RETHINK

ITFive Actionable Strategies toDrive Business Value from IT

Contents

1 Summary

2 ReThink IT: Five Actionable Strategies to Drive Business Value from IT in this New World

2 Introduction

3 The Shift in Responsibility for IT

4 The Convergence of ITO and BPO

4 The Rise of Social, Big Data, Analytics and Mobility

5 The Commoditization of IT

6 The Consumerization of IT

7 It’s a New World for IT

9 Five Actionable Strategies to Drive Value from IT

9 #1 New IT Supply Chain

10 #2 Governance and Vendor Management: Two Separate Yet Important Disciplines

11 #3 New IT Roles, Responsibilities and Skills

14 #4 New Way to Manage IT Services and Project Portfolio

15 #5 New Definition of IT Business Value

16 Conclusion

Copyright © WGroup 2013 All Rights Reserved

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Five disruptive trends are changing the role of the CIO and the IT function— a shift in responsibility for IT to business units; the convergence of IT and business process outsourcing; the onset of big data, analytics, social and mobility; the commoditization of IT; and the consumerization of IT. The answers for who should deliver services, where should services be delivered from, and how IT drives value in the business are undergoing radical transformation.

This new world of IT presents an opportunity for executives to enhance the value of IT across the enterprise. The choice is to embrace change and adapt, or resist and risk marginalization. High performing IT leaders understand these trends and their implications. They are implementing strategies to seize transformation opportunities and better utilize IT as a competitive advantage. They are expanding or repositioning their roles as strategic advisors for the organization. They deliver value from IT by not only decreasing cost but from increasing revenue and enabling new business models. Leading CIOs encourage direct alignment of IT to the business, and lead innovation.

In this paper, we examine these disruptive trends and recommend how companies must react to them. In fact, we believe the trends require nothing less than a total rethink of IT. We present five actionable strategies that companies can take to be successful in this new world, including:

■■ A new approach to the IT supply chain and service integration into one comprehensive model

that addresses 1) how IT services are procured (insourced, outsourced), 2) how IT services are managed (shared services, multisourcing) and how IT services are delivered (cloud, XaaS / Offshore, Onshore, Captive.)

■■ A new enterprise-wide governance discipline that provides greater accountability for decision-making around the use of IT

and a vendor management office to manage not only outsourced vendors, but all the sources of services across the IT supply chain.

■■ New roles, responsibilities and skills for the CIO and all IT managers and staff. Above all the CIO must be an advisor to the business.

■■ A new way to manage IT services and the project portfolio, one that will bring high levels of service

satisfaction and better allocate limited resources to support a company’s strategic needs.

■■ A new way to think about how the IT function can provide value to the business—a broader role that calls for IT to help the company exploit critical new technologies and drive technology-enabled innovation.

SummARy

“ CIOs that do not address this new world of IT will be marginalized and lose out on significant opportunities these changes are creating for their company.”

Harry Wallaesa CEO and President, WGroup

2 ReThink IT

IntroductionCIOs, their IT organizations, and the business units to which they supply services are facing five disruptive trends that are forcing them to do far more with IT while owning or directly managing far less of the people and technology delivering service to their customers:

■■ The responsibility for IT is moving to individual business units. Across all industries, easy to procure and run software, business platforms and the consumerization of IT have changed the value the IT organization can provide to the business unit.

■■ The commoditization of IT. Cloud, as-a-service, remote management and offshore development are just a few ways IT is becoming cheaper and more efficient.

■■ The convergence of business process and IT outsourcing. New utility or platform-based models are emerging where companies can outsource and bundle the process, technology,

and people that deliver a set of business services into one contract and price.

■■ The huge volumes and variety of digitized data that reside inside or within reach of just about every large company’s systems, and the need to turn this so-called “Big Data” into insights.

■■ Social media, digital marketing and content marketing are constantly changing and growing, and are now a major influence on sales, and both employee and customer satisfaction. New social networks are constantly being created, requiring a new form of collaboration between IT and the business.

■■ Mobility is changing the way employees work and customers buy. It is requiring IT to keep pace with new technologies across a number of mobile applications and platforms.

■■ The Consumerization of IT offers more powerful devices and 24x7 access to information that change purchasing behavior and elevate expectations. As employees, these same consumers demand similar access to business information and decision-making insights, often on the same devices.

