THE CIO ROLE: Creating Business-IT Alignment

If Rip Van Winkle were a CIO, awoken today from a 20-year nap, he might not realize how long he’d been asleep by merely perusing IT management periodicals. The challenges that CIOs put on the top of their agendas in the 1980s—such as aligning IT with the business, partnering with operating managers and effective strategic planning—are the same ones they find most intractable today. It is enough to make one despair. Moreover, today’s CIOs have to deal with outsourcing, an issue that was only beginning to surface two decades ago. Combine the challenge from outsourcers with the widespread availability of packaged software and the ever-increasing self-sufficiency of technologically savvy end users, and the classic CIO role (with the CIO being in charge of all IT) is under assault as never before.

The bad news is that this tendency will only accelerate. CIOs who persist with the classic model of the technology organization are doomed to extinction. At best, they will play a marginal role in their enterprises. The good news is that new opportunities exist for CIOs and their staffs to make even greater contributions to their organizations. However, taking advantage of these opportunities will require a rethinking of the very nature of the IT organization. In essence, IT must move from an orientation around technology to one centered on business processes.

While the term “process” is widely used and misunderstood, it is in fact a simple notion: It refers to the small number of cross-functional sequences of activities that create all customer value. Order fulfillment (which begins with receipt of an order and ends when payment has been received), procurement, product development, demand creation, order acquisition and post-sales support are typical processes. These processes do not show up anywhere on a conventional organization chart, which, at most, is a representation of the personnel in the enterprise, not its work. But processes are nonetheless very real and present in every enterprise.

Heretofore, processes have largely been ignored, as managers focused on narrow functional silos. But over the past 15 years, processes have begun to move front and center in companies’ programs to improve operating performance. Processes are the underpinning of Six Sigma and other quality programs, providing the context for identifying and resolving persistent execution problems. Processes underlie a new generation of measurement systems that offer a customer-centered perspective on organizational performance, emphasizing customer satisfaction rather than just financial results. End-to-end process redesign enables breakthrough performance improvement by eliminating unproductive, non-value-adding activities. All of these themes and more are brought together under the heading of process management, in which end-to-end processes are actively measured, improved and redesigned on an ongoing basis.

IT encountered processes when implementing integrated software such as ERP. The notorious difficulties that some organizations experienced with such software can be traced to the fact that ERP modules share a common database and interface with each other; in other words, ERP systems, at their heart, support cross-functional processes. Companies that attempted to install ERP encountered grave difficulties, for they were unprepared for the shifts in jobs and power that focusing on end-to-end processes entailed. Companies that managed their installation in terms of process change rather than software were far more successful.

IT’s New Role

The process concept has now become the underpinning of a whole series of managerial innovations that are transforming how enterprises are organized, managed and operated. There are many ways for IT organizations to be part of this shift in focus. For instance, consider the evolution of IT at IBM. While much has been written about IBM’s revitalization under Lou Gerstner, one critical and underreported aspect of this turnaround was the transformation of IBM’s operations through process redesign. The IT organization at IBM played a central role in this transformation and continues to do so. To understand how, consider Joan Kennedy, whose title is vice president of value chain fulfillment in the software group at IBM. (This is the multibillion-dollar business unit responsible for IBM’s software products.) Value chain fulfillment covers all the work needed to obtain and fill customer orders for software products. Joan’s responsibility is the design, support and improvement of this process on an ongoing basis; she is what is called in process parlance the “process owner.” She does not have direct responsibility for the people who actually perform the work of order fulfillment. They do not report to her and indeed are not even located in the software group. They are to be found in a shared-services unit with people performing similar work for other IBM groups. But Joan is responsible for designing how the order fillers do their work and providing them with the tools they need. She and her staff are continually looking for ways to improve the performance of the process, through changes in its design and the development of enhanced tools, including information systems.

Chief Process Officer

The most remarkable thing about Joan’s job is that she resides in what passes for an IT organization at IBM. Her boss, Lynn Potter, is technically called the business transformation executive (BTE) for the software group, and she occupies the slot that a CIO would have if there were one. (There are individuals with the same role in other IBM business units.) The BTE’s role is to “define and implement the business unit’s transformation strategy, identify and prioritize transformation initiatives, implement end-to-end processes, define IT requirements” and the like. In other words, the BTE is a business change manager who happens to tend to IT issues as well. Managing IT for the software group comes under the BTE’s purview, but it does not define the BTE’s role.

