by Herald Chen

An even bigger innovation cycle is coming our way, are you ready?

Nov 12, 2018
Digital TransformationInnovationIT Leadership

CIOs have an opportunity to remake their roles, and in turn their companies, by championing innovation

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Credit: Getty Imags

Over the past forty years, we have witnessed amazing technology advancements at work and home.  Even so, the biggest and most significant innovations are yet to come and their impact is underestimated in terms of the speed, breadth and force.  As CIO, your job is not only to stay abreast of these innovations but to harness its power to the benefit of your company.

Next wave of tech: tsunami warning

For the past forty years, most of the tech innovation efforts have been centered around inventing and perfecting “foundational” technologies, such as the microprocessor, networking systems, lithium-ion batteries, digital imaging sensors, wireless connectivity, solid state memory, Internet protocols and GPS, to name a few. Many of these technologies are anchored in hardware, where innovation is typically time consuming, stepwise and laborious. The good thing is most of these foundational technologies, first conceived in the 1970s, now have had decades of R&D improvement behind them.

While there have been many transformative new inventions, such as the PC, mobile phone and Internet infrastructure, many aspects of our daily lives have not changed all that much. This has led to some complacency on understanding how quickly innovation can transform or disrupt an industry. We still call each other using a numerical construct developed almost 100 years ago. TV may be streamed but much of it is still to a 2D screen, and while it is bigger, brighter and lighter than forty years ago the concept is generally the same. Most of today’s jets and cars are based on fundamental designs created more than fifty years ago. Even in an Amazon Prime world, shopping is still ninety percent offline.

Over the past decade, through significant software-driven innovation, the foundational technologies have been woven together into scalable, available and affordable platforms, such as ubiquitous mobile and public cloud infrastructures. These incredible platforms allow for unprecedented and accelerated innovation that can scale quickly, at lower cost and on a global basis.  This leads to a tsunami of imminent transformational change.  The next tech innovation cycle will be less about fundamental technology invention and more about the ability to rapidly innovate on top of these recently forged technology platforms. Companies such as Lyft, Epic Games (the makers of Fortnite) and GoDaddy can scale at exponential rates based on the ubiquitous reach given utility-like platforms (such as AWS), app stores and mobile payments. (Disclosure: Certain funds managed by KKR have invested in these and the other companies mentioned in this article.)

One example of an innovation that is finally coming into its own due to utility-like technology platforms is AI-driven machine learning. As a result of this computation and data handling power, analytics to augment human and machine behavior will become pervasive in all business and technology processes. Many algorithms were envisioned decades ago, but we now have access to huge data sets and processing power to implement those AI and ML algorithms at meaningful scale, speed and low cost. DarkTrace’s world-leading cyber AI uses unsupervised machine learning to identify and respond to known and importantly unknown threats by highlighting deviations from “normal” behavior.

“Champion of Innovation Officer”

With over 100 companies in our KKR portfolio, spanning many industries, geographies, and company sizes, I talk with CIOs all the time. I hear both optimism and fear in their voices as their roles are increasing in importance as fast as innovation occurs. So, what does this tsunami wave of innovation mean for CIOs? 

The changes coming will have significant implications for CIOs and how we work. CIOs have always been great at the “protect and serve” motto — balancing the strict requirements of security, availability, privacy, access control and other governance needs. Digital transformation requires the CIO to now also be a champion of innovation, not an impediment. CIOs and their staff should be in the crow’s nest looking on the horizon for what innovations will enable a company to accelerate growth and also to protect their flank from disruptive changes. Think about how you can help your company build the capabilities to expand competitive moats, grow faster, save money, expand internationally, acquire another company and transform data into information. The CIO’s domain is not only to process, store and protect a company’s data, but also to leverage information and technology to further the company’s business goals.

Having this forward-looking perspective, CIOs must be a forceful change agent in their companies and fight against institutional complacency. One of the most powerful forces is gravity, and in turn inertia, so the job is not easy. Once you do get momentum around innovation, the attitude of your team and in turn the culture of change in your company will gain momentum. Even in my tech-savvy environment, I am struck by the degree to which CIO’s still spend a lot of time getting buy-in from their boards and senior management teams on changes that are coming and that need to be prioritized.

There is no one more senior than the CIO with responsibility to adopt the latest technologies to improve a company. This is a tall task given the speed of tech innovation, and all the more complicated given the dynamic ecosystem of suppliers, customers and employees that all need integrated access to your systems and information. New technologies are coming into your organizations every day that need to be assessed, integrated, managed and monitored.  

