In a recent article, “CIO and the future of IT”, George Colony of Forrester Research offered an insightful assessment of the challenges and opportunities surrounding CIOs and suggested a number of strategic imperatives for future success:
“Most companies suffer from a digital divide, because the IT function is separated into two parts – they are business technology (BT) overseen by chief marketing officers (CMOs) and back-office (BO) led by chief information officers (CIOs) – and they don’t work well together. The misalignment between CMOs and CIOs causes cybersecurity gaps, underperforming business applications, and incomplete systems of engagement. The best solution is to keep BT and BO within the CIO’s purview and for CIOs to oversee all digital technology, including cloud-based applications and ‘Shadow IT’. CIOs need to lead this integration with a customer-oriented mindset: implement customer-centric performance metrics, embrace agile development, engage in strategy discussions, and establish a tight partnership with the CMO.”
The main premise of this article is that CIOs should become the prime contractor of the business for all technology needs. No doubt, most CIOs will support this conclusion, but it is a different story to get the buy-in of CMOs and other business stakeholders, as evident in the CIO-CMO dynamic that was featured in the video referenced at the end of the article.
The digital divide mentioned above happened for a reason in the first place: Consumed by the stability and efficiency demands, IT organizations aren’t equipped to meet the innovation, speed and productivity requirements of the digital business, and that’s why the innovation agenda is gradually shifting towards the pure-digital service providers/startups and ‘shadow IT’ is growing. The CIO of the future not only needs to solve the problems created by the digital divide but also address the root-cause of it. What it means is that we need to broaden the problem statement facing CIOs to become the prime contractor of the business:
- The BT – BO integration within the CIO’s purview solves one problem and creates another: today’s CMOs not only oversee BT, but also the BT – Business Function (BF) integration, e.g., marketing, product management and operations. Once BT is no longer within the CMO’s purview, CIOs will inherit the BF – BT integration, i.e., the perennial business-IT divide.
- More than 70% of the $3T technology spending goes to pay for the legacy and technology debt, a major disadvantage for traditional enterprises facing competition from digital-born companies.
- Most IT efficiency initiatives have a negative NPV after accounting for the loss of employee productivity, innovation and technology know-how.
- The current performance of CIO organizations in terms of cost and time-to-market is simply not compatible with the vision of becoming a prime contractor of the business. The problem is not stemming from leaders, organizations or cultures but deeply rooted in the aged technology management practices most enterprises rely on.
With this expanded problem statement, we can better appreciate the gravity of challenges ahead. Much has been written on what CIOs should do to secure a seat in the c-suite during digital transformation; The following three approaches emerge as game-changers:
Demonstrate measurable value…fast
Most CIO organizations are unable to realize their full potential due to the short-comings of the aged technology management practices – that are functional segmentation, IT financial accounting, project management, plan-driven development, and the like. These practices were optimized for the industrial-age and are proven to be inadequate in the digital-age. Consequently, there is a significant value trapped in IT organizations today in terms of out of tune policies, embedded contingencies, and excessive indirect activities, like oversight and support.
We recently conducted a comprehensive study to estimate this value. You can find more details about this study here. In summary, we found three buckets of untapped value:
Dormant output – Business needs change, requirements get amiss, and projects delay. Consequently, a portion of output produced by CIO organizations deliver little to no business value once they are ready for deployment. We call them dormant output; they are not a mistake or defect, but a bi-product of the system. The dormant output may amount as much as 30% of the total output of an IT organization that is run by standard management practices.
Cost of delay – This refers to the opportunity cost of a delay while delivering technology solutions to the business. For example, if a payment solution is delayed by 2 months, the bank may lose customers, market share, or share of wallet. This cost is a top of mind issue for CMOs but never adequately considered during day-to-day decisions made within the ranks of the CIO organization. Moreover, with the accelerating pace of change in business models, the importance of cost of delay is continuously increasing.
Based on our study, we estimate that the cost of delay can amount as much as the whole development budget of an IT organization – I mean 100%! For example, an IT manager may be ok to delay a deliverable for a week to find a cheaper resource; however, this may create a ripple effect within the overall IT value chain, and the end product that the CMO cares about may subsequently delay with an opportunity cost that is multiple times more than the savings of the IT manager.
