs: To serve the accelerat-

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ing demands of digital customers, IT organizations will have to behave more like Amazon or Google, and less like their traditional competitors. Legacy systems often prevent it. They are unable to manage unstructured or non-numeric data, or too inflexible to develop new features at Valley-like speed. But that won’t be acceptable to other executives. They will wonder why their IT organizations can’t be more like Facebook’s “hackers” and make thousands of bug fixes, improvements, and new features each week. For corporate IT to remain relevant, it must get its house in order now or risk irrelevance. If rethinking corporate IT leads to a fresh start for corporate IT, so be it. The business side cannot afford to wait while today’s customers tweet, like, and yelp.

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PLATFORMS ARE THE NEW FOUNDATION OF CORPORATE ITBY MARK P. MCDONALD

Reinventing corporate IT requires recognition of deep differences between what we have today and what we need in the future. These differences go to the foundation of the modern corporate IT depart-ment—the infrastructure—which includes the software, hardware, communications, facilities, data centers, operations, and other technical resources a corporation operates. This infrastructure sits on top of a publicly available substructure of assets and resources—telecommunications and the Internet, for example. Infrastructure and substructure support the information, processes, applications, rules, and channels that are the face of corporate IT.

Infrastructure largely determines the IT organization’s structure, its budgeting, how the corporation goes to market, its legacy, and its capacity to change. It embodies the long tail realities of major busi-ness and technology decisions, resulting in an IT department strug-gling to manage multiple costly and incompatible infrastructures.

The days of seeking a single, one-size-fits-all, one-price-feeds-all IT department are numbered. Infrastructures are under assault technically, functionally, and financially. New digital technologies like mobile, big data, analytics, the cloud, social media, and sen-sors represent fundamentally different types of solutions than do proprietary transaction technologies such as enterprise resource planning. Consider:

■■ Standards-based (rather than proprietary) technologies in mobil-ity, Internet protocols, and open APIs demand shorter applica-tion and infrastructure development cycle times. Standards reduce not only the amount of technology but also the risk asso-ciated with bringing new and legacy technologies together.

■■ Functionally, digital technologies are front office, customer-facing, and demand-generating. They’re the business’s brand. Digital demands move at the pace of the market, competition, and customer expectations rather than the upgrade cycles of IT vendors.

■■ Financially, infrastructure is simply too expensive and consumes too much in its present form. CIOs need to provide infrastructure at a lower cost and with more agile capability. Even current cloud and virtualization technologies, which often lower unit costs, don’t change the drivers and structures of those costs. It is only a matter of time before growing digital transaction volumes over-whelm these technologies in their current forms.

Increasing needs for speed, creativity, low cost, and flexibility demand that we move beyond infrastructure to platforms. A plat-form is the collection and integration of common resources that support multiple business operations. Financial services compa-nies have platforms that allow them to release new products with-out having to replace their infrastructures. Facebook, Google, and other digital companies invest in similar capabilities, which give them a seemingly endless stream of innovations and experiments from a single platform.

“Plures ex uno”—or many out of one—is the goal of a digital plat-form. Note that this is the opposite of the motto of the United States—“e pluribus unum” or one out of many. The comparison is apt, as corporate infrastructure is federated in nature with limited viability in the digital future.

A platform is more than a service-oriented architecture on ste-roids. Platforms look at technology with a business view organiz-ing around specific business actions like one-click sales, search, description presentation, and pricing. These common actions treat information rather than business logic or code as the source of spe-cialization. This enables platform companies to add new features and functions once that are available to all or just a part of their customers, giving them the flexibility and adaptability required in modern business.

Platforms reflect the heterogeneity of digital technology, allowing each part to change without disturbing the peace across all compo-nents. Platforms are critical for a world of consumer-driven tech-nology, multivendor competition, and standards wars fought in the marketplace rather than the lab.

Platforms fit the economics of digital business. They provide a means to gain scale efficiencies from across the enterprise rather than trying to drive them across individual infrastructures. This is essential in a world where IT transaction volumes grow faster than business purchases. Consider online banking where many transac-tions are free of charge but have a real cost to the bank. Platforms provide a way to drive down transaction costs and preserve com-pany margins.

Platforms require more than stitching together existing infrastruc-tures. More interfaces, more integration, and more condition-spe-cific logic may be interim steps, but they only add cost, complexity, and core rigidity in the corporation.

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Achieving the functional and financial benefits of a platform involves going back to the basics of business—not transactions. Yes, the devil is in the details. And yes, we have tried a service-oriented architecture and virtualization before with mixed results. Rein-venting corporate IT requires more than changing the role of CIOs and IT in a digital age. Reinvention at scale must extend down into the fundamental drivers of IT cost, quality of service, and future flexibility. That starts with reinventing the foundation of IT and abandoning the infrastructure model.

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SHOULD YOUR CIO BE CHIEF DIGITAL OFFICER?BY GEORGE WESTERMAN

We’ve all seen it. CIOs who do great things in leading IT soon gain extra responsibilities. By helping business leaders improve their businesses, the CIOs become obvious candidates to fill any open role that involves technology, process, or strong governance. Some CIOs become CIO-Plus-COO or CIO-Plus-Head of Shared Services. Others gain new responsibilities in strategy, M&A integration, or innovation. Still others move on to business roles including CEO. In the book The Real Business of IT: How CIOs Create and Communicate Value, Richard Hunter and I coined the phrase CIO-Plus. In the four years since our book was published, the CIO-Plus idea has gained real traction, and there are numerous stories and case studies on the phenomenon.

But there is another leadership role that has arisen in many orga-nizations in recent years: the chief digital officer (CDO). In many companies, “digital” is a cacophony of disconnected, inconsistent, and sometimes incompatible activities. One company had three simultaneous mobile marketing initiatives, conducted by different groups, using different tools and vendors. Other companies have multiple employee collaboration platforms with different rules and technologies. The problem is exacerbated as business units do their own things digitally, or as companies hire vendors who can do things only their own way. If your company has wildly different digital marketing activities for each brand or region, you know what I mean.

The CDO’s job is to turn the digital cacophony into a symphony. It’s OK to experiment with new businesses and tools, but experimenta-tion must be coupled with the building of scalable, efficient capa-bilities. The CDO creates a unifying digital vision, energizes the company around digital possibilities, coordinates digital activities, helps rethink products and processes for the digital age, and some-times provides critical tools or resources. That’s why Starbucks—an early leader in all things digital—hired a CDO last year. And it’s why many other companies are naming CDOs before they get too far along the digital road.

The title CDO may or may not become permanent in your com-pany. But the responsibilities of the CDO will be required. You may appoint a temporary CDO to get your house in order, or you may develop other ways to get the job done. Whatever approach you choose, you need to create appropriate levels of digital technology synergy, brand integration, investment coordination, skill develop-ment, vendor management, and innovation over the long term.

Is CDO the next step for the aspiring CIO-Plus? The answer is not obvious, but it’s well worth considering. Many of the CDO’s roles are challenges that great CIOs have already mastered in their own domains. But some, such as brand synergy, are new to the CIO. Diverse companies are responding to the digital leadership chal-lenge in different and dynamic ways.

Although relatively few CIOs have an official CDO title, roughly 20% of CIOs in Gartner’s latest survey said they played the role. At Codelco, the world’s largest copper mining company, CIO Marco Orellana is helping fundamentally transform the process of mining and selling through digital technologies such as real-time coordina-tion, analytics, and autonomous vehicles. At Asian Paints, Manish Choksi managed the difficult step of centralizing and standardizing processes across a loosely coupled set of regional units. Now, as CIO and chief of corporate strategy, he leads the digital transformation of manufacturing, selling, and customer service.

In some companies, the CIO and CDO are deliberately separate roles. The CIO of an apparel company participates in digital deci-sions and supports digital initiatives while keeping the company’s traditional IT unit running smoothly. He is not seen as a potential CDO, but the company values his skills in a strong supporting role. Meanwhile, Starbucks’ CDO Adam Brotman and CIO Curt Garner work very closely as a team to drive digital strategy and execution.

Then again, executives in some companies feel their CIOs do not have what it takes to be part of the digital conversation. The CIO of a business services provider had little role in digital at all; the CEO asked him to focus only on legacy IT systems while a newly hired CDO managed digital activities. Two years later, the company moved all IT functions under the CDO, and the CIO moved to a new firm.

So, should your CIO take on digital responsibilities? Here are some questions you can ask yourself:

■■ Is your CIO great at the CIO role? Is IT clearly running well? Are IT costs and agility what you want them to be? If your answer to these questions is “no,” then you probably want your CIO to focus on fixing IT, not expanding beyond IT.

■■ Is your CIO ready for a CIO-Plus role? Do you see your CIO as a senior executive colleague or just a leader of the technology function? Has he successfully managed nontechnical roles such as merger integration, process management, or shared services?

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Is your senior team smarter when your CIO is in the room?

■■ Does your CIO have digital expertise? Can she talk the language of social media or mobile or analytics, and can she help you under-stand? Does she understand the digital threats and opportunities your company faces—from inside and outside its industry? Can she create a compelling digital vision for the firm?

■■ Will your CIO command respect across the enterprise? The CDO role can require even more political savvy and communication skills than the CIO role does. Is your CIO up to the task of driv-ing change across a strong-willed senior executive team? Can she engage a busy workforce to turn digital vision into reality?

In an increasingly digitizing business world, most companies need better digital leadership and coordination. You need to create a compelling digital vision, coordinate digital investments, drive appropriate synergies, build a clean technology platform, and fos-ter innovation. You need to energize a busy workforce and generate shared understanding in your senior executive team.

If your CIO is good, look to him for help. Strong CIOs have already tackled some of the tough challenges of digital leadership. They understand the importance of governance and policy. They know the intricacies of managing across organizational units. They tend to be highly connected with senior executives, having helped them achieve their objectives over the years. They know the current busi-ness and the future opportunities technology can create. Plus, in any big company, it’s difficult—if not impossible—to build great digital capabilities without linking to your existing IT capabilities and people.

So, should your CIO be CDO? You need to get the digital leadership job done, whether through a new C-level title or through other methods. If you have a great CIO, give her some digital responsi-bility. You may not choose to make her your digital leader. But the skills and relationships of a great CIO will be an asset to any digital leadership team.

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AVOIDING THE SCHIZOPHRENIC IT ORGANIZATIONBY DONALD A. MARCHAND AND JOE PEPPARD

A pharmaceuticals company we’ve been studying decided to deploy more than 20,000 iPads and other mobile devices to the global sales force to improve its engagement with doctors in emerg-ing and developed markets. Over the next two years, this change in how salespeople interact with customers will redefine what the product content will be; how the sales staff will use a new CRM plat-form to record visits online; and how new insights will be derived from these interactions across sales, marketing, and brand manage-ment—ultimately driving decisions.