Tips on riding the wave

As we enter this next phase of accelerated innovation, here are a few things for CIOs to keep in mind. 

During my design engineering days, one of the most interesting challenges was how to build robustness into a system. For CIO’s, robust IT business process and infrastructure is required.   It is no longer about building rigid, closed boxes to run a company. 

Take cybersecurity. The old model was to build firewalls around your network infrastructure and call it safe. As you know, that simple model no longer holds. While you still need firewalls, the current cybersecurity approach assumes assailants have already penetrated your systems; therefore, a company needs a dynamic cybersecurity infrastructure that can protect against multiple internal threat vectors while also creating a “new” security perimeter around end users, not machines, using identity and access management tools. At KKR, we are invested in companies such as Cylance, DarkTrace, Forgerock and Optiv to bring the robust set of tools and expertise to solve this never-ending cybersecurity battle.

To that end, we know the world is getting more complicated and infrastructures are more heterogeneous than ever. While we all get enamored with the next cool IT platform technology, the infrastructure that CIOs need to manage expands in complexity with each new platform.  The migration from mainframe to client server to PC to SaaS to mobile to public cloud are viewed as shifts from one paradigm to the next. CIOs know this is not true. What has happened in practice is daisy chaining of all of these solutions that has led to the heterogeneous IT infrastructures of today. To many people’s surprise, mainframe MIPS usage is actually increasing at seventy percent of large enterprise (according to BMC).  Heterogeneous and distributed IT infrastructure is an inevitability, and today’s CIOs are deploying robust and resilient processes to inventory, manage, integrate, configure, secure and monitor those systems.

Next, adopt a breadth of software solutions to provide the best options for your companies, from the core traditional packaged applications to SaaS-based software solutions where you can configure, instead of customize. Given that many CIOs struggle with tech debt, CIOs need to consider a systematic “business-backed” approach to reducing legacy/tech debt in conjunction with innovation IT initiatives. Accelerate the capability to develop your own apps that can drive unique competitive advantages for your company. Consider the use of the low-code software platforms, such as Outsystems, and leverage third party on or off shore vendors.  Further, the maturation of the SaaS vendors and public cloud platforms — both now at a point of robustness in terms of features, up-time, security, APIs and meaningful SLAs — allows for a CIO to integrate and successfully orchestrate a wide portfolio of software solutions, whether on-or off-premise. Lastly, build the business process to allow for “shadow IT” software to exist at the business unit level.  Since your companies are doing it anyway, it is better to have a process to manage the “shadow”.

One area where this mosaic of disparate software solutions can be highly impactful on a company is in managing the end-to-end “customer journey” — a system that tracks a customer from the first ad viewed to inquiry to sales engagement to product delivery to customer support to upsell and retention. In the past, this type of system was impractical given the siloed nature of IT infrastructure. Now using the new bag of CIO tricks, such as data lakes, AI listening tools, integration platforms, marketing widgets and workflow engines, a company can improve customer satisfaction, improve targeting marketing, lower sales cost and provide real time feedback product management.

To keep abreast of the latest innovations and successfully run, protect and manage the unwieldy technology footprint, find co-champions of innovation on your senior management teams, direct reports and boards. Get buy-in from your CEO and ensure there is at least one IT innovation champion on the board. If there is a Chief Digital Officer, ensure there is alignment on roles and responsibilities which will enable both the CIO and CDO to succeed. Within their own teams, CIOs are being challenged to “upskill and reskill” their organizations to enable them to take advantage of new technology options. New roles, expertise requirements and organizational structures are emerging to ensure agility and competitive advantage.  

Given the scarce availability of talent, especially in areas where innovation is hottest, such as with data engineers and full stack developers, leverage external third-party experts who, for example, have done digital transformations at your key competitors or designed cybersecurity reference architectures at hundreds of companies of similar scale (e.g. Optiv). Additionally, gain access to a generation of seasoned tech executives who started their careers in tech thirty years ago and are at stages of their careers where they are available to be advisors, board members or even full- or part-time employees.

As we all know, the CIO role continues to become more challenging by the day and not all CIOs or companies will make a shift because innovation can introduce more risk and uncertainty.  But, with the right guardrails, processes, team and tools, the CIO can take on the Champion of Innovation Officer role and create meaningful competitive advantages for a company.