A review of these trends illustrates how they are beginning to impact and change the traditional corporate IT organization as well as the role of technology across the entire enterprise.

ReThINk ITFIVe ACTIoNABle STRATeGIeS To DRIVe BuSINeSS VAlue FRom IT IN ThIS NeW WoRlD

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The ShifT in ReSponSibiliTy foR iTIn an effort to improve the return on IT investments, further integrate IT with the business, increase business accountability for IT projects, and support large-scale IT enabled business transformation, many business executives (e.g., Supply Chain executives, CFOs, etc.) are more open to taking direct control of IT. This is a two way shift as many CIOs are managing business functions (e.g., business shared services centers) and owning business processes in addition to their IT role.

But there is also a more subtle yet equally important shift in responsibilities and concept of a monolithic IT organization. With the increasing availability of software-as-a-service and cloud based delivery models, some core IT decisions are being made within the business domain, often without the participation of the CIO. The trend may have started with Salesforce.com, but now major ERP vendors are full participants in this process.

Companies’ business functions have adopted these cloud applications so quickly that technology research firm Gartner recently predicted spending on IT from outside of the IT

organization will grow from 20% of total IT spending in 2000 to 90% by 2020.1

Historically, CIOs would have regarded this as a massive end-run around the IT function, and one they would actively resisted even to the point of waging a massive power struggle. Contemporary CIOs, however, only need to look at the rapid adoption of third-party, cloud-based marketing applications to see that such a battle may not be prudent. A 2011 IBM survey of 1,734 chief marketing officers in 19 industries and 64 countries found that about one-quarter extensively used external providers of IT services. 1 Gartner statement from a October 22, 2012

press release—http://www.gartner.com/it/page.jsp?id=2208015

What’s more, nearly two-thirds (61%) said they would rely on such IT providers in the next five years.2 High-tech company marketers are already there. Gartner says only one-third of the 2013 marketing technology budget for 383 vendors of hardware, software, IT professional services, and electronic components will go to capitalized software and infrastructure. By contrast, two-thirds will go to services provided by external marketing technology vendors.3

2 IBM’s 2011 survey, “From Stretched to Strengthened,” polled 1,734 chief marketing officers.

3 From a Gartner blog post by Richard Fouts on Sept. 10, 2012: http://blogs.gartner.com/richard-fouts/2012/09/10/2013-marketing-budgets-rising-again-for-high-tech-providers/

Responsibility for IT is Moving to the Business

Convergence of ITO and BPO

Social, Big Data, Mobility and Analytics

Commoditization of IT and Global Delivery

Consumerization of IT

EXHIBIT 1: FIVE DRIVERS OF IT TRANSFORMATION

Source: WGroup

4 ReThink IT

So this shift in responsibilities is real and it has implications for how IT organizations engage with the business, plan for and integrate software-as-a-service, and cloud-based solutions within their architecture and operating models.

The ConveRgenCe of iTo and bpo The emergence of business platforms offered on a subscription basis will be irresistible to many functional managers: lower technology costs, no maintenance headaches, and the ability to change service delivery providers more easily, and modify business process with minimal investment and start-up costs. That’s a far cry from the days of installing a high-priced business application such as CRM, ERP or supply chain management software, with its onerous follow-on costs and multi-year lock-in.

Companies are under pressure to retool their value chains. Subscribing to business process platforms enables them to tap easily into the labor and processing advantages of outsourcing and offshoring. While some companies are setting up captive offshore organizations,

many are wary of incurring the risk and costs of such operations. They are more likely to acquire these services from the same firms that run their applications and infrastructure. The trend that started with accounts receivable, payable and call centers is being extended to purchasing, strategic sourcing and other closer-to-the-core functions.

However, these moves increase complexity and raise security issues that the CIO needs to manage. IT today will spend as much time in integration and control efforts as they have historically in support and enhancement

capabilities. In the future, the CIO and his or her business function counterparts will operate as more of an “integrator of services”—an orchestra conductor rather than a musician or section leader in the band.

The convergence of ITO and BPO will change how services are priced. For example, outcomes-based pricing is where the service provider charges the buyer not on labor or FTE cost but for the business outcome the work generates. Standardization, automation, technology platforms and tools made more available through the convergence of business process and IT are enabling service providers to bear the additional risk of outcome-based pricing. While a true understanding of cost of service is required to make outcome-based pricing work effectively, it has tremendous potential to help organizations align work to strategic outcomes and generate business value.