The impact on the company’s IT organization has been significant. It has never before rolled out something at this speed. Welcome to the new world of IT.

Increasingly, business leaders are driving transformation projects in areas like digital marketing, multichannel sales, and product content and customer information management, pushing the CIO and IT organization to respond in new, faster, and different ways. The timetable for implementing these projects is often months, not years.

For CIOs, the good news is that they’re now finding themselves at the center of business change with the opportunity to directly impact frontline business results. The bad news (if it is bad) is that business managers’ expectations of the CIO and the IT organization are soaring; they have a “no excuses” view of IT responsiveness.

This is giving rise to a schizophrenic IT organization. One side is focused on running global infrastructure and implementing big-system application programs over three to five years, where the emphasis is on compliance, security, reliability, and effective 24/7 operations. The other side is focused on “making IT happen” rap-idly without the complex plans and multiyear rollouts that have been institutionalized in large IT organizations.

The challenge for C-suite executives, including CIOs, is to avoid an either/or view of IT-enabled business change and to have the matu-rity to embrace both sides of the challenge at the same time. The logical response might seem to be to restructure and reskill the IT organization (again!) to accommodate the new demands—in par-ticular, to acquire the skills to deploy emerging technologies like mobile, social media, analytics, and big data. This, we contend, is unlikely to achieve much. What is required is a fresh perspective and novel thinking.

The perspective we are advocating is shaped by shifting focus away from portraying the challenge as nailing the design, competencies, and skills of a separate organizational unit. The fact is, IT use is per-vasive right across the organization; so any response should reflect this. Executives must consider IT less from the standpoint of a fac-tory (the current mind-set) and more from the perspective of how people are managed.

Just think about it: As a manager, you are intimately involved in hiring and managing your staff and appraising their performance; it is not something that you would ever consider delegating to the HR department. Your HR colleagues do have a role to play, but it’s an advisory, coordination, and compliance role. They may, for exam-ple, liaise with recruiters in identifying potential candidates, help in positioning any advertisements, and work with you to develop talent. Given that you are likely to be critically dependent on infor-mation and IT in the performance of your job, why is information and IT treated so differently?

Based on our research, we think organizations should embrace three interdependent roles for managing information and IT: orchestrator, broker, and value realizer.

The orchestrator role involves coordinating how information will be used across the organization, determining where enabling investments will be made, defining the architectural standards needed for integration and process standardization, balancing agil-ity and stability, and determining policies regarding the protection of information. The role also incorporates an oversight function.

The broker role revolves around the supply of IT, applications, and services. These may be brokered from in-house resources, although it is increasingly likely that they will be provisioned from external sources. Even if all applications and services come from the cloud, this must be done within a framework that takes into account both risk and architectural integrity. The role also entails continually assessing the economics and performance of supply to ensure that the organization continues to get the most bang for its buck.

The value realizer role is to ensure that the full value from IT investments is achieved. For new investments, this is about man-aging organizational change and driving use of information. This change enabled by technology must then be sustained over the life cycle of the investment for all the expected value to be delivered.

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While the details of these roles may not be new, how each role will manifest itself in an organization most definitely will be. We don’t see these roles necessarily aligning to a particular individual (e.g., the CIO); rather, you should treat them as a set of connected behav-iors, obligations, beliefs, and norms that will affect a broad range of managers and staff in an organization. (For example, this thinking will accommodate Gartner’s suggestion that the chief marketing officer will spend more on IT than will the CIO by 2017.)

Nor are these roles likely to reside in a single organizational unit (i.e., the IT function). The challenge is to reconfigure resources and accountabilities across the organization to meet the remit of these roles. This is where the shift in mind-set provides the foundation. This will not be easy, but it’s the challenge business leaders face if they are to avoid the schizophrenic IT organization.

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MOVE BEYOND ENTERPRISE IT TO AN API STRATEGYBY THOMAS H. DAVENPORT AND BALA IYER

For the vast majority of organizations, the IT function’s focus has been inside the enterprise. They might allow some occasional web-site browsing by employees (though many sites are banned), and perhaps an inbound website or intranet for customers to enter an order. The focus, however, has been on protecting a walled garden of information transactions.

We think the emphasis should instead be external. Toward this end, we increasingly see sophisticated organizations competing in an “API economy” in which application programming interfaces are the primary approach to interorganizational collaboration and information exchange. APIs, which are specifications or protocols for how to exchange information or request online services from an organization, are already booming in online businesses. As more companies realize that information is key to their product and ser-vice offerings, and that they need an ecosystem to provide those offerings, APIs will grow further in popularity. Many of today’s eco-system members are coders and app developers, and APIs are how they interface with provider organizations.

Netflix provides a great example of the role of APIs in a success-ful information-oriented business. Correlation is not causation, but there seems to be a close correlation between the growth of Netflix’s stock price and the rise in the number of API calls it gets. The latter figure is close to 50 billion per month now (from about 2 billion three years ago), which is a powerful indicator of how open the company has become. Netflix makes movie and TV content available through a variety of devices, from iPhones to PlayStations to many “smart” TVs. The company also makes available other information content to many sites, including its catalog, recom-mendations, and ratings. All this content makes its way to sites and devices outside of Netflix through the magic of APIs.

Other companies with strong API-based ecosystems are Salesforce.com, Facebook, Twitter, Google, and eBay. All have seen fantastic growth. They all need API-based ecosystems because consumer demands are hard to predict and they use a wide range of devices. Opening up APIs lets organizations outsource innovation by allow-ing third parties to experiment with their information assets and share revenue streams. They can also control usage when neces-sary by limiting access to partners they choose.

However, there are other sectors that have not yet opened them-selves up to ecosystems with APIs. Health care IT, for example, is

a largely closed industry; health records systems like EPIC and GE Healthcare IT are protected environments, largely closed to exter-nal ecosystems. One exception to this pattern is athenahealth, a Boston-based software-as-a-service health records system com-pany that is trying to engender a health information ecosystem. Called “More Disruption Please,” the movement has elicited a few development partners, but CEO Jonathan Bush would like to see more. RunKeeper, a tracker of fitness activities, has had somewhat greater success in building an ecosystem, but it’s more about fitness data than health information.

Of course, an API strategy is not a binary decision—to use it or not to use it. There are public (open to everyone) and private (open only to certified developers or partners) APIs. There are free APIs (Google’s, for the most part, although Google charges under certain circumstances) and flat-fee or revenue-sharing ones (Apple’s, for the most part). There are information and services that you want to give your ecosystem access to, and those that you probably should keep to yourself. In short, your organization needs to debate the various elements of an API strategy, and then you need a set of gov-ernance mechanisms to enforce it.

So if your enterprise IT is only focused on the internal enterprise, you’re already falling behind in the API economy. You need to start building an ecosystem, and APIs are the way to do it.

FEATURED COMMENT FROM HBR.ORGExcellent post … very interesting concept and trend.

[This blog post] has made me think about using this for client-facing purposes. —Sukumar Rajagopal

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Salesforce.com

Salesforce.com

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HOW IT PROFESSIONALS CAN EMBRACE THE SERENDIPITY ECONOMYBY DANIEL W. RASMUS

With Frederick Taylor’s invention of scientific management in the 1880s, and its subsequent assimilation into what we now consider modern management, organizations have used logic and rationality to eliminate waste, seek efficiency, and transfer human knowledge to tools and processes. This perspective created the industrial econ-omy lens through which most managers perceive their operations.

The industrial-age economy does not exist in a vacuum. Running alongside it is the Serendipity Economy, an economic space where often random, always unanticipated interactions occur that may lead to value. Industrial-age measures can’t evaluate Serendip-ity Economy results, and so leave its outcomes like invention and innovation, process improvements, and new businesses relegated to the evidence of anecdote.

IT professionals need to recognize and embrace the Serendipity Economy in order to better understand the impact of technology investments, improve employee engagement, and drive business transformation.

Serendipity into Performance

The depths of the Serendipity Economy can’t be plumbed in a sin-gle short post, but its principles and implications can be spelled out so IT professionals can turn ideas into action.

■■ The process of creation is distinct from value realization. Con-sider the slide deck. Microsoft provides productivity tools that create presentations quickly and efficiently. But nothing in Microsoft’s Office suite ensures that the resulting presentation represents anything of value. Cost and time savings should never be the primary reasons for purchase or upgrade decisions. IT needs to create models that examine and reflect the potential for enhanced value coming from such systems. For companies with existing productivity suites, the incremental improvements of new productivity features are small; however, the integration of collaboration features may significantly improve the value real-ization of the underlying productivity suite.

■■ Value realization is displaced in time from the act that initiated the value. A presentation developed for a conference does not produce much value until it is actually presented, an event which may occur weeks or months after the document is completed. Technology investments work the same way. Take for example 7-Eleven, a company that implemented enterprise social net-

working with no idea as to its eventual use. It languished for months, until 7/11/2011, during the company’s birthday celebra-tion, when franchise managers started sharing merchandizing practices. The managers haven’t stopped talking to each other. Not only have managers started sharing merchandizing insights, but they also share maintenance tips, and the corporate offices now regularly tap store manager knowledge to help interpret business intelligence results. The implication for IT leaders is that for horizontal technology, like collaboration and enterprise social networking, one must look past time and cost savings and track longer-term, often unanticipated payoffs.

■■ The measure of value requires external validation. Once a pre-sentation is delivered, the only way an organization knows whether the message landed is to ask. Serendipity Economy outcomes can’t be assigned a value associated with their means of production. These outcomes require feedback in the forms of surveys, discussions, or collaborative feedback to deter-mine what value they may have contributed. Thus, if a process doesn’t result in direct value, one should track and ask. Tags like #newproduct or #processimprovement can provide entry points for monitoring the progress of ideas that arise from, or quickly develop, within enterprise social networking environments. Use short, specific surveys to understand whether new technologies, or new ideas, are taking hold, and what value, if any, they may have generated, and how long it took for that value to be realized.

■■ Value is not fixed, and cannot be forecasted. The value of a knowledge asset varies depending on who receives it, when they receive it, and their perceived need for that asset at the time. This can’t be forecasted. Technology as well, deployed at one point in time and deemed useless, may reveal value as personal, busi-ness, and technological circumstances change. So don’t assign too much validity to return-on-investment models for horizontal IT products or services. The forecast will likely be significantly discounted from actual results that arise from serendipitous activity.

