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State of the CIO 2011: Growth on the agenda

State of the CIO 2011: Growth on the agenda

CIOs are investing in projects to improve staff productivity, make business processes more efficient and promote innovation.

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 rumour: 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 datacentre 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 (15 percent in New Zealand) of the 729 heads of IT we surveyed.

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 in the US. 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 says. “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 is 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 furniture retailer in the US. 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.”

IT groups must remain disciplined as the recovery takes hold, says Wayne Shurts, CIO of Supervalu, a US$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 long-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 are being.”

A shift in mindset

“An emphasis on just being the technologist for a specific company is going to be less and less necessary,” says Tim Campos, CIO of Facebook, who sees the role as changing “quite extensively”.

“It is no longer about bits and bytes, it is not about the programming challenges,” says Campos. These areas do not provide differentiation for the companies, he says, “It is how innovative they can be with the business processes.”

This area, he says, is the role the CIO is moving forward to. CIOs, he adds, may go down two paths. “Either they just do what the business asks them, in which case you don’t need a CIO you just need a head of IT. Or, the CIO is going to take a leadership position on what is going on with those business processes.”

Peter Winters, vice president, Avon, says the biggest change in the CIO role at the global cosmetics company has been, “the responsibility to be a growth driver.”

“What it means is that the IT people need to be there and they need to come up with the ideas to help grow the company, not just to save costs,” says Winters, who is in charge of ICT in Latin America for Avon.

For Peters, this is a change of mindset that occurred even before the recent recession — occurring only in the last two to three years — and credits Donagh Herlihy, senior VP and CIO for the change. “I would say that it is non-traditional in many parts of our IT industry to view yourself as a growth driver,” he says. “It is a mindset that we have to cultivate and develop — we can contribute the idea to grow the revenue and the sales of our company and not just to save costs.”

For Andrew Crabb of local telco TelstraClear, the evolution of the CIO role comes as no surprise as he has experienced it himself. “IT is becoming one part [of the role],” he says. “The CIO is moving towards a more strategic and business delivery role rather than just a technology delivery role,” says Crabb, whose CIO role at the telecommunications company has expanded to become head of networks and services.

For Crabb, this is a positive move. “It gives the business a view about how technology can help the business [grow]. For a CIO, that means they have got to get to know all of the functions and requirements of the business and then interpret how can to use technology to advance the business and give it an edge over competitors. As such, the CIO is more of a business consultant rather than a technology consultant.”

The shift, however, comes with its own set of challenges. First the CIO, “has got to understand almost all the elements of what a CEO needs to do because he actually has to build relationships with each of those parties, understand their particular challenges and together, provide input into solutions and opportunities into what is possible.

“The CIO also has to bring ideas to the table, because the business unit heads are focusing on their units’ capabilities. The CIO almost is becoming a vendor to some extent as well as a consultant.”

For CIOs who do not move in this direction, Crabb believes their careers will be at risk. “They will be marginalised as another supplier to the business and the business will actually look for other parties to do business with.

“If they don’t get on board and understand the business, they become almost like an infrastructure manager rather than a strategic partner in relation to taking the business forward.”

Alma Hong, CIO of the New Zealand Fire Services, sees the imperative of ICT people moving into a more proactive type of role.

“One of the important points I tell my colleagues is that first and foremost, we ourselves should not be putting ourselves into the box of ICT. We should see ourselves as the organisational — if I may use a fancy word — transformational agent,” says Hong. “Everything in the organisation is of interest, because ICT is an integral to everything. So therefore, be interested, open up your box and make yourselves useful. Break down the barriers, break down the doors.”

Hong says there is a lot more interaction and involvement of the ICT staff in business operations projects at the NZ Fire Services. “We encourage ourselves to be more entrenched in the business processes,” she says.

As well, Hong holds regular meetings with the business owners in the Fire Service, partner organisations like the NZ Police and its strategic vendors.

“There is increasing recognition that ICT is an integral part of our business and of our operations; that is very, very rewarding to us.”

Productivity rules

Across the globe, 67 percent (76 percent locally) 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 is 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 1200 Supervalu supermarkets across the US, 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 email platform, SharePoint collaboration tools, Live Meeting video and web conferencing and the Office Communications Online bundle of instant messaging and voice-over-IP audio calls.

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.

Creating change

Fifty-two percent 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 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 is as basic 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 is 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.

Last 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.

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 behaviour. 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 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 capitalise on them, he says.

Risk and reward

The global survey finds 55 percent (49 percent locally) 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 UK 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 is 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 is 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.

Impact of the cloud

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.

“The smart CIO will pick and choose how best to leverage cloud services or offerings in its business to get the maximum benefit. It is not for everything,” says Crabb of TelstraClear. “A CIO needs to buy services that are fit for purpose.”

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