The RiSe of SoCial, big daTa, analyTiCS and MobiliTy Social involves the way we connect and collaborate within the workplace with employees, and outside the workplace with customers and partners. The technology, process and tools supporting social—social media, collaboration and knowledge management—can directly

Similar trends are occurring in almost every business function. Without an overhaul in outlook and strategy, IT organizations will resemble department stores, where each department is cannibalized by specialty stores in the mall or e-tailers online.

It is not just about outsourcing, but about a service delivery model that leverages all forms of sourcing based on what will provide the best value to the business (insourcing, outsourcing, shared services). IT leaders must master the capability to manage and govern multiple IT service providers, cloud-based and other delivery models into a coherent operating model supporting a company’s business functions.

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impact sales, recruiting, customer satisfaction, employee satisfaction and work productivity. Combined, social, big data, analytics and mobility are creating unique challenges and opportunities for every industry.

For example, in large consumer product and retail companies today, marketing executives must quickly identify profitable customers and send targeted promotions to their smart phones while they are out shopping. Supply chain executives must rapidly track flaws in manufacturing and distribution processes. These and hundreds of other high-stakes decisions require processing and analyzing enormous amounts of digital data. As companies become more data-driven, mobility is making everything immediately actionable. The mobile phone provides immediate decision-making capability through access to intelligence and real-time data collection from the field.

IT leaders must proactively engage with the business to ensure that social, big data, analytics and mobility strategies, projects and governance processes are aligned to overall business strategy.

The CoMModiTizaTion of iT A new model of IT delivery across applications, infrastructure and IT management has brought

significant economic advantages. For example, until recently, it was always in the best interest of large companies to build and own the IT infrastructure that supported the business. The choice was limited: Either run it in their facility or run it at an outsourcer’s premises. No matter which strategy they chose, large companies almost always owned or leased the hardware and bore the full cost of those assets.

Companies no longer need to have any computer operations on their premises, as they can tap into Internet resources, such as Cloud services. Today, Infrastructure-as-a-service and Platform-as-a-service products allow companies to pay for just what they use and acquire needed capacity just-in-time. No longer must they have specialized capacity planning. No longer do they need to acquire technology in big, capital-draining chunks and burden their return on asset calculations with long-term depreciable assets. In some cases, rather than continuing to run their own data centers, companies are outsourcing their IT infrastructure to reduce cost, increase flexibility and gain service advantages.

But this doesn’t mean the CIO can retire. In fact, companies need CIOs more than ever—yet in a much different role. A robust IT service delivery strategy and common

6 ReThink IT

framework is essential to address governance, security, integration, processes, policies, and architecture across applications, infrastructure and IT management.

However, it is not just about outsourcing, but about a service delivery model that leverages all forms of sourcing based on what will provide the best value to the business (insourcing, outsourcing, shared services).

IT leaders must integrate, manage and govern internal groups, multiple IT service providers, cloud-based and other delivery models into a coherent, streamlined and efficient IT operating model.

Even more importantly, IT leadership must make decisions to provide flexibility for the future and enable them to interchange sourcing providers (insourced or outsourced) and delivery

models (cloud, XaaS) as the business strategy and requirements change. For flexibility in cloud delivery across private, public or hybrid models, consideration must be given to the ownership, form and governance of data to manage and transport data across discrete cloud resources.

The ConSuMeRizaTion of iT Some employees come to work every day with a myriad of devices—their

own smartphones, tablet devices and laptops—which can reduce some of the financial burdens companies have assumed for decades. The trend towards “bring your own device” (BYOD) allows companies to reduce their investment in employees’ technology by taking advantage of investments that employees have already made.

However, at the same time, it increases the level of security, integration and control needed to provide access to a far less standardized set of devices and to maintain control over the most fungible asset a company has: its intellectual property and data assets. An employee can easily have thousands of customer names, credit card numbers and other sensitive information sitting on a laptop computer—there for the taking. Customer data that used to be locked in the data center now travels easily on mobile devices through airports, bars and hotels.

Until recently, the focus on the Consumerization of IT has been only on devices. Employees and consumers in general are more technology-savvy than ever before. Not only do they bring their own equipment, they bring their own applications and tools.