■■ You can’t anticipate the network’s potential for value or any actual value it may produce. The Serendipity Economy is not bound by the creation of assets, artifacts, or things. It also encom-passes human networks. Because of complex interactions, the current value of a network may change significantly depend-ing on who takes part; the topic of engagement; and the ability,

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capability, or permission to execute. That means small pilots won’t demonstrate the ultimate value or utility of any horizon-tal product or service. Rich and complex networks will result in serendipitous activity much more so than pilots. Deploy widely early, and monitor a broad spectrum of results for productivity improvements and serendipitous outcomes.

■■ Serendipity may enter at any point in the value web, and it may change the configuration of the value web at any time. Value webs represents human networks at work. These dynamic webs result in different potentials for generating and absorbing value. Changes in value webs reinforce the fluctuating value of knowl-edge or ideas, and this instability essentially eliminates the abil-ity to forecast value from the current state. IT leaders should therefore deploy systems that can adapt to changes, and lever-age those changes to produce outputs and outcomes that might not have been anticipated by the designers. In collaborations sys-tems, for instance, don’t overly engineer processes so that they constrain a system’s ability to adapt. The Serendipity Economy often unconsciously drives the broad adoption of enterprise social networking because it more readily captures, tracks, and facilitates serendipitous activities than do systems designed to control rather than empower.

Courage and Patience

IT leaders and their business counterparts need to acquire the patience to monitor serendipitous activity, and the courage to protect technologies and ideas that may take time to mature, or changes in circumstance to reveal their true value—and the will-ingness to empower people to embrace, explore, and follow seren-dipitous activity wherever it may lead. That means not just finding serendipity in the business, but examining your own shop for new value that can’t be found in lines of code per day or the speed of a call center response.

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IT’S C-SUITE PROBLEMBY ANDREW HORNE AND BRIAN FOSTER

Employees in today’s interdependent, knowledge-intensive work-place have IT needs that are diverse, fast-changing, and difficult to articulate. But when we at CEB ask CIOs who in IT is responsible for understanding and responding to these needs, we get an uncom-fortable silence.

For years, CIOs have sought a “seat at the table” by building strong links with senior business leaders. Their approach has been driven by the assumption that senior leaders speak for employees on the front lines. This may have been true in the past. But as the work-place becomes more collaborative and knowledge-intensive, and as employees’ IT needs diversify, the assumption no longer holds true. In fact, relying on senior relationships is not only inadequate, it can lead IT to pursue the wrong priorities. Instead, IT should interact directly with individual employees to identify their needs and to generate innovations.

The most progressive IT organizations are taking three steps to engage directly with employees and to better serve their needs:

Developing Employee-Focused Interface Roles

Service managers, business analysts, and the service desk all have roles to play in building stronger relationships with frontline employees. Service managers should understand what employees need from the services they offer and continually enhance their ser-vices to meet these needs. At progressive companies, we are begin-ning to see business analysts expand their remit beyond projects so that they, too, can help identify emerging needs. The service desk, if correctly resourced, can act as the eyes and ears of IT, picking up on employee challenges and needs in their day-to-day interactions.

Adapting Product Marketing for IT

Many of the techniques IT requires in order to understand employee needs already exist in marketing and product management. For example, we worked with a large packaging company where IT ser-vice managers adopted the concept of market share management. They track the penetration of their services and manage a queue of enhancements designed to boost their market share. The CIO at another leading company employs staff with anthropological and ethnographic research skills to shadow employees, since anthro-pologists are trained to spot hidden trends and behaviors unobtru-sively, without leading the witness or introducing biases.

Making User Experience Design an IT Priority

If IT only listens to senior leaders, investment in user experience tends to be deprioritized, as it is cheaper and faster to deploy whatever interface the vendor provides. Many companies spend money to improve interfaces used by customers, but don’t think the investment is worth it for their own employees. However, if you actually ask employees what they want from IT, an intuitive, easy-to-use interface comes high on the list. And user experience is even more important when employees can choose to use nonsanctioned external technologies instead. In response, leading IT groups are increasing their user experience capabilities and making usability an important measure of project success.

In each case, IT is treating employees as its customers and responding to their needs rather than to what the C-suite thinks those needs are.

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THE BUILDING BLOCKS OF SUCCESSFUL CORPORATE ITBY R. “RAY” WANG

The job of chief information officer has never exactly been easy. But massive disruptions in business models, technology, and the work-force have been throwing up massive new challenges for CIOs and other technology leaders.

Their organizations face disruption from both traditional and non-traditional competitors, and constant change. If they work for a product company, it may be looking to services revenue for growth. If they work for a service firm, it’s probably seeking new revenue from information-based differentiation. Meanwhile, information-based businesses—which used to sell, you know, information—now sell outcomes and peace of mind. We are in the midst of a digital business transformation in all industries.

On the technology front, the CIO’s once tight hold on the devices and software employees use has evaporated (except perhaps in the financial world, where regulation keeps legacy systems in place), as markedly better and more adaptable consumer tools have con-quered the workplace.

Meanwhile, CIOs must cope with five generations of workers—digi-tal natives, digital immigrants, digital vagabonds, digital voyeurs, and analog holdouts—who must work side by side. These workers bring different values on how to work, where to work, what to work on, when to work, and even why they work.

Consequently, CIOs and business leaders with a technology focus face more cacophony and challenge than ever before. On the plus side, though, they can play an increasingly key role in orchestrating and driving overall organizational success. Despite outward differ-ences by industry, organizational size, and geography, we’ve seen certain commonalities in those who successfully lead corporate IT amid rapid change. The persona of the next-generation CIO is evolving from chief infrastructure officer through chief integration officer and chief intelligence officer to chief innovation officer. Skill sets are changing and IT leaders must adapt or die (or at least go into another line of work).

Understand the three organizational building blocks

Many CIOs are of course already well aware of all this. Others in their organizations, however, are often less so. In our research and CXO panels, CIOs tell us there is a high correlation between organi-zational alignment and successful corporate IT. For a CIO or other technology leader to make the move successfully from infrastruc-

ture to innovation, three key building blocks must be in place.

1. Organizational DNA. Market leaders and fast followers seek transformational change; cautious adopters and laggards dip their toes into incremental change. Market leaders and cautious adopt-ers proactively seek change; fast followers and laggards take a reac-tive approach. (See accompanying chart.) CIOs in market-leader and fast-follower organizations can move quickly and push for a great amount of change. In cautious adopters, the politics are trick-ier—but not impossible. And if you work for a laggard, good luck!

2. Reporting structure. CIOs who belong to the executive manage-ment team can play the strategic role that’s key to success. As a member of executive management, a CIO can serve as both a util-ity and a strategic advisor to the business. Unfortunately, there’s a trend afoot to have CIOs report to the CFO, which relegates the position to a purely cost-centric, tactical role.

3. Budget. At most corporations, infrastructure consumes any-where from two thirds to three quarters of the technology budget, leaving little over for integration, intelligence, and innovation. Cor-porate IT success requires a reduction of infrastructure to 50% of the budget in order to fund the other, more forward-looking areas.

Having the right building blocks in place is essential to a CIO’s—and an organization’s—success. Corporate boards should take note. It’s not just CIOs who need to evolve. Organizations need to change as well to ensure that their technology investments lead to successful corporate IT.

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IT ON STEROIDS: THE BENEFITS (AND RISKS) OF ACCELERATING TECHNOLOGYBY BENT FLYVBJERG AND ALEXANDER BUDZIER

In 1998, RIM launched the BlackBerry. A year later, the second ver-sion got a full keyboard. Apparently, that was the feature users had been waiting for. Demand for the BlackBerry 850 soared. By 2004, RIM had acquired 1 million subscribers and only three years later surpassed the 10 million mark. In 2007, RIM celebrated its 12 mil-lionth subscriber and generated $1.67 billion in revenues. The same year, Apple launched its iPhone, featuring a touch screen and bet-ter web browsing. In 2008, RIM tried to match the new competitor. However, the new handset, its software, and the available applica-tions all failed to excite critics and customers.

When it comes to innovation in industries with strategically nar-row windows of opportunities, speed is everything. RIM is just the latest company to learn this lesson. Before it, Motorola and Palm suffered similar fates.

This quickening pace—what academics and journalists have called innovation on steroids — is beginning to reach IT departments.

The first big change in the speed of IT delivery was the proliferation of “as a service” offerings. To date, the trend has been associated with fairly standard products, such as customer relationship man-agement software, web servers, or SQL databases, but the theory of the innovator’s dilemma suggests that it will most likely move up the stack in the future. Disruptive innovations begin at the low-margin, high-commodity end of the stack and move upward over time, and IT is most likely not going to be an exception.

Most CIOs will benefit from this trend through increased competi-tion, better prices, and quicker provisioning. At the same time, the trend also heightens the expectations of CIOs’ internal customers to deliver better solutions at greater speed.

A second accelerant of IT delivery is the iterative software devel-opment philosophy known as “agile development.” While the definition of agile is still very broad, at the core are values of flex-ibility, individual interaction, focus on outputs, and collaboration over more rigid planning-driven approaches. While not as old and not yet as mature as cloud systems, it warrants a closer look. Agile projects have focused on standard, noncritical systems. The crucial question is whether the method can be successfully scaled. To the extent that agile becomes the default method to build large-scale

IT projects, demands to speed up the delivery of IT projects will increase. In turn, the corporate IT project portfolio needs to adapt.

These pressures to speed up IT delivery come not a moment too soon. Research has shown that the longer an IT project, the higher the risk of cost overruns and further schedule delays. It showed that the longer the project, the higher the requirements volatility and in turn the higher the project risk. One implication is that any project management method that is based on the assumption that requirements can be frozen has set itself up for failure—another good reason why agile might be here to stay.

Our own research has further looked at the problem. The prelimi-nary results of a survey of nearly 4,300 IT projects revealed that long project schedules increase risks across all project types, not only in software development projects. Furthermore, we found that the longer a project, the higher the risk of the project turning into a Black Swan. A Black Swan is a project that runs out of control and incurs massive cost overruns and schedule delays. Every year of additional project duration increases the odds of a project turn-ing into a Black Swan by 27%.

The speed of IT project delivery is increasing, and it should improve project performance and reduce risks. Yet the trend is not free from potential downsides, as the case of a large multinational telecom-munications company illustrates. The newly minted CIO imple-mented a simple policy to curb the ever-growing cost overruns and schedule delays that plagued the company’s IT project portfolio: no projects longer than 12 months. Other decision-makers have gone even further: the state government of South Australia recently declared it would only start IT projects estimated to take less than 90 days.

This simple tactic is seemingly backed up by the research. However, the policy, in the telecom’s case, had unintended consequences. The announcement that only short projects would be approved led to a preference for small, piecemeal innovations. Most focused on cut-ting IT costs. Unintentionally, this selection bias added complexity to an already complex IT architecture. After four years, systems had been tinkered with so much that new product launches not only became prohibitively expensive but also needed a very long time to market. Innovations were virtually prevented by stifling complex-

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ity. It took another very large IT project with all the risks that come with it to clean up the IT architecture, reduce complexities, and regain the capabilities needed to compete in the future.

