2011 State of the CIO: IT Departments Are Fueling Company Growth Through Strategic Technology Investments

While there’s no free-wheeling IT spending going on (unless you’re hiding that information), our annual State of the CIO research confirms the rumor: The Great Recession has indeed abated.

Heading into 2011, many CIOs are investing in projects to improve staff productivity, make business processes more efficient and promote innovation. These transformational and strategic activities signal that the retrenchment that ruled the past two years is, thankfully, over. CIOs we interviewed say that data center redesigns no longer simmer on the back burner. Mobile experiments are moving to production. iPad requisitions are being signed. Renewal has begun.

Further proof: That urgent push—“panic” is such an ugly word—to involve every single employee in acquiring and retaining customers also shows signs of dying down. In

2010

, a hefty 25 percent of CIOs said that that kind of customer engagement would be their most significant business accomplishment for the year; this year, it’s 19 percent of the 729 heads of IT we surveyed.

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Of course, CIOs must always understand customers and provide the technology to build relationships with the people who keep their companies in business, says Joel Schwalbe, CIO of CNL Financial Group, a private investment management firm. But the call for all hands on deck has quieted. “What we are focused on is which customers bring the most value to our company versus getting more customers,” Schwalbe adds. “That’s a different perspective.”

Technology shifts, meanwhile, are remaking the CIO career trajectory. Our survey shows that in three to five years, more CIOs expect to have responsibility for security and risk management. That’s in part because enterprise projects in cloud and mobile computing now prompt CIOs to weigh which critical internal and customer data to keep in-house and which to store in cloud systems, says Jamie Page, director of information services at Slumberland, a privately held furniture retailer. CIOs also have to figure out how best to protect data, no matter where it resides, when customers and employees access it via smartphones, he says. “You have to be constantly evaluating security,” he says. CIOs love to grab control of anything that gives them the heebie-jeebies.

IT groups must remain disciplined as the recovery takes hold, says Wayne Shurts, CIO of Supervalu, a $40.6 billion supermarket company. “Every hour of a colleague’s time is valuable. You have to use them in the most productive way,” he says. “The recession reminded us, if we got a little fat and happy, how important that discipline is.”

Shurts and other CIOs say they now aim to concentrate on strategic investments—those with longer-term impact on operations and growth—rather than on stanching red ink. Cost cutting, though still important, is less of a priority than it was a year ago. Slightly more than half (51 percent) of CIOs said lowering company operating costs would be a significant achievement this year, compared to 58 percent last year. As they build new systems and refine or reject old ones, CIOs also expect 2011 to test their ability to lead change. Shurts, for example, plans to examine Supervalu’s business processes, from supply chain to retail sales, to improve overall operations. The IT group, more than other departments, understands how the company works, touching, as it does, every function. But managers in all groups and at all levels must band together to make change happen, he says. “The power is in a unified approach. The less you see IT by itself, the more successful we’re being.”

Productivity Rules

67% of CIOs say improving workforce productivity will be a top business accomplishment next year.

Enabling employees to be more productive tops IT leaders’ list of expected accomplishments for the third year running, but now even more CIOs cite its importance. Last year, 63 percent saw end-user productivity as a key contribution, up from 49 percent in 2009.

Tweaking productivity is a deceptive idea. It seems tactical, even simple. But for many companies, it’s also a strategic move because productivity is necessary to engendering innovation.

Not much innovation happens when people work alone. The current thinking (outlined in recent books such as Where Good Ideas Come From: The Natural History of Innovation, by Steven Johnson) holds that fresh ideas come from groups of people who collaborate using an array of tools. Shurts, who joined ­Supervalu from Cadbury in May, agrees. Employees who can work together easily, whether through instant messaging, shared documents or impromptu desktop video conferencing, can apply collective brainpower to problems more effectively.

To improve productivity for the directors who oversee 1,200 Supervalu supermarkets across the United States, Shurts plans to give them access to Microsoft Office 365, a set of cloud-based collaboration applications that costs $10 per user per month. The service includes the Exchange e-mail platform, SharePoint collaboration tools, Microsoft Lync video and Web conferencing, and the Office Communications Online bundle of instant messaging and voice-over-IP audio calls.

Not only will the directors be able to complete routine tasks, such as sharing financial results, faster and with fewer errors, but they will also be able to interact directly with each other and with the company’s central merchandising group to discuss new business processes, Shurts says. For example, store directors will work with merchandisers to better customize the selection in individual stores in order to best match customers’ needs in each location.

Shurts also expects the directors to share problem-solving tips and float new business ideas. This is the first time directors will be linked so closely electronically, he says. They’re used to brainstorming in periodic regional meetings, face-to-face. However, he says, “speed is becoming incredibly important and some of our processes weren’t built for speed.”