While this trend signifies that IT organizations have the opportunity to get out of the computer and mobile device supply business, IT leaders must be prepared to manage the security and governance challenges this trend will continue to produce.

Until recently the focus of Consumerization of IT has been only on devices. Employees and consumers in general are more technology-savvy than ever before. Not only do they bring their own equipment, they bring their own applications and tools.

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It’s a New World for ITThese five fundamental drivers of IT transformation are here now. They affect every organization. And the pace of change isn’t abating; if anything, it is quickening and becoming more acute.

One key driver is that the economics of procuring IT and IT-intensive business process services from the outside are now irresistible and the risks are becoming more manageable. Procuring these IT and business process services externally means IT no longer has to be a huge fixed cost. Turning IT into a variable cost is immensely attractive to companies that make major IT investments (e.g., banks) or in highly cyclical businesses. As an example, after the 2008 financial meltdown, a regional financial services company outsourced its entire IT infrastructure to third parties. IT services are now an entirely variable cost; tens of millions of dollars in hardware and software assets are off its books, materially raising its return on assets (ROA). In industries such as banking, where IT can be 30% of operating costs,4 this can be a major boost to profitability.

4 McKinsey article: http://www.

mckinseyquarterly.com/Smart_IT_spending_Insights_from_European_banks_1698

Cloud services are also maturing rapidly. They are going beyond the initial niche software applications such as Salesforce.com to cloud-based versions of ERP from Oracle and SAP. The mega million-dollar on-premise installations of enterprise software packages are becoming a relic of the past.

Web 2.0, virtual computing technology and cloud delivery continues to be another key driver of change. Cloud computing allows managers and workers to use their company’s information systems as if they’re in a data center down the hall. Orchestration layers allow deployment of new servers and capabilities within minutes—not the weeks or months it took in traditional forms of delivery. Remote management, virtualization and numerous IT management software and tools are making IT operations and management more efficient.

Outsourcing and IT service providers continue to drive change and shape the landscape. To compete for your business, they continue to improve the cost and service of their global distributed delivery center model (e.g., India, China,

Brazil, Poland) and offer new service offerings. There are many more outsourcing companies to choose from than ever before. Before outsourcing, companies must have a clear strategy that identifies what are core and non-core capabilities, and then from that develop the right sourcing strategy for their business. Even when this is done, picking the right provider can be complex and daunting. Consider the number of IT and business process outsourcing companies coming from India alone. Over the last 15 years a $75 billion annual industry has sprung up in this country, with more than 1,300 companies taking on the computing and business process chores of firms in the rest of the world.5

5 This data is from Nasscom, an association of Indian ITO and BPO companies, from an article in India Economic Times: http://articles.economictimes.indiatimes.com/2012-11-13/news/35068747_1_nasscom-chairman-software-services-n-chandrasekaran

Senior executives

need a different kind

of IT organization—a

very different kind.

CIOs must break the

model with which

they’ve run their

department for years.

8 ReThink IT

The supply of outsourcing vendors will expand further as companies continue global expansion and seek services in parts of the world that are not only offer lower labor costs but are strategic locations for them such as Latin America and Asia. With these five inescapable forces unleashed and ongoing drivers of change senior executives might conclude that companies will no longer need an internal IT

organization. This is absolutely not the case. They just need a different IT organization—a very different kind—as we will explain. CIOs must break the model with which they’ve run their departments for years. In many cases, they will need to own and operate far less technology—or rather, technology that’s in their data centers and on their books—because it’s now possible to do so.

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Business and IT executives and their staffs face a far different world than their predecessors did even ten years ago. Companies that are early adopters of the disruptive trends we’ve described are managing five issues very differently.

#1 New IT Supply ChainThe supply chain of IT is radically different. Disruptive technologies such as cloud

computing and the “as-a-service” model for software, infrastructure and platforms

have led to fundamental changes in how IT services are organized, managed and delivered—whether they are outsourced, insourced or a combination. The reality that IT services can be delivered to anywhere on the globe via the “Cloud” has accelerated the commoditization of infrastructure. Ubiquitous access to IT services has lessened business units’ dependency on internal IT and shifted the IT organization’s prime role from process excellence to technology and service innovation.