The case shows that a successful strategy requires a CIO to know when the IT organization can and ought to go fast to reduce risks, and when the organization needs to go slow, even if that implies higher risks.

One might argue that viewing IT projects solely as budget items on a calendar is too much of an abstraction to capture the intrica-cies of decision-making and delivering IT projects. Yet we observed that IT projects are planned and supervised with very scant infor-mation. Basic budget and scheduling data are important signposts to steer the IT project organization. A CIO must know when the IT organization can and ought to go fast and when it is better to push back against the powerful forces that demand IT to deliver faster and faster. In short, strategic IT leadership in a high-speed world is about mixing fast and slow.

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IT HAS TO DELIVER GREAT TOOLS—AND TEACH PEOPLE TO USE THEMBY ANDREW HORNE AND BRIAN FOSTER

In a workplace that is increasingly collaborative and knowledge-intensive, many CIOs plan to create value by delivering these capabilities effectively. No wonder collaboration and analysis tools make up the single largest category of IT project spend. But much of this value is being lost because employees lack the skills to use these resources effectively. In response, CIOs must rethink how IT provides employee support and training.

A recent CEB survey of 25,000 employees globally found that about half of an employee’s contribution to business performance comes from his or her “network performance”—the ability to collaborate, to help others and, in turn, be helped by others, through activities such as teamwork, knowledge sharing, and peer coaching. Inter-estingly, network performance accounted for only about 20% of an employee’s contribution to business performance a decade ago. Despite the growing importance of these skills, our survey found that only one in five employees is an effective network performer, while the rest struggle to assist colleagues or make an impact when working in teams.

A similar story emerges around the ability to use data to make deci-sions. Another CEB survey found that more than 80% of employees collect data or use data for decision-making. Even in traditionally transactional and process-centric fields such as manufacturing or customer service, more than half the employees undertake at least some knowledge work. Although almost everyone now does knowledge work, not everyone is effective at it. In fact, only 38% of employees have the skills and judgment to use data for decision-making. The rest either blindly trust data regardless of its quality, or are overly skeptical and ignore sound analysis altogether and go with their guts.

Here’s the challenge for CIOs: IT is asked to deliver evermore-capa-ble tools for collaboration and analytics, but no one is responsible for ensuring that employees have the skills to use them. The result is wasted investment, and an IT team that once again faces ques-tions about value.

The whole C-suite has a stake in fixing this problem, and we believe that IT must play a part. We have seen progressive CIOs switch the

focus of IT support and training from teaching employees about the functionality of a tool to teaching them the skills they need to use the tool effectively in their jobs. Consider the following examples:

■■ Assess Team Readiness for Collaboration. Before setting up a collaboration tool, the IT group at a leading industrial company provides the team requesting the tool with a simple checklist to assess their readiness to collaborate. The checklist measures the clarity of the team’s objectives and work plans, and the strength of the relationship and communications between team mem-bers. It is used to flag potential problems within the team that can be remedied before the tool is deployed.

■■ Hire Quants Who Can Coach. Many IT teams include a group of analysts who conduct analyses and produce reports. These indi-viduals are highly skilled in analytic techniques and know the data inside out, but very few have the coaching skills to help oth-ers benefit from their expertise. However, a handful of organiza-tions are redefining these analyst roles and changing the hiring criteria so that coaching and communication skills become as important as technical skills.

■■ Teach the Decision, Not the Tool. The business intelligence (BI) team at a leading retailer revamped the training it offers the com-pany’s employees. In the past, employees were taught how to use the latest BI tools; now they can access a portfolio of resources to help them use the company’s data to make smart decisions. For example, IT runs road shows where employees learn how to capture new customer insights from a particular data asset, and provides e-learning with tips and tricks on spotting when data may be misleading.

While many IT leaders are reluctant to involve IT more deeply in training, these examples are all ways in which CIOs are taking capa-bilities IT already has—teams dedicated to collaboration and BI, expert data analysts, spending on employee training and support—and adapting them to ensure that money spent on collaboration and analytics pays back through greater employee productivity and insight.

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GOOGLE’S CIO ON HOW TO MAKE YOUR IT DEPARTMENT GREATBY WALTER FRICK

Running an IT department is hard enough under any circumstances, but imagine doing it at one of the world’s preeminent technology companies. Your customers aren’t haplessly trying to set up their voicemails; they’re experts in technology and expect it to work.

In that sense, you might think Ben Fried, Google’s CIO, has one of the toughest jobs in existence. On the other hand, few CIOs can boast a company culture as supportive of technology.

As part of our series on the future of corporate IT, I gave Fried a call and asked him about his job and where he thinks the industry is going. An edited version of our conversation is below.

Tell me about your role at Google, and what your purview as CIO includes.

I’m responsible for the technology that people who work at Google get as part of doing their jobs. That also includes the major line of business systems that power the back office and related functions of the company, as well as the frontline support and operations ele-ments for all that.

So what do you do at Google that is different than most IT departments?

One initiative is an area where IT has a harder time understanding its role traditionally: workplace technology. It’s all the productivity tools and technology you use to get work done that aren’t part of a line of business; it’s a large portfolio, but any company that has a company directory or something it thinks of as “the intranet” can relate. In a lot of workplaces, these technologies don’t get thought of in strategic terms, but they are actually most of the touch points people have with IT. I see a lot of CIOs spending a lot of time—which is very important to do—on major business initiatives. But I often see an inadequate amount of time spent where the day-to-day, most frequent touch points are, which is with all the other ways the people in the company are their users. One of the big changes that has come with the mass consumerization of technology is that IT needs to flip that around a little and spend more time focusing on the overall employee experience.

When the people you deliver technology to are technology experts—and it’s not just at Google where that’s the case, but at

any workforce that has people born within the last 30 years—it’s really important that you make sure that daily impression, that first impression they get of IT, is a good impression.

To do this you have to have IT people who are more knowledgeable about the technology and the best ways to use it than is the average employee. In the future, that kind of thinking is going to differenti-ate great IT departments from good IT departments.

If that’s the case, why isn’t everyone doing it that way already?

If you’ve got a problem with your laptop, the person you bring it to should be an expert who knows more than you do. I can’t tell you how many shops I’ve been to where the first person you bring your problem to is someone who is being paid, or whose employer is being paid, on a per-incident or a per-ticket basis. The standard approach is to apply tough cost control. That generally means that frontline employees, in many cases, are the lowest-cost-of-labor employees, who are generally working off a well-scripted common recipe of how to provide tech support. The sad thing is, a savvy knowledge worker can tell you’re dealing with someone who’s not really an expert. We take great pride in the fact that the people we hire to be that first touch point are our employees. And most of the time—over 90% of the time—they’ll solve your problem them-selves.

The first response when you talk to people who are marinated in the old ways of doing things is “That’s gotta be way too expen-sive.” It’s actually a lower-cost approach, because it’s faster for a more tech-savvy person to resolve the problem. Second, you can do more with a smaller support workforce as a result. Third, you get better people when you take this approach, because you get people who are attracted to solving hard problems. It turns out that this approach produces what I think is a virtuous cycle that brings costs down and customer satisfaction up.

Tell me a bit about how IT has changed since you came to Google, and how you see it evolving going forward.

One of the reasons why I really wanted the Google CIO job was I’d had these very early indicators when I was an IT leader at an invest-ment bank that the demographics among the users of technology had changed. I was starting to see the effects of having a deeply

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technology-savvy workforce across the company, and not just in IT. And I saw that that led to big change.

The changing demographics of the workforce are one thing that every CIO has to wrestle with. That is a workforce that is much more opinionated, much more rightly so, and comes to work already knowing how to work, already having made a choice about how it wants to work. And that’s the thing that CIOs face right now.

The other tidal force that CIOs face is this aspect of economies of scale, and economies created by vertical integration that really, really large cloud companies like Google have. Google has econo-mies of scale that I don’t believe any other organization in the world—and I’m including governments when I say that—have. And that’s a tidal force that will change the role of the CIO, because the cloud is going to become the better delivery mechanism.

It’ll be only so long that enterprises can hold out against that. One of the things I’d learned working for a number of CIOs was that IT is most commonly viewed as the largest cost center in the enter-prise. One of the reasons I wanted to come to Google was to have some small role in helping shape the direction of a product suite for enterprises. I thought, “Listen, I can be on the outside and have this done to me, or I can be on the inside.”

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THE NEW CTO: CHIEF TRANSFORMATION OFFICERBY DANIEL BURRUS

We all know that if you put a frog in water and slowly heat it to the boiling point, the frog will stay put and die. But if you throw the frog into already boiling water, it will quickly jump out. Today’s IT leaders have known about the exponential growth of processing power, storage, and bandwidth, but like the frog, they didn’t notice the boiling point approaching because the change has happened over so many decades. These three change accelerators are what lie behind today’s avalanche of business transformation, and they are directly affecting the roles of CIO and CTO.

In a recent article, I suggested that the role of the CIO needs to shift from chief information officer to chief innovation officer, due to the massive, rapid, multiple technology-driven transformations that are occurring today. And just as the CIO’s role needs to change, so too does the CTO’s—from chief technology officer to chief transfor-mation officer. This fundamental shift is necessary to elevate the position’s contribution and relevance.

While the CIO has historically been focused on the technology needed to run the company, the CTO has been responsible for the technology integral to products being sold to customers or clients. However, over the next five years every business process is going to undergo a major transformation. For example, IBM executives recently shared with me that over 40% of their profits are now coming from products and services that were impossible just a few short years ago. That reflects the transformative nature of business today as well as the speed of the transformation. This is just the beginning, and someone has to lead that transformation.

CTOs must embrace the role of chief transformation officer. No lon-ger will this position’s relevance be tied to how well he or she can oversee the development of technology. In the near future, the CTO will need to oversee the transformation of every business process, including how you sell, market, communicate, collaborate, and innovate. That means the CTO’s role will shift from aligning tech-nology to applying technology to accelerate business strategy, from communicating technology plans to the executive team to inte-grating a transformation imperative and applying the process to all executive-level planning. That’s a huge shift.

This also means that the CTO and CIO need to collaborate more closely. Because so much of the CIO’s traditional responsibilities are now virtualized with nearly everything as a service, the CIO is free to focus on innovation. Game-changing product and service

innovations can be more easily identified when transformation is a business imperative. With the CTO focused on identifying how to use technology to transform processes, products, and services, the CIO can use these insights to implement innovation.

