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Top CIOs Start the Journey to the 'Digital Enterprise'

Top CIOs Start the Journey to the 'Digital Enterprise'

The buzzphrase 'digital enterprise' can be a bit mushy. What does it really mean? And how do you get there?

Back in 1980, the woman who now runs the data center at State Street Bank started her career there by pricing a mutual fund in a ledger book. That process would get automated as the bank became a computerized enterprise. Today, she can connect State Street's systems with those of customers and partners and produce sophisticated reports to let customers analyze the mutual funds they might buy. That's the digital enterprise.

"In the old days, like last week, you built systems in functional towers, based on what process you need to automate and what function you need to do for the business," says State Street CIO Chris Perretta, reflecting on his colleague's experience. But that's not the case in the digital enterprise. That demands a company whose business rules and policies are completely digital, where people's jobs are represented in digital fashion and, most importantly, a technology ecosystem that takes the company's information and makes it both secure and, for those with the right access, easy to find and share.

"It's more a philosophy of how work is going to get done," Perretta says.

Achieving this new vision is a huge thing for State Street. Perretta has spent the past three years on a transformation project to translate that philosophy into a technology foundation that will let the financial services company share information effectively with customers. As we're talking, Perretta's screensaver flashes one of the banks' four key strategic goals: "Digital Enterprise."

The digital enterprise is more than just a CIO catchphrase. In a recent Altimeter Group survey, 88 percent of 59 digital strategy executives interviewed said their organizations are undergoing formal digital transformation efforts this year. Even CIOs who think the phrase "digital enterprise" is mushy, like Mojgan Lefebvre, CIO of Liberty Mutual Global Specialty, say that consumers wielding smartphones have shifted the balance of power. "The one thing that comes in and absolutely disrupts industries is giving the end-user customer, consumers, the ability to do anything and everything they want on their mobile device," Lefebvre says.

[See Sidebar: Digital Transformation Starts With the CEO ]

CIOs interviewed for this story say the digital enterprise signifies an epic change in the way work happens. "The employee of the future is going to be different than the employee of the past," predicts Perretta.

For one thing, tomorrow's employees will have immediate access to much more information. The digital enterprise revolves around making information mobile. Workers will use mobile devices, either smartphones or tablets. They'll connect, via the cloud, not just to company data but to data from customers, suppliers and relevant outside sources, including social media and Internet-connected objects. They'll apply fancy analytics techniques to make better business decisions.

"What's new about the digital enterprise is the emergence of all these new technologies coming together at the same time," says George Westerman, a research scientist at MIT's Initiative on the Digital Economy and co-author of a recently published book titled Leading Digital: Turning Technology into Business Transformation.

"There's a huge role for computers to help people do a better job of what they're doing," he adds.

It isn't that past technology investments will be junked--Westerman says they form the backbone of the digital enterprise. But that backbone is being levitated by new technologies.

By the way, more tech is coming, and fast.

"There's been a change in momentum" of technology development, says Ray Voelker, CIO at Progressive Insurance. Voelker traces this to the spread of the smartphone since 2008. He says Progressive was "100 percent" a digital enterprise in 2008, based on the Web technology available at the time; all work flows and interactions, be they with insurance agents, partners or customers, were done digitally. "But that was before everybody was carrying around HD video recorders in their pocket that could be used for claims resolution, for example," he says.

It's a sign that the digital enterprise is a moving target. Now, Voelker says he can't say what the digital enterprise will look like in five years. "I don't know where wearables are going to go, where the Internet of Things will go, how the technology onboard vehicles . . . comes together," says Voelker.

The rise of a digitally savvy populace that expects more from companies has also increased pressure on companies to build the digital enterprise.

The eruption of new technologies has brought with it shifts in how technology gets managed, with some chief marketing officers controlling big technology budgets. "The pace of change in marketing is running at a faster clip than CIOs have been able to keep up with," says Michael Sutcliff, group chief executive at Accenture Digital, a consulting unit formed in 2013 to respond to the growing interest in digital business. But Sutcliff says CMOs would like it if IT were in sync with the pace of technology change in marketing.