Fully empowered employees can create competitive advantage when they have the tools to, first, access data they need (still a novel concept for some companies) and second, turn that data into information with which to make smart real-time decisions.

Martin Davis, head of the technology integration office at Wells Fargo, defines a productivity tool as any technology that helps employees satisfy customers. When Wells Fargo bought Wachovia in a $15 billion deal in 2008, Davis, who was then Wachovia’s CIO, and other leaders from the integration team decided that the merged company would use whichever technologies best enabled a given business function, no matter which bank the IT came from.

“We are more focused on business outcomes than technology,” Davis says. And the most important outcome as the company finishes its integration, he says, is customer retention. He says the twin goals are for customers to experience little or no disruption in services while the two banks come together and for Wells Fargo and Wachovia customers to adopt products and services from both banks.

To ensure employees remained as productive as possible during the height of merger activities last year, Wells Fargo provided ongoing support for nearly all of the 4,000 applications the bank uses. A team of people from Davis’ integration office, along with the human resources group, continue to oversee that effort.

“We first selected the business process, then applied appropriate technology, then made sure everyone knew or was reminded how to use it.”

In the year ahead, Davis says, Wells Fargo will finish piloting the use of iPads for on-the-road access to corporate e-mail and continue to test new applications to let customers conduct transactions with mobile devices. However, he plans to phase in any new technology carefully, no matter how promising the projections of productivity gains. IT is accountable for business metrics, including customer satisfaction, he says, so the staff must monitor “the amount of change we put in the technology environment to be sure we don’t cause negative customer impact.”

Leading Forward

52% of CIOs say IT will contribute significant improvements to the quality of products and processes.

Meanwhile, half cite re-engineering core business processes among their top five expected accomplishments in the coming year. Together, these goals add up to plenty of change. CIOs know that they and their IT teams will need certain personal skills to reach their objectives.

When we ask each year about which leadership skills will be most important to CIOs in the next 12 months, long-term strategic thinking usually presides at number one. It’s as mom-and-apple pie as the alignment of business and IT. So it was this year, and for more CIOs.

More revealing are the skills CIOs ranked next. Change leadership rose in importance compared to a year ago, as did expertise in running the IT function. Both are essential for CIOs who anticipate managing big shifts. When C-level leaders agree on where a company needs to go, employees can say they buy in and wear the T-shirt. But when individual jobs begin to change, old habits must be broken and new ones adopted. That’s when the confidence and persuasive skills of a CIO will be tested, says Mark Shaver, CIO of Joy Global, a $3.6 billion mining-equipment manufacturer.

In July, Shaver, who was at Joy Mining for 36 years and has been with Joy Global for six months, came back from a stint leading operations in the Australasia region to take on the CIO job. The recession made it clear that IT wasn’t running as well as it should, he says. The prior CIO had left in April to pursue other interests, Shaver says.

Now Shaver’s mission is to transform the IT department from one that responds to requests to one that promotes best practices and anticipates how to support business shifts using technology. He says he wants to bring a business operations perspective to IT by, for example, using metrics to measure progress and change behavior. He also wants to see what process enhancements need to be addressed and how to develop solutions to work for both divisions of the company: Joy Mining Machinery, which makes equipment for digging underground, and P&H Mining, which makes machines for aboveground work.

Shaver expects that his long tenure with the company, his deep knowledge of what works and what needs improvement, and his web of inside contacts will help smooth the coming changes. “If we brought in someone from outside, even with the same vision as myself, it would have been a year or 18 months for that person to build relationships,” he says. “The advantage I have is, I’m not an unknown.”

To help members of the IT group better collaborate among themselves and with business managers, he has started regular meetings. Every Thursday night, his five global IT managers send reports about project progress, including milestones reached and obstacles encountered. Shaver consolidates them into one report for his boss, Dennis Winkleman, who is the company’s executive vice president of administration.

Then on Monday afternoons, Shaver holds a meeting with his two directors and a rotation of other people from his 92-member staff. They attend in person, over WebEx or by phone to discuss Winkleman’s feedback and his own. “That sets the stage for the week’s work,” he says. These meetings also clarify to IT and the rest of the company that his department is accountable for its performance. Shaver has renamed the IT group Global Business Solutions to reflect his determination to put his staff out front, anticipating business shifts and supplying tools to capitalize on them, he says.

Schwalbe, at CNL Financial, also aims to improve basic business processes in the coming year, addressing demand that had been pent up by the recession. For the past two years, Schwalbe’s major impetus has been to cut costs, he says, so leading competitive charges “were not initiatives.”

He’s eager to shift focus this year to providing technology that differentiates CNL Financial from competing investment management firms. Giving a sales agent—who must make hundreds of calls per week to prospects—access to automatic phone dialing through Salesforce.com will save that agent 10 to 15 seconds per call. “Our business is begging for it,” he says.

