Next-generation CIOs Should Focus on Change, Not Just Business

By Kevin Fogarty  |  Posted 2008-02-29

CIOs who think of themselves as savvy technologists skilled in aligning the work of the IT department with the goals of the parent corporation are in serious trouble and don't even know it.

They're smart, well trained, fully adapted to the last major wave of technology-fueled business innovation – and as anachronistic as a T. Rex expecting a giant meteor strike to bring great new opportunities for giant carnivorous saurians.

"Aligning IT with business – which has been a CIO's main goal since forever – that's gone," according to Chris Potts, director of Dominic Barrow Svs. Ltd., an IT strategy consultancy based in London.  "IT is too integral to the practice – to the operation of the business – to be something separate that you align. You can't align IT decision-making and business decision-making; you have to treat them as an integrated decision-making process."

That ability to go beyond IT-business alignment was an important factor in what made companies named to the Baseline 500 among the most effective users of technology in the business world, according to Paul Strassman, the productivity expert, IT consultant and former senior IT executive at Xerox, Kraft and NASA who did the principal analysis of Baseline 500 companies in 2007.

During its first 40 years of existence, IT's role was to reduce costs, increase the efficiency of existing operations and automate what it could, Strassmann said. As the structure of global business and economics changed, however, so did the requirement of IT to be more than a support structure for business decision makers.

"Unlike in the past, now companies outsource as much to 65 percent to 75 percent of their operations, so looking at IT relative to the complexity of a firm is no longer accurate," Strassmann said. "Many of these (Baseline 500 members) are hollow companies. GM gets 78 percent of its revenue from the work of outsiders, which is staggering."

Globalization has enabled major corporations to source their parts and services from so many places, and shift their sourcing so quickly, that IT is unable to provide an additional layer of cost-savings to that process.

Supply chain management, global communications, decision-support and all the other tools of modern corporate management and decision-making are at the core of that capability, of course, Strassmann said. But that level of involvement in the business process is just table stakes – the kind of contribution technology manager can't escape, not a unique benefit they can deliver.

"If you ask IT people to create value, they can't do that because they're creating 'IT' outside the delivery units," Potts said. "Salesforce automation – which isn't the best example, but is apt – isn't something that can be done best by IT people. You have to be expert in how the salespeople work to be able to make those key decisions.

"If you're looking to have IT make a difference in your sourcing, the decision-making should be within the same strategy as the rest of the sourcing," Potts said. "It might not be in the same sourcing department as the people who buy the widgets, but it can't be in some separate area where the IT strategy is created separately from the business strategy."

That's always been a requirement – or at least a personal goal and method of operation for successful IT people – according to Nick Ibrahim, chief technology officer for Ruby Tuesday's restaurant chain.

Ibrahim's latest "IT" project is actually a marketing effort that uses databases and data mining and customer relationship management capabilities to draw customers in to both Ruby Tuesday's restaurants and its database. Customers who bring in coupons delivered in the paper mail are entered into a central database and become the target for discount offers and other marketing processes designed to increase per-visit sales and increases in the number of visits per known customer.

The project would be impossible without IT, but it's not an "IT" project, Ibrahim said.

That's the key difference between the last generation of corporate IT and the next generation, Strassmann said.

IT - accelerated by advances in transportation, international free trade agreements and the availability of cheap labor in developing countries – has slashed the cost of manufacturing and distributing goods.

But the cost of marketing them, administrating the organization needed to keep the business on track, legal considerations, tax and finance requirements and all the other administrative function that contribute to the cost of goods sold, but often add little value on their own, Strassmann said.

"We've done a lot of the big cost-reduction stuff," Strassman said. "Now we're stuck with those sticky transaction costs like marketing and legal and finance; in the long run if you can use IT to reduce those transaction costs you're going to come out ahead. IT itself is somewhere between 20 percent and 30 percent of transaction costs, but IT is getting a lot cheaper. [Software as a Service] and pay-by-the-drink IT will help reduce IT costs 20-fold in the next 10 or so years, but it's going to take time to get there."

It's also going to take a fundamentally different way to think about "IT," Potts said, that doesn't include putting every function or decision involving IT within the same department.

"People tend to lump IT together as one thing, but we break it down into seven areas of discipline," Potts said. "Sourcing IT, for example, is different than developing software; IT sourcing is the equivalent of a supplier, but they're in-house. An internal IT delivery unit that focuses on application development and other things is probably not as good at that as a regular sourcing department."

"CIOs and IT really should have a different job, but that new role doesn't have a single name yet," Potts said. "It's about investment in change in the company. Sometimes it's the VP/investment of change; or it could be the Director of Change. Those sorts of roles are appearing as the nearest edge of IT, compared to the way people have done in the past.

"It's really focused more on what kind of strategy makes sense than what kind of box you use to execute some part of the strategy," Potts said.