Outsourcing continues to be a key component in the supply chain however the

next generation calls for a different approach. Strategic outsourcing partnerships should be developed and maintained to not only realize cost-savings but to exploit global trends and support business innovation. Multi-sourcing strategies leveraging best-in-class providers matched to strengths are now the norm. With these multi-sourced environments, the interaction among vendors emerges as a new source of management focus driving the development of operating-level agreements to govern

interaction. Relationships have greater built-in flexibility to address changes in platforms, architecture, services and performance requirements. Companies need to restructure their IT operations from being a provider of IT services to a broker, orchestrator and manager of IT services purchased from providers around the globe.

Outsourcing relationships are smaller, more focused and of shorter duration allowing the business to capitalize on more discrete vendor

FIVe ACTIoNABle STRATeGIeS To DRIVe VAlue FRom IT

EXHIBIT 2: The New IT Supply Chain and Outsourcing

Source: WGroup

10 ReThink IT

strengths while providing more flexibility in starting and ending relationships. More importantly, as line of business heads have assumed responsibility for outsourcing relationships, IT must serve as the center of excellence in outsourcing relationship development and management. This means IT acts as a “broker” in advising the business, developing relationships and managing relationships. All performed consistent with a predefined (and periodically updated) sourcing strategy.

Finally, IT leadership must become more proactive and focused on requiring business value from service providers and no longer satisfied with just meeting service levels and operational metrics.

#2 Governance and Vendor Management: Two Separate Yet Important DisciplinesCompanies should establish both a governance strategy and discipline, and a vendor

management organization (VMO) to direct and integrate the efforts of this complex

supply chain to ensure the organization is receiving value from IT. This applies to all delivery models; outsourced, in-sourced or multi-sourced. Companies should develop

the people, process and controls to effectively manage this new model of IT service delivery or run the risk of misalignment or operational failure if one or more IT providers fails to execute.

Outsourcing is not always the right answer but IT organizations that move too slowly where outsourcing makes sense will tie their companies down with escalating costs of maintaining their company’s IT infrastructure and applications. That will put a damper on investing in technology innovation in such critical areas as big data, analytics and mobile computing.

Recent surveys of senior business and IT executives tell an interesting story. For example, the majority of 536 C-suite executives around the world polled in 2012 by the Economist Intelligence Unit see their IT organizations changing greatly by 2015. Some 43% say their company will increasingly buy IT only when they need it as a commodity service.6

6 The study, conducted by the Economist Intelligence Unit, is titled “The C-suite Challenges IT: New Expectations for Business Value.” It was funded by Dell Inc. and published by the EIU in July 2012. Some 36% of the respondents were CEOs, and 20% were CIOs. The study report can be found here: http://www.slideshare.net/Management-Thinking/the-csuite-challenges-it-new-expectations-for-business-value

A number of senior IT executives see a similar future. As a former FedEx SVP of IT put it, IT functions of the future will be “small, more externally focused, higher-expertise IT organizations, with most of the infrastructure and operational expertise outsourced.”7

Many computing tasks and business processes that depend on technology can be done by third parties for far less cost and with far fewer headaches. In particular, the focus on core competencies and competitive pressures on cost and innovation will drive companies to outsource those business processes and IT services that don’t yield a competitive advantage. HR, finance, procurement and other backroom processes and their supporting IT services are especially ripe for outsourcing.

However, a common mistake organizations make is establishing approaches for governance and vendor management in parts vs. taking a holistic view.

7 This comment was from former FedEx senior vice president of IT, Larry Tieman, as quoted here in a column he published in June 2012 in InformationWeek. Tieman had been with FedEx for 10 years (until 2010), and previously was CIO or CTO at GE Capital Logistics, GeoLogistics, Schneider National and A.C. Nielsen. http://www.informationweek.com/global-cio/interviews/why-the-cio-position-is-in-jeopardy/240001607

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Examples include establishing a governance program for an outsourcing contract that is stand alone and does not fit within a broader IT governance program will not suffice. In addition, vendor management must be seen not as a small component of a companies procurement function, but as a core competency of the IT function.

#3 New IT Roles, Responsibilities and SkillsShifting to this new IT operating model will require the IT organization to adopt

new roles and responsibilities, as well as to master new skills.