A bigger change, however, is Schwalbe’s aggressive pursuit of on-demand IT services. He plans to virtualize all major servers and many of the company’s desktop machines. He wants higher performance at lower cost—but not to satisfy any financial goal established by the company. Rather, he sees a mix of private and public cloud computing as critical to providing the right information to the right employees and customers when they want it. “We’re trying to transform from a technology-centric to a people-centric approach, where I focus on people and what they need.”

For example, employees wanted to try iPads for corporate work, so Schwalbe’s staff ported Microsoft Office applications to the iPad and deployed technology from Citrix so users could operate an iPhone as a mouse. IT is also working on providing data visualization systems to different business groups in order to make analytics simpler, he says.

As part of leading his people-first change in the IT group’s approach, Schwalbe has started hiring differently. In the past, specific technology skills determined who made it through initial screenings. Now, he says, he and human resources staff look for experience in specific business situations—such as working with end-users to determine how analytics can generate new revenue or developing applications for road warriors in sales.

“If they have good people and business skills, I can teach them technology,” he says. “There’s a need out there for developers to sit in cubes with blinders on, no question. There’s just less of a need for that here.”

Risk and Reward

55% of CIOs expect to be in charge of corporate security within five years.

Meanwhile, 49 percent envision company strategy as part of their domain, and 41 percent expect to head risk management. Even today, CIOs who have roles beyond IT are more likely to have these responsibilities than others.

The emerging trend suggests many CIOs see a bigger, more strategic role for themselves down the road. While currently, our survey found, IT leaders spend much of their time aligning IT initiatives with business goals and improving IT operations, they anticipate a future focused more on driving business innovation and identifying opportunities for competitive differentiation. Risk management and security, in particular, are gaining in importance as CIOs expand their roles in strategy, observes Steve Monaghan, CIO of Sony Music Entertainment in the United Kingdom and Ireland.

In our survey, improving security and risk management is fifth on the list of expected accomplishments in the coming year. Forty percent of CIOs cite it, up from 26 percent in 2009. Monaghan says he has to tread carefully because of the delicate position of the music industry. Single-song sales of digital music are increasing, but not enough to offset the decline of albums on CD, he says. Digital music is generally cheaper than buying physical discs—sometimes it’s even free. Because no one can predict which business models and modes of delivery will prove profitable in the future, CIOs in the music industry must understand risk management and experiment judiciously with technology ideas, he says. IT plays different roles if Sony is selling music physically than if it’s selling it digitally.

In the transition to digital music, certain business processes used for CD sales must remain in place, even as others change. “We have to make physical delivery more efficient without making a huge investment, because that market is declining,” Monaghan says. However, a reverse-logistics process that handles customer returns of damaged CDs doesn’t work when customers return an unwanted download to Apple’s iTunes store. The return and the back-end accounting for that digital product are both a matter of ones and zeros, not of doing data entry after hoisting crates of discs. For CIOs to help their companies compete, they have to understand what stops employees from doing their jobs better. Unearthing the pain points that IT can fix, he says, is a matter of asking a simple question: “What do you do and why?”

“Start to pick off problematic aspects of those things with some new technologies,” he says, “and you can get at bigger, maybe even systemic problems.” The key, however, is constantly balancing the risk of introducing new technology against its expected payoff—especially in industries that are remaking themselves.

Technology and sourcing shifts will guide some of the practicalities of how the CIO role evolves. IT leaders surveyed said they now outsource, on average, 22 percent of IT services, and they anticipate outsourcing more than one-third (34 percent) within five years. Among the trends expected to have the most profound effect on the future of the CIO role, technology as a service—or cloud computing—tops the list at 41 percent. Concerns about the security of cloud computing have deterred some CIOs from adopting it. Yet potential financial savings and, in some cases, increased flexibility, make the cloud compelling. CIOs say they need to balance those risks. Although he hasn’t made any decisions yet about systems and vendors, Shaver, at Joy Global, says he expects the cloud to transform how he manages the IT function. As mundane IT work moves outside Joy Global’s walls, he expects he and his staff will provide more input into corporate strategy. He wants his staff to operate like a vendor, providing technology services at market rates, but also to add strategic insight that can only come from inside knowledge. The pressure is on: Shaver asks each member of his team, “What are you going to do to move us from good to great?”

At CNL Financial, Schwalbe is excited to explore the possibilities of combining cloud and mobile computing. He plans to extend iPad access to enterprise systems such as the Cognos business intelligence and Oracle ERP platforms so important to his company. “The industry is on the cusp of such technology change. All the old standards will fall,” he says. “This is one of the most exciting times I’ve seen.”

Follow Senior Editor Kim S. Nash on Twitter: @knash99.