Demand and Supply imbalances – Considering the complexity of the overall IT value chain, the demand – supply balancing is one of the hardest management problems. What differentiates a great performance from good is the ability to harness information captured in various IT management systems to timely identify bottlenecks, resolve tradeoffs, and predict outcomes. In our study we measured the effect of leveraging different data sources vs. not using them at all. In the end, we observed up to 15% cost difference between the great and the good performing practices. Just to make this point real, most project managers still monitor ‘job completed’ to determine if an agile project is on schedule. Our experience tells us that predictions of ‘job remaining’ is a much better estimator about the schedule performance of agile projects. However, traditional project management tools cannot produce this information even though all required data already exist in IT systems.
Fortunately, CIOs have access to most management knowhow, tools and data to reclaim a significant portion of the value currently locked in their organization as dormant output, cost of delay and demand – supply imbalance. Furthermore, CIOs can attack these new value sources within their existing means by rebalancing resources within their broader efficiency initiatives portfolio for an optimum ROI.
Establish a common currency of communication with the business
The perennial business-IT divide is one of the most important barriers to fostering a successful digital business, and also a practical opportunity for CIOs to secure their seat in the c-suite.
What is a common characteristic of successful digital-born companies like Amazon, Google, and Facebook? They never experienced the business-IT divide, because they could never effort it to survive. It is debatable if the divide will at all disappear in traditional enterprises, but it is clear that there is a tremendous value in narrowing it.
From initiation of ideas to realization of business outcomes, the IT value chain consists of numerous tradeoff decisions involving benefits, costs, risks and time. Value is destroyed when some of those decisions are misaligned along the chain. Until recently, alignment across the business-IT divide relied on strong leadership skills at the top, and clear rules of engagement throughout the ranks. In the digital age, this model isn’t sufficient, because critical decisions are not only made at the top, and the nature of the business-IT interactions has become so complex that it is impossible to cover all possibilities of misalignment through rules and controls.
Therefore, the best way of ensuring alignment at both rims of the divide is to create a common currency of communication, i.e. a small set of performance metrics that are linked to measurable business outcomes, like revenue, profitability, market share, customer loyalty, or wallet share. A few organizations have already started doing so at the CMO – CIO level for strategic decisions. This is a step in the right direction; however, the ultimate goal should be to extend this approach to the rest of the enterprise and into the day-to-day decisions.
Clearly, it is not possible to establish such a currency in a single step, but there is a simple way to start with: for every delivery commitment, IT teams should start asking customers when they need it and what happens if IT delays. If consistently captured and intelligently analyzed, this information is powerful enough to narrow the business-IT divide, because it captures not only what IT commits to the business, but also what the business commits to the enterprise.
Embrace continuous improvement
Benchmarking has always been the primary norm of performance management within IT organizations. It means evaluating by comparison with a standard, where the standard may be derived from management expectations, peer performance, industry comparisons, or the like. As a performance management tool, benchmarking is most effective when there are established standards and best-practices to fallow, and when conforming to average is desired.
Continuous improvement, which is another norm of performance management, seeks for incremental self-improvements, perpetually. Under a continuous improvement regime, individuals and teams would be less concerned about how well others do but strive for outdoing themselves.
In the digital age, where there are no standards or best-practices to follow and differentiation is required for survival, performance management by means of benchmarking only is a major drag for every CIO on their way to becoming the prime contractor of the business. Continuous improvement is a foundational principle of agile development and has been considered as one of the factors behind the success of many digital-born companies.
Where do we go from here?
Colony is right, the BT-BO divide is not sustainable, and CIOs need to oversee all digital technology, because chopping enterprise IT into pieces creates cybersecurity vulnerabilities, underperforming applications and incomplete engagements. By reuniting IT, we would return to the historically proven division of accountabilities between the Business and IT. The question is if this is sufficient to reverse the marginalization of the CIO organization in the digital age and to elevate the CIO role to the prime contractor of the business for all technology needs.
Fortunately, there is a vast amount of unclaimed value in IT organizations, which may be a game-changer for CIOs if harnessed fast, communicated effectively, and continuously improved to to stay ahead of the competition.
Start from the big picture, and ask if your technology spending is rightsized to maximize business outcomes? Do your stakeholders have high aspirations of return on technology investments? Can you see that it is not just your organization who is misbehaving, but all IT organizations are actually predictably irrational?
Then, look inside. How much of your teams’ effort is directly affecting external customers and creating measurable business outcomes for your enterprise? Are there friction points in your company’s IT value chain such as out of tune policies, embedded contingencies and excessive oversight and support? If so, start reclaiming the value trapped in your organization on your way to becoming the prime contractor for all technology needs.