Seize the Moment or Risk Being Left Out

The good news for CIOs in all this change is that they now may have once-in-a-career opportunities. Westerman cites the emergence of the CIO-plus, where the CIO runs IT, shared services, e-commerce and other digital efforts. "What we find with digital transformation work is that it's not really a technology problem, it's a leadership problem," says Westerman.

Digital leadership turns out to be about technology vision, governance savvy and knowing your IT platforms, he says. "These are all things IT people know how to do and can help the rest of the organization learn."

Westerman says CIOs may never see a better chance to shape corporate strategy. But "if you don't," he adds, "you're going to be left out." The Altimeter survey found that CMOs constitute the biggest group credited with leading digital transformation. Asked what executives "champion and support" digital transformation within their companies, 54 percent of the respondents said the CMO, 42 percent said the CEO and just 29 percent chose CIO/CTO.

Voelker says it's not just the CIO who is in danger of irrelevance. Corporate success is also on the line. "I'm going to spend a ton of money making sure that everything we do is compelling on mobile devices. If we don't do that, I do think that we will fail."

Voelker points to the period in the early 1980s when banks built ATM networks. Those investments had to be made, but today there is no longer any competitive advantage to having the technology. It's gone from cutting edge to table stakes. "Nobody runs commercials saying, 'Hey, come to our bank--we have ATMs,'" he says.

Voelker argues CIOs are facing the same challenge with today's emerging technologies.

Competitive advantage will come in short spurts. The good news is that no one's too far behind, yet. Stephanie Woerner, a research scientist at the MIT Sloan Center for Information Systems Research, says that in 2012, a global survey of 2,008 executives found that 59 percent of business processes were fully digitized. But those processes were "the easy ones," she says. What comes next will be more challenging.

It's one thing to see the digital enterprise coming. It's another to build it. Some companies will need to develop entire new technology infrastructures, especially as they expand into new markets and as new things become Internet-connected. There is no template that all companies must follow.

Here are five different visions of the digital enterprise.

1. A Great Experience, Online and Offline

Mobile phone carriers--on the front lines of the smartphone revolution but also dealing with physical networks, products and customer interactions--are under intense pressure to be digital, according to Thaddeus Arroyo, who was CIO at AT&T Services until he was recently promoted to president of a new technology development group. "I talk about the digital-physical blur," he says, referring to the way physical products are becoming digital services. For his company, being a digital enterprise means creating a consistent experience across its digital and physical channels. To get there, Arroyo says he must weave a "digital golden thread that seamlessly extends through the enterprise."

Weaving that golden thread means putting the same kinds of customer information at all the places customers touch AT&T, as well as giving it business context. For example, in AT&T retail stores, sales representatives now carry mobile devices and stand next to customers instead of behind counters. Arroyo says those mobile devices must have up-to-date information on the customer, compiled from customer service updates, previous interactions in stores and even correspondence via social media. AT&T home technicians need a different view of the same information, and call center agents should have yet another slice of it.

AT&T hopes to have 80 percent of customer interactions happen in a digital form by 2020, up from just over 47 percent today.

Meanwhile, AT&T has begun the process of figuring out how to interact with connected cars, smart homes and wearable computing devices. "The lines between technology and what we do with our business are going to continue to blur," Arroyo says. "The first [step] is pulling down the barriers within the organization itself and really driving collaborative teams."

2. A Digital Process, Start to Finish

At Liberty Mutual, the company's personal insurance unit is further along the path to a mobile-based, all-digital process than the global specialty insurance business is, says Mojgan Le­febvre, who is CIO of Liberty Mutual Global Specialty. Today, Lefebvre says, consumers expect to interact with any service the way they do with Amazon.com--from their smartphones, with no need for paper and no need to physically interact with a person or place. "If the digital enterprise means to do the entire business end to end from a smartphone, the personal [insurance] lines are much closer, if not there," she says. The commercial unit is not as digitized. Her unit, which has nearly 250 products to cover high-risk, highly specialized insurance needs, is probably furthest away.

