by Kim S. Nash

Taking Business Risks With Your IT Budget

Nov 02, 2010

New IT-enabled business models can be created only when CIOs take risks, says Vinnie Mirchandani, an expert in outsourcing and author of a book on disruptive technologies.

Are today’s CIOs more innovative than they were 10 years ago?

Absolutely. But it’s only 20 percent to 30 percent of CIOs who are innovative. More want to be, but organizations don’t let them.

Why do you say that?

Twenty years of history. In the 1980s, we talked about IT as a competitive advantage, like with Sabre, [American Airlines’ breakthrough reservation system]. In the 1990s, we didn’t hear much of that at all, and IT started reporting to CFOs. In the early 2000s, the CFO made IT a compliance function for auditing and security.

We’ve beaten the innovation out of CIOs at many companies. We want them to be risk mitigators, not innovators. People are afraid to be associated with any failure. They buy IT from vendors that are safe choices. They know they’re overspending, yet they do it anyway. Cloud computing is an opportunity to break that cycle.

How can a CIO change this situation?

Some have CEOs who have gone to them and said, “I want you to do this.” Others have to claw to get a meeting with the CEO every month.

The best thing they could do is get out from under the CFO. Go to your CEO and say, “I want to report to you.” Make sure the CFO doesn’t stand in the way. Some CIOs will get fired for doing that. Others will get a chance.

What are the ­ingredients for ­innovating with IT?

First, a forward-thinking CIO who is very cognizant of what they’re getting from their vendors. The shocking thing about corporate IT is that without realizing it, 85 percent to 90 percent of the IT spend is with a vendor, including outsourcers and the staff you buy from them.

Why is that bad?

When you’re spending 90 percent of your money with a vendor, you have only a sliver left for [internal] talent—yet it’s with your own internal talent that you can innovate. There’s very little left for CIOs to innovate with.

The more progressive CIOs are saying they’ve overdone it with outsourcing and are starting to hire their own enterprise architects and business analysts and other strategic resources.

What kind of ­strategic skills are most ­important now?

Those for custom development projects in social networking, cloud computing, mobile, sensors, analytics and service-oriented architecture.

[Those who outsource ask themselves], “Should I just let IBM or whoever [run my IT]?” Now, many are saying that’s not a very smart thing. They’ve seen the results from those vendors already and they want to hold on to what could be a competitive advantage.

What other aspects of how IT works and how ­technology is bought inhibit ­innovation?

One of the problems with IT over last 10 years is that we have created routines. Send IBM a monthly check. Write Oracle an annual maintenance check. Year after year, we write those checks, like entitlements.

The cloud promise is, I can use it as I need it. That is a huge potential change in the way IT operates.

I know of one big, big website whose traffic spikes on Sunday evenings, so they get extra capacity from Amazon. An Indian company I know of does payroll by renting three hours of processing time per month from Amazon. They don’t need their own servers for that now.

[But] CIOs resist it. It’s not secure, they say. It’s not always available. CIOs say cloud vendors go down too often.

I know CIOs who haven’t run a full disaster-recovery drill for years and turn around and say that the cloud isn’t production-ready. We have a lot of hang-ups.

Vinnie Mirchandani is founder of Deal Architect, an IT negotiations advisory firm, and author of The New Polymath: Profiles in ­Compound-Technology Innovations.

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