For example, the CTO of Amazon, with a role focused on identifying transformational tools, would see that 3-D printing (additive man-ufacturing) has recently reached a turning point and is now being used to manufacture a wide range of products, from jet engine parts to human jaw bones. This turning point has already opened the door to a rapid revolution in customized and personalized man-ufacturing for companies of any size. The CTO would make sure the CIO sees that a transformative turning point has been reached, and working together, with the CIO’s new focus on innovation, they could craft a major opportunity by offering on-demand 3-D printing services for any individual or company.

Manufacturers of customized and personalized products would no longer have to own any manufacturing equipment, thanks to Ama-zon. Instead, they would focus on designing a product and sending the CAD design to Amazon, which would manufacture it with one of its industrial-strength 3-D printers best suited for the design and then ship it directly to the customer.

The Amazon strategy I described above has not happened—yet. But we all know that Amazon’s cloud services have proven to be both profitable and disruptive. It’s not hard to see how this new cloud-based manufacturing service would take Amazon to a whole new level.

It’s up to the chief transformation officer to ensure that your com-pany is the one that not only survives the inevitable transforma-tion, but also thrives after it. Only then can you experience trans-formation not as disruption but as ongoing opportunity that leads to lasting success.

FEATURED COMMENT FROM HBR.ORGRoles of CIOs and CTOs MUST change so that they can

be effective business partners with business leader-ship, and so that they can effectively serve and enable

their colleagues by systematically implementing new technologies in the company to enable capabilities that

executives AND implementers alike envision in a com-pany. —Thomas Winans

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IT DOESN’T MATTER (TO CEOS)BY ROBERT PLANT

In 2003, Nicholas Carr wrote a provocative article for HBR titled “IT Doesn’t Matter,” in which he stated:

“IT is best seen as the latest in a series of broadly adopted technologies that have reshaped industry over the past two centuries—from the steam engine and the railroad to the telegraph and the telephone to the electric generator and the internal combustion engine. For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking com-panies to gain real advantages. But as their availability increased and their cost decreased—as they became ubiquitous—they became com-modity inputs. From a strategic standpoint, they became invisible; they no longer mattered.”

This argument was derided by IT supply-side executives such as Steve Ballmer, Carly Fiorina, and Scott McNealy, but CEOs quietly applauded it. They had suspected all along that IT really doesn’t matter. Company leaders have quoted and lauded Carr whenever they’ve needed to justify their hesitation to create strong, progres-sive IT positions.

And they hesitate to create strong, progressive IT positions all the time. In fact, CEOs avoid IT like the plague. They resist getting their hands dirty alongside the CIO, even though many of them will read-ily get down into the mud of a balance sheet with the CFO or strat-egize the details of global brand issues with the CMO.

Because they distance themselves from IT, CEOs don’t grasp its subtleties. Nor do they understand the CIO’s role or, typically, the technologies that the company deploys. Consider the meager cor-porate progress over the past decades in easing two long-running headaches: enterprise computing implementations and corporate security.

Even after more than 20 years of implementations, a study by Pan-orama shows that 53% of ERP projects still run over budget, 61% take longer to complete than anticipated, and more than 27% fail to produce the positive ROI expected.

And Panda Labs recently published data indicating that at a basic level more than 27% of computers are infected with malware. Data breaches are on the rise, with a 44% increase in the number of records exposed from 2011 to 2012. There have been breaches at companies such as Global Payments (1.5 million records), Wyn-dham Hotels (600,000 credit cards), eHarmony (1.5 million pass-words), LinkedIn (6.5 million passwords), Zappos (24 million

records), Heartland (160 million credit card numbers), and even the Texas attorney general’s office (3.5 million records).

Social media is now part of the security picture too: Between Q2 and Q4 2012 the number of Twitter accounts grew 40%, but the growth was accompanied by hacks such as those at the Associated Press, the FT, Human Rights Watch, France 24, the BBC, and Burger King—all of which reveals a deficit of security measures and a poor contextual understanding of the technology.

These and other IT-related problems are rooted not in technology but in leadership failings. The people in the C-suite don’t under-stand IT problems, don’t provide adequate resources to solve them, and don’t approach the issues as members of unified technology-literate teams.

To address these shortcomings, companies can take action in three areas:

■■ Literacy. Senior leadership needs to become literate in technol-ogy. IT isn’t somebody else’s job, it’s ultimately theirs. Boards should require that CEO candidates demonstrate not just knowl-edge of finance and marketing but also a technology aptitude.

■■ Accountability. Boards should make CEOs accountable for tech-nology failures and data breaches. The compensation committee should push for clearer links between pay and performance for IT-related activity (which ultimately is nearly everything most firms do). These links should be described clearly in the annual report so that analysts can scrutinize them.

■■ Frequency. The senior leadership group mustn’t just pay lip ser-vice to the CIO and his or her team. The CIO’s group is at the core of the business; it runs the company’s nervous system (ERP) and immune system (security) and connects all internal and external entities. Technology updates should be provided to the senior management team with the same frequency and rigor as are financial statements, and signed off on by the leadership team as part of the pay-for-performance framework.

It’s true, in a sense, that enterprise computing is like a utility. Data flows through every company like water, gas, and electricity. But there’s a difference. Computing’s functionality undergoes constant, dramatic increases, and as it does so, it opens huge new opportuni-ties and leaves the company vulnerable in unexpected ways. While technology can’t give you a permanent competitive advantage,

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timely deployment of new IT products, processes, and systems can enable you to build a strong competitive position.

Corporations’ technology strategies will remain ineffective until leaders acknowledge that now, as always, IT does matter.

FEATURED COMMENT FROM HBR.ORGWith the new paradigm of cloud computing, big data,

and the consumerization of technology, the existing models are outdated. A major shift is occurring ….

There is an older generation of CEOs that will need to make way in a generational shift before any of the true

gains are realized. —Mike Sangha

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A BOARD DIRECTOR’S PERSPECTIVE ON WHAT IT HAS TO GET RIGHTBY JAMES I. CASH, JR.

Over the past 30 years I have served a large range of organizations as either a director or a trustee with the specific role of helping them exploit IT for competitive advantage. From my experience, I believe that there are four highly interdependent categories of con-tributions the CIO and IT function should make.

1. Generating Top-Line Growth

I’m often struck by how many articles exclusively focus on new or emerging technology and their productivity or efficiency effects. Every discussion on the role of IT and CIOs should start with the question: “What are the potential uses of this technology that will guarantee we stay in business?” This question attempts to tease out an unconscious assumption that “we will always be in business.” (Note that the high-profile C-suite executives at firms like Borders, Jessops, and Bank of New England had large IT budgets, but no lon-ger have companies to make more efficient today.)

The best answers to this question generally protect or generate top-line growth. Recent, well-documented examples include Pro-gressive Insurance’s use of predictive modeling in the property and casualty insurance space and the many industrial manufacturing companies that are generating almost all their margins and profits from after-sale, value-added services based on information gener-ated by embedded sensors.

As many companies move from exclusively internal-focused R&D to distributed innovation systems (e.g., P&G’s Connect and Develop) to increase velocity and quality of their new product introductions, the IT infrastructure support for this business process change becomes critical.

A new component of the IT function must be developed to support this category of work: the Distributed Innovation Group (DIG). DIG is responsible for emerging technology, collaboration methods and technology (e.g., online idea markets), the center of expertise for innovation support, and analysis across the enterprise.

2. Improving Operational Efficiency

IT has been primarily used to significantly increase productivity and reduce communication and coordination costs as measured in money and time. For mature, large-scale, multinational com-panies, there is a virtuous cycle of efficiency improvements that

frees up resources, which can then be deployed for growth and innovation projects. The biggest opportunities for these companies are simplification and horizontal integration projects. These proj-ects reduce time, cost, and variability while improving quality and transparency. They frequently are anchored by the establishment or enhancement of shared services organizations that cross tradi-tional organizational boundaries.

The biggest challenge is identifying the associated cost savings and headcount reductions and ensuring that these funds or resources are allocated to growth and innovation projects. Frequently, movement of storage costs from in-house to a public cloud, or replacement of an in-house sales support system with an external software-as-a-service vendor, is not measured and captured for purposes of reinvestment in Category 1 projects.

A second, new component of the IT function should be dedicated to this category of work: the Enterprise Integration Group (EIG). EIG is responsible for enterprise architecture, the center of expertise for simplification and integration methods, process, and program management.

3. Ensuring Effective Corporate Governance and Controllership

The spread of capitalism and the associated growth in emerging markets provide organizations of all sizes with an opportunity to participate in globalization. The geographic dispersion that accom-panies these opportunities frequently challenges traditional man-agement control systems and controllership.

Additional challenges come from “localization” requirements in many countries. IT-based management control systems, starting with finance and human resources and including distributed inno-vation systems, are critical to ensure that policies and governance guidelines are effectively implemented in geographically dispersed locations. The EIG through its enterprise architecture work will require the embedding of controllership functions in applications and process design.

4. Participating in Strategy Formulation

Whether formal or informal, all large-scale companies have strat-egy-formulation and strategy-implementation processes. Many IT functions are involved only in the implementation phase. The

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pervasiveness of IT requires more organizations to describe the role and effects of IT during their industry and competitor analysis (ICA), which is more robust when the most technically literate pro-fessionals in the company are involved. In most, but not all, organi-zations, these people are the leaders of the function. However, they are required to also have significant ICA literacy and communica-tion skills to help generate strategic options for the organization. Primary responsibility for this input lies in the DIG.

In summary, the challenge of closing the gap between emerging IT and the ability of companies to exploit it requires two new capa-bilities: the Distributed Innovation Group and the Enterprise Inte-gration Group. They can help companies exploit rapidly evolving information technology and implement a virtuous cycle of revenue growth and operational efficiency improvements.

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C’MON, IT LEADERS. TAKE A CHANCE! BY JIM STIKELEATHER AND SANJIB SAHOO

Businesses mostly seek to avoid risk. Leaders equate risk with potential failure, so organizations have morphed into hierarchical, fixed systems to constrain variability within an acceptable range that has become progressively narrower. As a result, in recent years, innovative ideas have been stifled and entire industries have fallen into the death spiral of cost/price-cutting commoditization. Enter-prise IT is no different.

To respond to the volatility, uncertainty, complexity, and ambiguity of the business environment today, IT leaders need to address risk differently by looking at it in totality and questioning their assump-tions, challenging long-held assertions, and recognizing both the analytical fallacies and less-than-perfect cognitive processes they use. Instead of risk = bad, leaders need to understand that today calculated risk = innovation, meeting marketplace demands, leap-frogging competition, and creating true profit.