New roles and responsibilities in the IT function: IT organizations will move from having hundreds or even thousands of full-time employees to a much smaller headcount: dozens or hundreds (because most of the IT services are delivered by external providers). These roles will be more strategic—i.e., helping divisional and functional managers identify opportunities with the greatest promise for using technology to sell, market, manufacture, distribute and conduct other key processes more effectively and efficiently. The roles will also be more architectural:

how to seamlessly integrate IT and business process services from disparate providers.

New skills for IT professionals, from the top down: Leadership skills of the IT organization must shift from capabilities in planning and managing hardware, software and network infrastructure to highly tuned capabilities in sourcing strategy, managing outsourcing firms, and transforming the business through technology. There will be vendor management roles specializing in contract management, maintaining service levels, program management and financial analysis to assure that service providers deliver on the cost, quality, responsiveness and other potential advantages of outsourcing.

To fulfill their new, more strategic role in the organization, IT executives including the CIO will need to raise their game in business strategy and process thinking. In fact, these will become the CIO’s most important skills. For 20 years, IT has been foundational to operational success across industries, and it has only grown more so. Numerous companies have been Amazon’d (book and electronics retailing), Google’d (newspapers and map makers) and Apple’d (music and mobile devices) out of existence (or placed on the death list).

Yet as profound as those seismic industry shifts have been to date, more change is ahead. In every sector and every day, bricks and mortar companies are being attacked by clicks and bits. The technologies of this decade—especially social media, mobile devices, and big data—will have an even more profound impact on such sectors as consumer products (transformed by a whole new world of social media marketing), retailing and media, to name a few. Business unit and functional managers need to understand which of the multiple decisions they make every day can be transformed with big data and analytics tools.

Reinventing service delivery models, supply chain models and corporate operating models are critical for the competitive landscape of the future. The answers are not straightforward. Companies need executives at the top who aren’t blinded by the business practices of the past. Farsighted CIOs and IT leaders can fill this role—if they can master the still-nascent arts of business model invention and process reengineering.

In addition, strong skills in IT architecture will become far more important, particularly service-oriented architecture strategy and planning. With

12 ReThink IT

business and IT services purchased from outside vendors, it is up to the IT organization to connect and integrate them. For example, the customer database that the sales force uses to prospect for customers must be able to tap marketing’s customer database. In turn, those databases need to feed the call center’s database so that customer service reps have a total view of the caller’s relationship with the company.

The CIO’s organization must make sure that business and IT processes are well-codified, data definition standards are well-defined, and the processes bringing these things together are well-documented. If they are not, it will be difficult for outsourcing vendors to implement them without a lot of guesswork. Having multiple outsourcing vendors working on different pieces of the IT infrastructure—and often in different parts of the world (often not in the old data center anymore)—the IT organization must have clear instructions for all parties. IT must act as the hub for key decision-making and control.

New relationship management skills—Many IT organizations today have “business relationship managers” whose role is essentially to meet with functional heads and take orders for IT and business process services.

Others continue to play the role of “rationers of service.” This will no longer fly. IT needs to become a strategic advisor and the “facilitator of fulfillment” to add value. Functional heads easily go around IT and buy business processes and IT services by the drink without setting off the budget alarms.

Functional managers need internal process and IT consultants who can help them understand their unstated (and unknown) needs. This takes exceptional skills in building relationships. It also requires deep knowledge of the company’s industry (its competitive set, customers, etc.).

CIOs and other senior IT managers will need to develop such relationship skills to deal with numerous outsourcing vendors. By doing so, the CIO can become the orchestrator of external suppliers for internal customers. Many CIOs who moved up the ranks in computer science and programming will need to build deep, late-career skills in working with and managing people—especially those outside the company at outsourcing vendors. They must know the skills and personalities of vendor team members, as much as they know their own team. Helping the company determine where to focus limited IT investments requires strategic

and financial acumen. This is a crucial governance skill. To provide assurance to the CEO and CFO that the company’s IT investments are being made wisely, CIOs and their teams must be able to run ROI analyses on such things as business unit requests for Big Data technologies and expertise.

IT organization must also help business unit managers identify high-quality outsourcing vendors and strike effective contracts. Based on the current outsourcing environment and the demand for new or improved capabilities, the CIO needs to lead the organization in scanning the market for opportunities and strategic partners. The CIO must have the skills to run effective RFP and contracting processes; the project management office (PMO) skills to oversee effective transition; and the relationship management skills to extract the best performance, lowest costs and most innovative thinking from the company’s supplier partners.

