The centralized IT function of old is under tremendous pressure from trends such as cloud computing, proliferation of consumer-focused mobile devices in the enterprise and Big Data analytics. According to a report by The Economist, as these trends erode the entrenched IT structure, CIOs and their teams must better align themselves with business needs or find themselves put out to pasture.
For decades, business has looked to a centralized IT function to control technology infrastructure and offer services to business units and employees. Now new technologies—cloud computing, consumer-focused mobile devices in the enterprise and Big Data analytics-are eroding that structure. CIOs and the IT functions under them must prepare for transformation or be left in the dust.
According to a new report, “The C-suite Challenges IT: New Expectations for Business Value,” written by The Economist Intelligence Unit and sponsored by Dell Services, C-suite executives believe the IT function is poised for a major transformation: 57 percent of the 536 C-suite executives surveyed expect their IT function to change significantly over the next three years and 12 percent predict a “complete overhaul.” Fully 43 percent say their company will increasingly use IT as a commodity service that is bought as and when needed.
The Economist Intelligence Unit reports that the changes these executives see on the horizon have the potential to transform not just the IT function but the entire business, creating new opportunities for companies to develop innovative products and services, connect with customers in new ways and rethink traditional business processes. These changes present both danger and opportunity to CIOs and their teams.
“When I was coming up, CIO stood for “career is over,” says Hord Tipton, who served as CIO of the U.S. Department of the Interior from 2002 to 2007 and is now executive director of security education and certification authority (ISC)2. “Now IT is a critical component of the business. Nobody does business without IT.”
CIOs Must Speak the Language of Business
But while IT may be central to the business, the CIO and his team can be left behind if they can’t find a way to address the C-suite’s core needs in language that expresses the business value of technology investments. The report found that CIOs and C-suite executives don’t see eye-to-eye on the alignment issue: two-thirds of CIOs feel their function is well-aligned with the business, but fewer than one-half of C-suite executives feel the same way about their CIOs. Only 46 percent of C-suite executives say their CIOs understand the business and 44 percent say their CIOs understand the technical risks involved in new ways of using IT.
“Ideally, business executives should be able to rely on their CIO for a briefing on the technical and business risks involved in new ways of using IT,” the report states. “But fewer than one-half of C-suite respondents say their CIO has a good understanding of these risks; up to one-quarter say it is poor. There are also gaps between the CIOs and their C-suite colleagues about how and where IT investment could best add value.”
And CIOs are finding themselves marginalized in some cases. The survey found one-in-six CIOs are only “consulted” or have no involvement at all when firms formulate IT strategy, meaning they are implementing strategies they had no real hand in determining. Even when they are involved in strategic decisions, the report found their focus is often “back-office” efficiency rather than revenue generation. Only about one-third of respondents said CIOs have a key or leading role in finding new ways of engaging with potential customers or in product and service development.
Companies With CIOs Active in IT Strategy Perform Better
But that latter statistic points to a silver lining for CIOs determined to reverse the trend. Companies that involve the CIO in business strategy are much more likely to achieve financial performance superior to their peers. Of the 37 percent of respondents who said their CIO was actively involved in setting business strategy, 47 percent said their company financially outperformed business peers. On the flip side, among the 20 percent of respondents who said the CIO had no role in business strategy, only 28 percent say they were performing better than industry peers.
There is significant opportunity for forward-thinking CIOs that speak the language of business. Fewer than one-half of respondents say their use of IT drives competitive advantage for their company. While many firms are focused on using IT to cut costs (38 percent) or to improve business efficiency (42 percent), the firms focused on using IT to add value in new ways and grow revenue find their IT functions are delivering more effectively in other areas as well.
No Need for Tradeoff Between Reducing Costs and Driving Revenue
“Understandably, companies focused on driving new revenue tend to be more effective than their peers at using IT to create new products and to find new customers,” the report says. “They also outperform when it comes to improving the reliability of IT infrastructure and aligning IT with the rest of the business. Far more surprising is that respondents from these revenue-focused companies have a more positive view of their organization’s ability to reduce costs than those respondents who primarily prioritize cost-cutting.”
For example, Steve Stone, former CIO of Lowes and currently senior vice president of Cloud Intelligence at MicroStrategy, notes that a CIO can take the technology challenges faced by big box retailers like Lowes and turn them into opportunity. When he took the reins as CIO in 2002, the prevailing strategy was to establish an infrastructure in each store that would allow it to be up and running no matter what, even if communications were cut. But that strategy created some serious challenges, especially the considerable replacement costs of redundant infrastructure at each location. Stone was able to consolidate on a central data center while also making the data available to the business on a more timely basis. That, in turn, allowed the business to begin crunching that data to offer new services, like optimizing the supply chain to reduce delivery costs while getting products to customers faster.
“For the brick and mortar retailers now, you really need to leverage the wide area network and lean out the technology in the store to the point you don’t need to replace it all so frequently,” he says.
Tactics for Aligning With Business
The report offers three tactics CIOs can pursue to better place themselves in the context of the business, as follows:
Push budgeting further down into the business so the people who pay for an IT service are those who benefit from it. This can help minimize costs and better align IT with the business because business managers are reluctant to pay for services they do not need. It also means that IT investment is more likely to provide new services that business managers actually want.
Encourage the cultural expectation that IT staff should play an active role in growing the business and not just facilitating the efforts of other employees.
Experiment with IT that will help you build knowledge or skills that will pay off later, even if the experimentation increases short-term technology costs. The chance to develop talent has a value that can keep paying dividends.
The report also offers advice that businesses should consider:
Think widely. Technology innovation can transform more than just corporate IT functions, it can fundamentally change the way the business operates. Consider the impact of innovation to the wider direction of the business, not just to the future of the IT function.
Empower your CIO. IT infrastructure as a commodity may allow you to reduce the scale and scope of the IT function, but rather than limiting the role of the CIO it should allow the CIO to switch from focusing on keeping the lights on to focusing on adding value.
Don’t hold the IT function in isolation. Many organizations that have proven the most adept at adapting to the changes wrought by cloud computing, mobile proliferation and Big Data analytics have done so by moving IT leaders out into the business, where they can align more closely with the needs of business units.
Reconsider how the company assesses investments. Don’t assume that IT investments necessarily mean a trade-off between cutting costs and driving revenue. These days, companies can often achieve both.
Risk is still just risk. Organizations are still concerned about the risks associated with cloud computing, mobile proliferation and big data analytics, but don’t let the risks paralyze you. The threats can be identified, assessed, managed or avoided-just like any other business risk.