The BTE’s mission is not technology management per se, but technology-enabled, process-centered business performance improvement. The bulk of the hard-core technology management for IBM has been outsourced to another part of IBM that manages technology for customers as well as for internal units such as the software group. Joan and the other process owners are focused on improving their individual processes. They employ a structured methodology for identifying improvements and then organizing and managing project teams to implement them. Most (but not all) of their projects entail the deployment of information systems. The BTE’s role is to ensure that the work of all the process owners fits into an integrated strategy and that the technology infrastructure meets their needs. The corporate IBM CIO has a similar role, ensuring that the process-related projects in all of the business units are integrated into a coherent program for improving IBM’s operating performance.

IBM is far from alone in shifting the focus of its IT organization from technology to process. At dozens of other progressive companies, the CIO is at least as focused on processes as on technology. For instance, Bruce Goodman is the IT chief of Humana, the $13 billion health insurer, but he is also far more than that. He began by expanding his mandate from merely providing the systems that support processes to helping define and design the processes themselves. The process owners for some of the more technology-intensive processes work for him, just as they do for his BTE counterpart at IBM. But Humana has gone one step further. Not only does Bruce’s organization own the process called “enrolling, guiding and servicing customers” (essentially customer service) but the thousands of people who work in that process are located within Bruce’s organization as well. It is natural, therefore, although uncommon, that Bruce’s full title is chief service and information officer.

IBM and Humana have in effect turned their chief information officers into chief process officers, senior executives responsible for supporting and coordinating the work of process owners across the enterprise. This is indeed a dramatic transformation, but not as far-fetched as it might initially seem. Process is a concept far more congenial to IT executives than to many of their counterparts, and many of the skills and capabilities present in an IT organization are as much about process as they are about technology. Many process change initiatives are dependent on technology, and IT executives have the expertise and experience needed to ensure that such systems-intensive projects are effectively specified, designed and managed.

Extreme Makeover

While IT does have some distinct advantages in the process domain, it suffers from some weaknesses as well. Too many IT professionals and managers are still inexperienced in change management, a discipline central to process management. They tend to be narrowly focused on the particular range of technologies with which they are familiar and overly attached to the legacy systems that they developed and still maintain.

To succeed in a new role centered on processes, IT will have to change its style. Collegial, creative and flexible—rather than defensive, pedantic and rigid—will have to be the image that IT evokes in the enterprise. At IBM, the key word for the new IT organization is collaboration. Joan Kennedy works closely with her counterparts in the software group, with the unit managers whose people perform her processes, and with process owners in other business units. For IT managers accustomed to working in isolation, this collaborative style may come as a real shock.

The role of chief process officer is a critical one for enterprises, and some CIOs may encounter skepticism about their qualifications for assuming this position. IT executives are finding that an effective way to build credibility is by applying process techniques to the operation of their own organizations. An IT unit can in effect be viewed as a “business within the business,” whose customers are its users. Taking this perspective, it is possible to identify a small set of value-creating processes that IT employs in its own work. One financial services company, for instance, has identified the following six processes in its IT unit: develop and maintain customer relationships, plan services, develop services, provide services, deploy services and maintain services. Plan services, for instance, encompasses activities such as strategy development, service assessment and valuation, operational planning, resource planning and portfolio management. By applying process redesign techniques to incident management (which is part of the maintain services process), the company experienced a major improvement in first-call resolution while reducing the cost of operations.

Recognizing that transforming processes rather than installing technology is the real route to improved performance: These are the ways in which IT can transcend its traditional role and create its own future. The transition will not be easy, but the opportunities and payoffs are enormous. Moreover, there may be little alternative in a world in which technology is becoming a commodity. The age of technology is giving way to the age of process.

Michael Hammer is president of Hammer and Co., an education and research company focusing on process management and innovation. He is the author of four books, including Reengineering the Corporation. He can be reached at michael_hammer@hammerandco.com.