Customers in the specialty markets, which may include insurance for fine art, sea vessels or terrorism risks, for example, have widely diverse needs. But one thing they all have in common is documents. Liberty Mutual Global Specialty this year began replacing some of its document management systems, moving toward being able to trade documents over the cloud, no matter where in its 19-country market the document starts. It's also reworking APIs into its "book of business"--insurance industry jargon for listing customers by the volume of business they generate --so that application developers can more easily reuse the components of the system. For its largest books of business, the company has digitized most of the process, so the journey from quote to policy is all done digitally. It's now digitizing smaller parts of its business.

Complicating its future plans are the millennials, people born from roughly 1980 to 2000, who don't follow the insurance-buying patterns of previous generations. Lefebvre and other executives from Liberty Mutual are now doing things like spending time with Silicon Valley startups to get insight into how they think millennials will disrupt existing markets.

For now, "we don't say we have to digitize everything," Le­febvre says. "We try to look and see what makes sense and where the value is." Knowing what's valuable to the business isn't easy, though. "The new business models emerging and how you should engage with your customer--those are the biggest challenges and hardest things you need to think about," she says.

3. Data-Driven Interactions

At $18.7 billion biotechnology company Amgen, the digital enterprise simply means an organization that can reach its customers in digital ways. Amgen's customers are changing. Technologies like electronic health records, wearable health-monitoring devices and cloud computing are "creating an opportunity for a company like Amgen to participate directly in that patient/physician and payer space that didn't necessarily exist for us five years ago," says Diana McKenzie, CIO at Amgen. She argues that healthcare is the industry most affected by digitization, because of how it breaks down long-standing industry silos.

She sketches a scenario that underpins the company's technology investments: An oncologist has to treat a wide variety of cancers using a growing number of treatment regimens. "By applying mathematics we can better understand and model the human biological system," McKenzie says. Amgen has vast clinical trial databases and thinks combining that data with real-world data from electronic health records, then applying mathematical models, may help caregivers predict how a patient will react to different treatments.

But getting to that scenario presents a huge challenge. "Our organizations were never constructed to operate in this new way," she says. "When I'm together with my peers at payer/providers, at service companies, at life sciences organizations, the No. 1 problem we all say we could work together to solve is the data interoperability issue."

In the meantime, she's also working on the company's internal operations, such as giving staff mobile access to key analytics--sales data for sales representatives, for instance. Another digital aspect of Amgen's enterprise is an iPad video chat application, which allows doctors to communicate with the appropriate Amgen experts when they have questions.

McKenzie says Amgen's internal operations are completely automated, but she estimates that the company is only 25 percent down the path to providing the staff with new digital tools, such as data analytics for salespeople. Meanwhile, Amgen has just started to work toward delivering the data-driven, personalized patient care scenario that is her end goal. The company began investing in that vision 18 months ago.

4. Unleashing Digital Logic

When he talks about the digital enterprise, Ray Voelker of Progressive Insurance starts with mobile technology. But that doesn't just mean smartphones and tablets. He also cites his company's Snapshot tool. A sensor device that plugs into a car's onboard diagnostic port, Snapshot automatically tracks how drivers drive, offering dynamic updates about how their driving habits affect their insurance rates and comparing them to their peers in its databases. It's the ultimate custom product, and more than 2 million Progressive customers have used it.

Creating Snapshot meant figuring out how to store and analyze the data it was going to feed into Progressive systems in real time. Pricing algorithms analyze the data on driving behavior to determine whether a discount is warranted.