Understanding Risk

Risk is a necessary feature of innovation. It requires us to weigh all the potential benefits and harms of one choice of action over another, and to balance positive potentials and stated priorities to achieve desired outcomes versus potential harmful outcomes. Few IT leaders understand and consider all these risk factors in their decisions, or develop the skills to address them:

■■ Decision risk: To make a decision or not, when the consequences of not making a decision, not challenging common wisdom, or not reevaluating basic business assumptions, overly weighted worst cases, invisible bureaucratic biases, or prejudicial framing (relative, absolute, 40% loss = 60% win) all contribute to decision risk.

■■ Adoption risk: Adopting technologies or responding to market, business, and technology trends too quickly or too slowly; acting reactively or with too much thought, without considering how nontechnical implications or unintended consequences contrib-ute to adoption risk.

■■ Execution risk: A wrong execution model or poor execution can make a project run too long and cost too much, leading to a total loss of focus and a reduction in value creation. This risk also comes from not adequately considering the organization’s energy, skill, and policies to accomplish the project.

■■ Leadership risk: Psychology has found that “for most people, the fear of losing $100 is more intense than the hope of gaining $150,”

and IT leaders are no exception. This loss aversion prevents them from taking appropriate risks.

■■ Identity risk: Constraining innovation to known specific infra-structure or platform stack; focusing on project completion success rather than value creation success; attending more to technology issues than to business issues; taking psychologi-cal shortcuts like “the illusion of knowledge” where familiarity hides ignorance and the “the illusion of truth” where repetition substitutes for evidence; overconfidence—all these contribute to identity risk.

■■ Cultural risk: Having a “failure is unacceptable” culture causes total risk avoidance or an inability to cut losses and walk away from a decision that doesn’t work out—a trap of “escalation of commitment to a losing course of action.” It prevents the wisdom of learning from failure.

■■ Reputation risk: C-suites fear their brands’ reputations, neglect-ing what’s best in creating value for the business or custom-ers, and letting the bureaucratic brand image, which mistakes appearance for relationship and form for content, prevent exper-imentation.

■■ Measurement risk: Failing to measure the real goal of innova-tion; focusing on project progress rather than on value created, and turning management measures into goals instigating aber-rant behavior.

■■ Opportunity risk: Applying scarce resources in one area of IT pre-cludes investment in another, which presents the risk of missing an opportunity. Inaction disguised as patience and impatience also contribute to opportunity risk.

This taxonomy should help IT leaders take better-calculated risks in the future, as long as they bear these six truths in mind:

1. The failure to take on value-adding IT projects is worse than taking on IT projects that fail. Failing to deliver new capabilities to the organization is the most significant risk controlled by IT. Almost half of IT projects run over budget and about 56% deliver less value than predicted. Fear of failing means many choose to do nothing. However, it is not failed projects as much as projects not taken on that will most influence the future success of an enter-prise. Research from the Standish Group suggests higher failure rates result in more total value generated for the enterprise. Accept failure, do not accept not trying.

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2. A focus on acquiring gains will lead to better results than will a focus on avoiding losses. Many new projects get hung up on the chance of failure. Business and IT leaders need to view the glass as half full—a 40% chance of failure is a 60% chance of success. The value of an IT investment must not be based on its cost, but rather on the capability to generate value that it might bring to the orga-nization. There is no safe innovation, only varying risk and reward.

3. Trying to preserve past investments delays value creation. Busi-nesses make irrational, fallacious decisions on prior sunk costs. IT is particularly prone to this when trying to force-fit everything into a previously acquired hardware or software platform, regardless of its applicability to the problem being addressed. Trying to preserve past investments or force-fit capabilities into unsuitable platforms delays value creation, increases prospective costs unnecessarily, and creates applications that are not fit for actual use. Sunk costs don’t count.

4. IT creates risk by confusing leadership, governance, and man-agement. IT often fails to step up to its leadership role, identify-ing instead with “aligned with the business.” This outdated think-ing can be disastrous. IT must lead by showing how technology is applied in IT itself, then by influencing and guiding the organiza-tion to make the right decisions and come up with an innovative product plan. Then, IT must direct and restrain, but not hinder, the use of technology—how it is developed, sourced, and applied in the best interests of the organization and its stakeholders with appro-priate governance mechanisms. Last, IT must monitor and manage the delivery and application of IT to serve the organization, even if it is not the primary source of delivery. The risk of a wrong decision is much less than the risk of no decision.

5. Small IT failures provide great opportunities to learn. This is called “failing forward.” Risk doesn’t involve putting all your fund-ing into a huge project only to watch it crash and burn. Rather, IT leaders should fund small innovation projects, preferably of a non-mission-critical nature, as experiments first. The lessons learned from “thinking big, starting small” can be critical when it does come to the bigger projects down the road, and can help IT earn credibility when it presents a business case for these projects. Don’t measure and punish failure; measure and celebrate learning.

6. Failing fast and moving forward is a big win. If IT projects have to fail or a strategy needs to change, failing fast helps prevent los-ing big. Small, agile cycles of development and risk assessment help one to measure goals, evaluate success, and easily change execu-tion strategy. Asset-light models always beat capital investment until predictable scale is achieved. If the next step needs a budget, it is too big a step.

If IT leaders can take better calculated risks, organizations can be tremendously successful. Companies with broader risk manage-ment outlooks and practices outperform their peers, according to a survey from Ernst & Young. Apple, Amazon, and Google are not the only examples of risk-taking or game-changing innovations.

Dun & Bradstreet, known for its insight on businesses, went a notch ahead when it launched data-as-a-service. Even more impres-sively, its spinout Dun & Bradstreet Credibility Corp. totally trans-

formed and integrated its existing technology platforms from sev-eral expensive legacy systems into a single platform utilizing SaaS, cloud, and open source technologies.

Netflix is another example of disruptive innovation. The movie-by-mail program was enhanced by the streaming option in 2010, and slowly it killed all its competition, like Blockbuster. Interestingly, Netflix started with changing a simple concept of “late fees” and eradicating them even though the move could lead to loss of rev-enue.

Tech innovation is almost dead in the financial industry. tradeMON-STER, a small start-up founded in 2006, has become a leader in online trading by taking risks like being the first browser-based trading platform, the first html5 mobile trading platform, and the first to offer disruptive option trading tools based on an open source trading platform.

What is the key similarity behind all such examples? Leadership overcoming a “fear to fail” by broadly balancing all risks, enabling groundbreaking innovations resulting in business growth, cus-tomer preference, industry recognition, and awards.

FEATURED COMMENT FROM HBR.ORGAnother benefit of trying and failing is that people work

together and make new discoveries. —David Russell

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YES, MANAGING IT IS YOUR JOBBY BRAD POWER

In order to see the future more clearly, it’s almost always helpful to look back—and this certainly goes for IT and its ever-increasing impact on operations, and ultimately on competitive advantage.

“Information Technology Changes the Way You Compete” was a trailblazing HBR article by Warren McFarlan back in the early 1980s. It told how American Airlines and others had introduced systems to help their customers choose their products and services. These “channel” systems helped steer business to American Airlines. The strategic use of information technology presaged the dot-com boom of the 1990s when the Internet made this kind of online ordering commonplace. IT went from being a potential source of competitive advantage to being a necessity for competitive parity.

Similar waves of innovative applications of technology (e.g., ERP systems, RFID, knowledge management, business intelligence) have washed over organizations. As with American Airlines, each competitive advantage with IT is temporary. Competitors copy or suppliers commoditize to erase these advantages. The only com-petitive advantage comes though agility, keeping ahead of the com-petition, moving on to the next technology wave.

Yet with each wave, the criticality of IT to basic operations and delivery of service to customers continues to escalate. And the new waves of technology keep on coming: social, mobile, cloud, and big data promise to further raise organizations’ competitive capabili-ties and dependency on IT. Every organization in every industry is becoming digital, and IT management is core to these organiza-tions’ delivery of services: bringing new functions and services to market faster; taking advantage of information, increasing trans-parency; reducing costs and increasing consistency and reliability by making processes faster, cheaper, or less error-prone through automation; and increasing collaboration within the organization and with the entire value chain of partners, both forward to cus-tomers and backward to suppliers.

This trend toward evermore-critical reliance on IT not only is transforming the idea and practice of corporate IT, but has dis-ruptive operational implications for every manager. In a previous post, I described the shift in roles as ING, the Netherlands bank, moves from a traditional method of developing new systems in major steps—with design documents and functional specifica-tions thrown over the wall—to making quick, small changes to sys-tems (using “Agile Scrum”). Managers can no longer take months to develop requirements, then wait for IT, then tell IT that wasn’t what they wanted. Now, instead, at ING they say, “Here’s your

team. You need to be in every daily or weekly Scrum cycle or sprint to decide if the work is meeting your needs.” ING’s change is less a paradigm shift in development (many companies have tried similar approaches, such as prototyping in the 1980s and rapid application development in the 1990s), and more of a shift in responsibility for IT—from the IT organization to the core business.

Of course, the trend toward mission-critical reliance on IT is indeed shifting the actual role of the IT organization. In the old days (the 1980s and 1990s), the IT organization was all about managing the technology itself: choosing which vendor’s product to buy, then cobbling the products together. In this earlier mode, the IT orga-nization was opaque, inside its silo, taking orders, and control-ling costs and risks. But the reality for most organizations today is much different: they are using IT to enable differentiated customer value, so the IT organization must be transparent, collaborative, and accountable for business results and service, with a higher tol-erance for risk. And in most organizations, IT commodity services have been placed out of the company, so that the IT organization has been transformed from owning IT resources to procuring IT ser-vices and managing IT vendors.

So where is managing IT for competitive advantage going next?

I believe that IT will become a more integrated operational com-ponent of delivering business results, as at ING. Instead of think-ing about driving value from the perspective of IT—or HR, finance, sales, or operations—leadership teams will think about a problem they want to solve or a process they want to change, and then align the full breadth of services (IT, HR, operations) needed to accom-plish it. Paul Dachsteiner, the vice president of IS at ice hockey equipment maker Bauer Performance Sports, told me, “Instead of being called IT, I’d rather be lumped into a pool of resources called Business Support or Operations and not differentiate between departments. Just consume resources that help you drive to the desired business value.” The IT organization’s role will be to man-age the delivery and servicing processes, and to ensure that the jig-saw pieces developed by the local fiefdoms in the business can fit together.

This will mean that business executives will need to continue to build their comfort with managing IT more directly, instead of rele-gating it to a “black box” or separate organizational silo, and throw-ing requirements over the wall. My friend Craig Bickel, principal at IT strategy consultancy WGroup, told me that “While functional responsibilities will remain specialized, innovation, implementa-

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tion, and value realization must be shared between the business and IT.” And IT will need to continuously reduce its spending on “keeping the lights on” to free up resources and mindshare for innovation and problem solving.