To be sure, these skills sets will not be easy for many CIOs and IT organizations to gain. However, we see big rewards for companies and CIOs who can acquire them, and quickly. Perhaps the biggest personal benefit for CIOs is that they’ll occupy a much more strategic job in the

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organization: the executive responsible for making the company’s key technology- intensive business processes, and its entire business model for that matter, click.

This is a much bigger role than many CIOs and their IT organizations play today. Those who can master it will have an order-of-magnitude greater impact on the success of their company, even with a much smaller internal IT department to manage.

A world where most companies’ IT services are outsourced rather than insourced forces a major change in the CIO’s role. The role of the past—effectively and efficiently managing an IT organization—is inappropriate for the future. CIOs must not only manage their IT professionals; they must manage the services delivered by a diverse group of external service providers.

After helping business units select the best outsourcing vendors, the IT organization needs to orchestrate all of the internal stakeholders into a full lifecycle governance organization for all the suppliers. This governance organization must actively manage outsourcing vendors, assuring performance, cost effectiveness and continuous improvement of service.

Competition doesn’t stand still; companies must continually improve the performance of their service providers to keep pace. Business heads, IT leadership, procurement and legal must work in concert and speak with one voice. They must represent the company’s interests, not parochial interests.

CIOs need to increase both their strategic and operational value. (See Exhibit 3 below)

In a world in which companies bring more IT services in from external providers than they deliver internally, the roles of managing data centers, recruiting IT professionals (especially those in IT infrastructure jobs), and managing big systems projects become far less important.

Managing outsourcing vendors (lower right quadrant) and identifying strategic outsourcing vendors (upper left) are two of the high value roles. What will diminish in value are roles in managing data center and other IT infrastructure (e.g., tech support and maintenance), IT recruitment and internal systems development projects. Yet these managerial chores occupy much of the work of many CIOs today.

CIOs who can generate significant strategic and operational value will find themselves in continual discussions with the CEO and the board about the most important issues of the company: How might we need to reinvent the entire business model? How do we use technology to reengineer the way we acquire customers or serve them after the purchase? What emerging technologies could have a profound impact on our entire business model or a key business process?

Strategic Value

HIGH• IT and business services

architecture planning

• Outsourcing vendor identification

• Key technology vendor identification

• Business model reinvention

• Business process innovation

• Key technology watching/identification

LOW

• Data center management

• IT infrastructure management

• Recruitment and retention for IT infrastructure jobs

• Management of internally developed information systems

governance• Outsourcing vendor

• Outsourcing vendor management

LOW HIGHOperational Value

EXHIBIT 3: THE CHANGING ROLES OF THE CIO

Source: WGroup

14 ReThink IT

#4 New Way to Manage IT Services and Project PortfolioLeading companies are transforming to the best practices of Information

Technology Service Management (ITSM) to achieve discipline,

standardization, service excellence and process efficiency of IT across the enterprise. The ITSM model provides guidance and structure to assist IT in the transformation from a support organization to running IT as a business. The CIO and IT leadership will need to champion ITSM and be the bridge between technology and the business.

As we mentioned earlier, the new world for IT organizations is one of shedding much of their IT operations. But which operations, and where should they go? This

should be the outcome of a rigorous portfolio analysis: an evaluation that determines which business processes and IT services should remain in-house and which should be outsourced.

Such portfolio analyses can reveal substantial cost savings. The first step is determining which components of IT may not have value anymore and thus should be eliminated. For example, we find many companies with systems that once were essential but have lost their value, and yet still linger. After identifying what could be eliminated, the analysis should focus on benchmarking and cost comparison. As an example, a large U.S. health insurer commissioned an extensive analysis of the cost and performance of its IT organization. The

company was compared to other companies, both in and outside the health insurance sector. It found that outsourcing many

IT services (including application development and maintenance, data center operations, technical support and network management) would reduce annual IT costs by 11%. It struck a seven-year contract with an outsourcing vendor, which has delivered the savings expected.

Companies should conduct such services portfolio analysis jointly with the heads of the business functions—i.e., the internal customers of IT. Changes should address both the opportunity to outsource IT support and move to BPO as well. Together, functional and IT leaders need to assess the current state of service and what functional managers need in the future. They must work together to reduce costs and improve operational performance.