To sum up, how “IT Changes the Way You Compete” is the same in many ways today as it was 30 years ago, as new waves of inno-vative technology wash over organizations. What’s different today is that these successive waves of tech applications have left every organization with a critical core of digital capabilities. Now that IT is essential to the execution of nearly every job, as we move into the future, managing IT will be an even bigger part of your job.

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IT GOVERNANCE IS KILLING INNOVATIONBY ANDREW HORNE AND BRIAN FOSTER

Recent CEB research shows that work has become much more interdependent—employees increasingly need to tap a broader array of internal and external colleagues and partners to be success-ful in their jobs. The emergence of this new work environment has significant implications for how IT should enable business growth and, more specifically, for the kinds of investments IT should be making to support employees.

Unfortunately, when it comes to IT’s ability to allocate investments in response to the new work environment, traditional governance processes prove grossly outdated. Some of the key challenges:

■■ Companies don’t identify the very best ideas for investment because most capital allocation processes start with business partners’ existing ideas about projects to fund. As we’ve noted in our previous blog, senior business partners might not be that knowledgeable about what actually drives productivity on the front lines.

■■ Companies allocate capital to the wrong investments because our traditional emphasis on ROI-based business cases under-mines IT’s ability to invest in high-return-but-hard-to-measure areas like improving knowledge worker productivity.

■■ Companies tend to spread their capital allocation bets too thinly across business groups or functions, often for political reasons. This practice helps “keep the peace” but means that often the most transformational opportunities get short-changed.

Across our year of research into this problem, we have identified a select group of companies that are rethinking their governance and investment processes to circumvent the problems outlined above.

Expand First, Filter Second

Most CIOs will tell you that they have no shortage of ideas to invest in—the hard part is whittling down to the right ones. Push that a bit further and what most CIOs say is that those ideas are in the form of project requests from business partners. The problem is that these “bottom up” project requests often miss the big picture, as too many are incremental or uninspiring. Yet, while most of these requests are vetted for alignment with corporate strategy, what’s often missing is how these requests fit within a broader context of how the business overall generates value. Furthermore, this lack of context prevents organizations from identifying other investment ideas that have high potential but haven’t bubbled up organically

through project requests.

To address this challenge, a global transportation company we spoke with is using a strategic lens to expand the list of project ideas to find the ones with the highest potential corporate value, before filtering them. The company starts with a map of its critical busi-ness capabilities—those concrete business activities that are vital to meeting a strategic goal (e.g., rapid new product rollout). Then, it looks at the health of the information available to business leaders who manage those capabilities. The company finds that this leads to all sorts of overlooked opportunities and provides the company with a good proxy for where IT investment can have significant business impact, which can better inform prioritization decisions.

Prioritize Capabilities, Not Projects

The currency of most IT project prioritization meetings is the ROI-based business case. As mentioned above, this measure works very well for comparing projects that deliver hard benefits, but under-mines the ability to invest in critical capabilities that have a long-term payoff horizon or in highly innovative capabilities for which the payoff is uncertain.

A global high-tech equipment provider is taking a different approach. Similar to the transportation company mentioned earlier, it starts with a top-down view of critical business capabilities and pillars required to support long-term business strategy. Then, using customer preference measurement methodologies like conjoint analysis, the provider surveys senior business leaders to determine the relative criticality of each of these pillars. Based on this—and before any projects are even discussed—it is able to map out the rel-ative level of IT investment each capability should receive. So if the business leadership agrees that capability A is twice as important to realizing their goals as is capability B, capability A is targeted for twice as much investment. Projects can then be assessed on con-tribution to the needs of that pillar, rather than purely on financial metrics like ROI.

CIOs are being asked to arm employees with the capabilities required for success in a new, much more integrated and inter-dependent work environment. But to do that requires more than capital: it requires a different approach to making decisions and, specifically, rethinking traditional IT project-centric approaches to identifying and funding capital investment opportunities.

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CIOS: SCENARIO PLANNING CAN SAVE YOUR JOBBY DANIEL W. RASMUS

It’s the rare CIO who applies scenario planning to the business of IT. Yet, in a function driven by innovation and the uncertainties sur-rounding the application and implication of future technologies, not using scenarios is tantamount to management malpractice.

Scenarios can help IT organizations create more resilient plans, practice for business climate changes, and better drive innovation. IT often falsely believes that once a vision is set, a single narrative must dominate its future. But that belief leads to misalignment as the future unfolds contrary to the assumptions underlying the vision. IT leaders should acknowledge that they need to develop a way of sensing directional shifts early, so that they’re not caught flat-footed by the next thing that will disrupt the foundations of their businesses or their infrastructures.

Creating More Resilient Plans

Any IT professional who believes that his or her intuition or logic about a future will prove accurate hasn’t worked long in IT. Scenar-ios help IT create more resilient plans by providing a new testing mechanism for everything from portfolio management to the con-sumerization of IT to employing cloud services.

Let’s consider the last example: many organizations are making a big bet on cloud services. This decision brings with it a range of threats, along with new opportunities. Threats range from peri-odic, temporary outages to catastrophic failure from the dissolu-tion of the provider to a merger or acquisition that requires rethink-ing of existing relationships and perhaps renegotiation of existing service contracts. Opportunities might include reducing portfolio complexity, driving down costs, and shifting talent from tactical to strategic work. These threats and opportunities require a clear way to test how they will play out against various social, technological, and economic assumptions.

The way threats and opportunities play out will affect talent needs, in-house infrastructure investments, security models, and the deployment of mobility solutions, just to name a few implications. For IT professionals, scenarios help create a deeper, richer view of the potential futures.

Practice for Business Climate Changes

Building resilient IT plans that take into account future uncertain-

ties in the technological realm is just the start. For IT to deliver its best value to the business, it must test its assumptions about appli-cations, business needs, even its own role in the business, against the larger context of the business climate.

Much of the fallout of the Great Recession was exacerbated by the failure of organizations, public and private, to understand how technology and automation would perform under the stress of unusual circumstances. Those organizations did not effectively use tools like scenarios to help them imagine what could happen, let alone establish technological contingencies for mitigating the impact of systemic failures like the dissolution of Lehman Brothers, or averting automated trading cascades in various markets.

For many industries, technology has become the transformative force. Often that technology does not directly arise from existing information technology, but IT will be called upon to integrate, leverage, and ensure service levels and communications to support the business transformation. Scenarios can play a strategic role in helping both the business and IT understand how these new tech-nologies might evolve, what information technology support they may require, and where the risks may lie.

Scenarios and Innovation

Many organizations look to IT to help innovate products, processes, and business models. But there is a problem: there is no data about the future. IT cannot foretell which technologies or vendors will dominate in the future. But if IT leaders document uncertainties and create scenarios, they can provide better-informed guesses and, more important, monitor the uncertainties to determine which of their imagined futures is most likely to unfold.

As CIOs strive to provide more strategic value, scenarios can offer a tool to help facilitate business transformation. IT, perhaps more than any other individual function, faces mounting uncertainties that affect how the CIO’s organization is run, but also how well the organization as a whole adapts to a more technologically enabled future. As marketing, for instance, takes up its own technological destiny with online and mobile ads, app development, marketing automation, and the deployment of digital experience, IT owes the organization guidance and governance on these developments—and it owes its business partners a robust way to help them mitigate the risks and maximize the opportunities.

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Today’s CIOs who want to prosper in tomorrow’s tumultuous busi-ness climate need to embrace scenarios as a framework that will infuse their leaders with strategic perspective and meaningful doubt, and offer tools for working through both. The best of tomor-row’s IT leaders will help their entire organizations recognize the impact of uncertainty, and force them to grapple with its implica-tions in every decision they make.

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DO YOU HAVE THE IT FOR THE COMING DIGITAL WAVE?BY DIDIER BONNET

With a tsunami of new digital technologies all converging simulta-neously—social, mobile, cloud, analytics, and embedded devices—there has been, once again, a cry for corporate IT to radically change to enable the digital transformation of businesses. But here is the daunting and exciting thing: we’re only at the very beginning of the next digital wave.

Technology innovation is not slowing down or leveling off, but ramping up—and businesses will soon face a barrage of new digi-tal possibilities. There is no time for complacency. Kim Stevenson, Intel’s CIO, summarizes the challenge well: “[IT functions have] gone through ERP, they’ve gone through BYO, and they’ve gone through [the] cloud, and they think they’ve done it all. But the real-ity is, we’re only at the very, very beginning of this next genera-tion of computing, and I think that … industry leaders will be the ones that transform first. I don’t care what industry you’re talking about.”

IT is already being asked both to industrialize traditional infra-structures and systems fast to save costs and to innovate customer experiences and operations with new digital technologies. Cloud-based services are also now being bought directly by functions like HR and marketing, resulting in IT losing its control over technology purchases within the organization. Are all these changes just part of the natural evolution of the IT function? Or in preparation for the coming wave, is a more fundamental reinvention needed? Research points to the latter.

Digital leaders, those companies that have managed their digital transformations successfully, all show common characteristics in the way they have shaped their IT to work differently with the business. They have changed their IT functions by utilizing three related management interventions that, taken together, represent a fundamental reinvention of IT.

IT must play a central role in your digital transformation. It is no longer sufficient for IT just to be “aligned” with your business objectives; a fusion is needed. As Angela Ahrendts, Burberry’s CEO, puts it: “I need [IT] to move from the back of the bus, where it tra-ditionally sits, to the front of the bus … and it’s traveling fast.” It requires strong leadership from all senior IT executives, as well as new business acumen. Despite all the talk of “shadow IT,” digi-tal transformations that happen without or despite IT are a myth. Company and unit leaders need to ensure that IT is in a leading

position on all key digital projects. Also, it must become a key man-agement responsibility to continually scan the technology land-scape for fresh perspectives on how new digital technologies can improve business performance. In other words, IT must become a business-driven, front-office function.

Ramp up distinctive digital capabilities quickly. Digital capabili-ties are about methods, processes, and people—and a truly digi-tal IT organization is different from traditional IT. It requires new modes of operation. Requirements and specifications are more flexible and developed within cross-functional teams with con-stantly evolving business needs. Service delivery is marked by a “good enough” approach to error tolerance, relying more on rapid iterations and short cycle times. New, more agile software devel-opment tools and testing methods are utilized. Different standards of project and portfolio management are also required with more flexibility in demand management and budgeting methods. And there is a need to leverage partners within the group’s ecosystem to ensure best practice reuse. How close or far does this sound from your own ways of working?

People are the key, obviously. The new, ideal IT person—a kind of “Homo digitus”—needs to combine excellent digital specialist skills with deep functional business knowledge. He or she is used to short delivery cycles and feels at ease operating across silos and working within cross-functional teams. Homo digitus is also output-minded and helps the business visualize solutions through rapid prototyp-ing and experimentation.

How do you build these capabilities? In my experience, what works is adopting a three-pronged strategy of hiring new talent, reskilling existing employees, and filling skills gaps (such as a need for data scientists) by looking to trusted ecosystem partners. And crucially, with digital IT in a more central role that is more integrated with the business, a new breed of leaders is also required. As Markus Nord-lin, CIO of global insurer Zurich, explains: “I believe that the suc-cessful leaders of tomorrow, in any business or industry, are going to be true hybrid professionals who have spent some time in IT but have shifted to operations, and vice-versa.”

Adapt your governance model according to your digital maturity. Choose the governance model that fits your organization best. If you are just starting your digital journey, a stand-alone digital unit within your IT organization might be appropriate. Fifty-one per-

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cent of organizations that are “digital beginners” have such digi-tal IT units as the primary driver of their digital governance. These units can host your specific digital initiatives, start developing a catalog of digital services, and nurture and grow new digital skills. They can also unify technology initiatives and start to foster global collaboration. But with this essentially IT-centric model, dynamic connections with global business units, marketing, brands, and external partners remain difficult to develop.

If you are already well into your digital transformation and want to accelerate and harmonize your efforts, then an integrated digi-tal service unit might be the answer. Fifty-seven percent of digital leaders use both marketing and IT as primary drivers of digital gov-ernance. In this model, the unit becomes the central point for all of your corporation’s digital initiatives and services. Both digital mar-keting and IT staff work together with common budgets and objec-tives. Nestlé, the global food giant, has implemented such a digital service unit, with a view to accelerate the deployment of digital ser-vices, harmonize digital technology platforms, and scale local inno-

vation. Such units present strong advantages. They reduce dupli-cation of efforts and skills, thus reducing operational costs. They drive innovation and speed up-time to market. And they align the KPIs of each function to common goals. But they can also represent a significant cultural challenge to implement and require strong leadership and cooperation from your organization.

Companies that are successfully leading digital transformation, and preparing for the coming digital wave (and it is coming), use these three levers to reinvent their IT. Organizations in every industry need to follow their example.

FEATURED COMMENT FROM HBR.ORGThis is likely the single-best article I have read on the

subject and one that highlights the importance of get-ting on board [with] this line of thinking and doing. It

will be interesting to watch those that do embrace this revolution and champion the change that will take them

to the next level. —Jchavner

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WEBINAR SUMMARY | JULY 30, 2013

MAKING THE LEAP: CREATING THE NEXTGENERATION CIOFEATURING TERRI L. GRIFFITH, PH.D.

ContributorsTerri L. Griffith, Ph.D., Professor, Santa Clara University; Author, The Plugged-In Manager

Angelia Herrin (Moderator), Editor, Special Projects and Research, Harvard Business Review

OVERVIEWOver the past 20 years, the scope of CIO responsibilities has exploded. Delivering value as a CIO requires much more than sim-ply providing an organization with IT “plumbing.” CIOs must col-laborate with leaders from different functional areas and identify tradeoffs that improve business performance.

Plugged-in management techniques that blend human, technical, and organizational processes can help CIOs become systems think-ers. Consideration should also be given to how the IT function is structured, including who the CIO reports to and how staff are orga-nized. The keys to becoming a next-generation CIO are letting go of old models, starting conversations, and taking action.

CONTEXTProfessor Terri L. Griffith discussed how the CIO role has expanded in recent years and discussed techniques that IT professionals can use to meet new business demands.

KEY LEARNINGSThe CIO role has evolved in recent years, but many organizations and IT professionals have ignored the need to change.

When the CIO role emerged in the late 1980s and early 1990s, the title stood for chief information officer. Over time, however, the business world has evolved and CIOs now face a more complex working environment. As Ray Wang of Constellation Research suggests, they must now fulfill four personas: chief infrastructure officer, chief integration officer, chief innovation officer, and chief intelligence officer.

Unfortunately, many organizations and IT professionals have maintained a narrow view of the CIO role. Analyst firm Gartner, for example, believes that IT faces a “quiet crisis” since its exist-ing practices and plans don’t meet future realities and expectations.

Other experts have made similar observations:

California Management Review feels that the even though the role of the CIO is evolving, the determinants of CIO success are elusive.

Gartner found that by 2017 chief marketing officers will spend more on IT than will CIOs. Yet a survey by Information Week revealed that IT leaders give their relationship with marketing weaker marks (29%) than for any other business function.

CIOs told Gartner that they realize, on average, only 43% of the technology potential for their enterprises.

To succeed in today’s environment, CIOs need to take a different approach.

“Plugged in” management practices are one way that CIOs can meet today’s business demands head-on.

Professor Griffith compares CIOs to acrobats walking on a high wire with no net. The stakes are high, but success cannot come solely from technology or management techniques.

Instead, CIOs must use “plugged in” management techniques. These are based on an effective mix of human, technical, and orga-nizational processes. Negotiation is an important component of plugged-in management. This requires collaboration with stake-holders from different functional areas. The goal is to discuss issues and achieve trade-offs that deliver value to all involved.

According to research published in MIS Quarterly, when organiza-tions find the right match between the CIO and the firm’s strategic goals, they enjoy better overall business performance.

Outstanding CIOs are whole-systems thinkers who cultivate cross-functional relationships.

CIOs who have attained extraordinary success share three common characteristics:

An integrative mind. CIOs must collaborate with a wide range of different business functions, ranging from product development and marketing to legal, business development, operations, finance, strategy, supply chain, and more. As a result, CIOs must be “whole systems” thinkers and practitioners. If CIOs only focus on the orga-nization’s IT “plumbing,” then millions of dollars are wasted on an underleveraged resource.

Focus and vision. Operational excellence is merely table stakes for IT professionals. Kim Stevenson, CIO of Intel Corporation, believes that CIOs should spend only 25% of their time on the nuts and bolts of IT, leaving ample time for work related to innovation and intelligence.

Evidence suggests that CIOs are beginning to realize the impor-tance of taking a broader view of their duties. In an annual survey, Gartner found that CIOs ranked delivering operational results as

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their second most important strategy in 2013, up from fifth place in 2012 and ninth place in 2011.

A trusting and trustworthy nature that supports development of cross-functional teams. California Management Review recently published the results of the Renaissance CIO Project. This initiative identified 14 outstanding CIOs across industries. All of them com-mented about the existence of a “level playing field” regarding their relationships with their executive teams. These open relationships enabled the CIOs to sell their visions, even when they required sig-nificant investment.

The structure of the IT team can help CIOs achieve their goals.

Research published in MIS Quarterly found that who the CIO reports to can affect company performance. If the company strat-egy is cost-focused, the CIO should report to the CFO. However, if the company strategy emphasizes product differentiation, the CIO should report to the CEO.

Within the IT department, it is often effective to divide staff among different areas of responsibility, such as innovation, intelligence, and infrastructure. This approach helps simplify performance met-rics. However, people shouldn’t be siloed when it comes to profes-sional development.

It is also important to find IT team members who have a strategic perspective. Some organizations have job rotations with the busi-ness units or fill IT positions with people from the business side. Cisco routinely embeds IT staff in its business units.

To become a next-generation CIO, IT professionals must look beyond the traditional ways of doing business and take action.

Professor Griffith suggests that IT leaders take four steps to begin the evolution to the next-generation CIO:

Start a conversation. A business challenge can often serve as a trig-ger for change. CIOs can use these situations as the basis for conver-sations with leaders from other functional areas. When engaging with stakeholders, consider what is important to them and think about the business metrics they are assessed on.

Take action. It is a good idea to focus on projects that are central to the organization’s business mission and have concrete metrics. A common theme among the Renaissance CIOs was a major visible project that was seen as a “game changer” and that had a direct and positive impact on end customers. These projects accelerated the CIOs’ career advancement.

Let go of old models. Convince the organization that IT is respon-sible for more than just the technical plumbing. IBM, for example, changed the name of the IT function to “Business Transformation and IT.” Under the new organization, IBM’s CIO is responsible for three functional areas: run, transform, and innovation.

Leverage human, technical, and organizational dimensions. Iden-tify what other stakeholders want and then find ways that IT can make their work easier over time. Professor Griffith suggests that tighter integration across the C-suite can be effective. One approach is to formally align the goals of the CMO, COO, and CIO.

“When CIOs apply plugged-in management successfully, they use an effective mix of human, technical, and organizational processes.”—Terri L. Griffith

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BIOGRAPHIES

Terri L. Griffith, Ph.D.

Professor, Santa Clara University; Author, The Plugged-In Manager

Terri L. Griffith is a professor of management in the Leavey School of Business. Her research and consulting interests include the implementation and effective use of new technologies and organi-zational practices. This work most recently focused on team tools and methods for innovation, though she has specialized in virtual/distributed collaboration since 1984.

Professor Griffith’s recent field research includes two Fortune 100 tech companies (funded by the National Science Foundation), both focused on generating the greatest value from their teams in com-plex environments. Her research is published in journals such as Organization Science, Information Systems Research, MIS Quarterly, Organizational Behavior and Human Decision Processes, the Journal of the American Medical Association, and the Academy of Manage-ment Review. She is co-editor of Research on Managing Groups and Teams: Technology (2000, JAI Press).

Her blog “Technology and Organizations” has been named to “Top” lists by a variety of groups focused on professors who blog.

She holds a B.A. from UC Berkeley and an M.S. and a Ph.D. from Carnegie Mellon, GSIA (now the Tepper School of Business).

Angelia Herrin (Moderator)

Editor for Research and Special Projects, Harvard Business Review

Angelia Herrin is editor for research and special projects at Harvard Business Review. At Harvard Business Review, Herrin oversaw the relaunch of the management newsletter line and established the conference and virtual seminar division. More recently, she created a new series to deliver customized programs and products to orga-nizations and associations.

Prior to coming to Harvard Business Review, Herrin was the vice president for content at womenConnect.com, a website focused on women business owners and executives.

Herrin’s journalism experience spans 20 years, primarily with Knight-Ridder newspapers and USA Today. At Knight-Ridder, she covered Congress, as well as the 1988 presidential elections. At USA Today, she worked as Washington editor, heading the 1996 election coverage. She won the John S. Knight Fellowship in Professional Journalism at Stanford University in 1989-90.

The information contained in this summary reflects BullsEye Resources, Inc.’s, subjective condensed summarization of the applicable conference session. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the session. In no way does BullsEye Resources or Harvard Business Review assume any responsibility for any information provided or any decisions made based upon the information provided in this document.

Created for Harvard Business Review by BullsEye Resources. www.bullseyeresources.com

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http://www.terrigriffith.com/blog

womenConnect.com

www.bullseyeresources.com

A HARVARD BUSINESS REVIEW INSIGHT CENTER REPORT

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