This portfolio analysis is a crucial part of creating an outsourcing vendor management capability (VMO as referred to earlier). Business units and functions need to make a service and financial case for determining whether and how to outsource—similar to the ones that CFOs force divisional and functional managers to make in justifying any major purchase. The portfolio analysis approach should apply to all aspects of IT, including operations and maintenance and projects.

CIOs who can generate high strategic and operational value will find themselves in continual discussions with the CEO and the board about the most important issues of the company.

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The role of the CIO is no longer an operator but an integrator. It is about how well they partner with the business. CIO’s must lead company-wide innovation and understand how technology can increase revenue for their business. CIOs must behave more like a venture capitalist to embrace pace of change and align technology investment with business strategy.

#5 New Definition of IT Business ValueA big shift is underway in how IT performance is measured.

How should a company measure IT’s value in this new world?

When IT ran the data center, built or implemented most of the applications, maintained those applications and provided tech support, its key performance measures were necessarily about cost and efficiency: How well is IT delivering cost-effective services to the company? Those were measures of IT operational performance.

Going forward, those won’t be the most important measures of IT. After getting huge amounts of the IT infrastructure out of its data centers and off the company’s books, IT’s performance will require a whole different set of metrics. In short, IT’s value must shift to delivering business impact to the organization. Success of IT and business services will be based on “business outcomes” and not only operational (e.g., effectiveness, responsiveness, performance) and financial metrics (e.g., cost reduction). For example:

■■ How did the IT function enable exploratory investment in IT that resulted in new products or competitive advantage for the business?

■■ How quickly did IT enable the company to revamp its business processes to react to ever-changing market conditions and execute its strategy?

■■ How quickly did IT enable the company to transform its business model (if necessary)?

■■ How well did IT help the company capitalize on the billowing amounts of digital data that courses through its information systems, i.e., how well did it help knowledge workers make better decisions using big data?

In short, the IT function must embark on its own transformation. IT must redefine the business value it delivers to the company—from one of cost savings and operational efficiency to one of strategic value and revenue growth.

16 ReThink IT

The new world for IT organizations is here and rapidly evolving. The new model of IT needs to contend with a world that has evolved from one in which the IT department was the sole provider of IT services to one in which they compete with or need to manage a wide array of external global providers.

Consequently, the job of the CIO (and the role of the IT department) has evolved into a role that requires the CIO to:

■■ Not only manage the service delivery capabilities of the internal IT group, but integrate the services delivered by a diverse group of service providers,

■■ Manage the transition of responsibility for IT decisions to the business

and manage the effective use of IT resources to support the business, and

■■ Champion an effective governance framework and vendor management capability.

Above all, the CIO must be an advisor to the business. They must bring insight on new and

evolving technology and stay current on the offerings and capabilities available to them.

With the increased use of outsourcing, there is a danger for CIOs to become over reliant on service providers and vendors to identify and execute innovation. Innovation strategy needs to come from leading edge CIOs that will understand the services and products available to them in the market and how to integrate

them based on their specific business needs. This will enable the business to move faster than the competition.

While IT strategic planning has always been critical, it takes on an even more important role in this new world of IT. Leadership must drive a shared view of the current business, and the IT landscape, which is often referred to as Enterprise Architecture (EA). The right EA strategy aligns IT systems, processes, and organizations to to business unit strategy and goals in response to to these disruptive trends. EA delivers value by allowing business and IT leaders to have a recipe for adjusting policies and projects to achieve business outcomes in response to disruptions, challenges and opportunities.

Now is the time for IT executives to dissect and anticipate the impact of the disruptive industry trends we identified in this perspective paper. Those who can transform IT’s operations, roles, skills and governance accordingly and move from a pure cost reduction to a top line growth orientation will have a much greater impact on the success of their companies.

Key Skills Required of Today’s CIO■■ Strategic Planning

■■ Relationship Building

■■ Business Leadership

■■ Business Systems and Process Thinking

■■ Architecture Planning

■■ Governance and Vendor Management

■■ Industry Knowledge

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About WGroup

Founded in 1995, WGroup is a boutique management consulting �rm that provides Strategy, Management and Execution Services to optimize business performance, minimize cost and create value. Our consultants have years of experience, both as industry executives and trusted advisors, to help clients think through complicated and pressing challenges to drive their business forward.

For more information on WGroup, visit http://thinkwgroup.com

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