Snapshot wasn't cheap, and it wasn't clear what the company would get in return for developing it. That's one of the challenges of moving to a digital enterprise, Voelker says, adding that Progressive faced similar challenges in the 1990s, when it pioneered automated underwriting. "That was an expensive thing to do," he says.

Progressive is fortunate for a variety of reasons, Voelker says. For one thing, its CEO, Glenn Renwick, once worked at AT&T Labs and has experience as a CIO. In addition, the company sells a service, not a tangible product. Even so, the digital enterprise of the present, let alone the future, presents big challenges. "IT didn't know just how happy times were when there was nothing much to worry about as long as you had Internet Explorer and a fast Internet connection," he muses.

To get to the truly digital enterprise, virtually every consumer-oriented company "needs to take all that business logic that is digital and locked up in our legacy systems, by which I mean any system more than 10 days old," and expose the APIs, Voelker says.

Moving the business's logic into an API form makes it possible to mash together applications, so that Progressive can create a mobile app that gives its customers roadside services or renter's insurance from Progressive partners, without making the customer leave its app. "It sounds straightforward, but it's not the way legacy systems are constructed," he says.

Getting the logic out of the legacy system is the way Voelker is preparing for the connected cars and smart roads of the Internet of Things. "That next frontier is out there," he says.

5. The Digital Supply Chain

Banks and factories seem worlds apart, but State Street's Perretta talks a lot about factories. He's especially focused on their just-in-time logistics, which rely on sharing information across supply chains. "As we get more sophisticated, the type of data we share with clients is not unlike how manufacturers share logistics data with their customers," Perretta says. "I'm better if I can see your supply chain. And if you're my partner we can benefit from that."

State Street's push to the digital enterprise includes piloting an application that lets employees see across its data infrastructure to follow a transaction from origination to completion. It's an infrastructure meant to let State Street personnel answer client questions about accounts at any point during the day, from wherever they are.

Perretta compares the way State Street's systems track transactions to the way General Electric monitors its aircraft engines, "It's like instrumentation," he says. "We track every transaction, every person and process who touches the transaction as we process it around the world."

The company also offers clients a way to pull the data about them in the companies' systems and combine it with market data and other data that is not on State Street's systems. "They can relate their data to our data," he says. He calls it a cornerstone application for building a more digital enterprise.

One of the biggest challenges in building that enterprise is keeping up with the pace of change. He says if you had bet him three years ago that big traditional companies would be using the public cloud now, he would've taken the bet. He thought it would be five or six years before they would even start to considering doing that. "I would've lost that bet," he says.

The challenge for IT, and companies, is that the process of digitizing many things--like cars, robotic systems and wearable devices--involves more than computerizing them. "Digitization is broader than computerization," says MIT's Woerner. That makes it easier for businesses to digitize, but harder to manage.

Woerner and one of her MIT colleagues, Peter Weill, have identified three ways that digitization can be managed. One is converged management, where a single department or executive manages all digital investments. The second is coordinated management, where CIOs, CMOs and others team up on digitizing the business. Still others might create "stacks" or siloes to spur specific kinds of digital innovation. In any case, she says CIOs will play important cross-company roles, especially when it comes to ensuring good data governance.

Still, it's no wonder that the digital enterprise has CIOs like Perretta asking fundamental questions about IT. "The question I would ask is 'What's the future of a traditional IT organization?'" he says. "Remember the old typing pool? I wonder, will IT organizations go the way of the typing pool? If everyone is a technologist, what is IT?"

Not that Perretta is losing sleep over the answer.

"I've been doing this since the Carter administration," says Perretta, who is 56. "The most exciting time to be in technology is right now. We have limitless opportunities."

Digital Transformation Starts With the CEO

The digital enterprise has a paradox: It happens because of leadership from the CEO, not the CIO. That's because a company, the whole thing, transforms as it goes from just computerized to fully digital.

"The hardest thing is knowing what the right business moves are, the new business models emerging and how you should engage with your customer," says Mojgan Le­febvre, CIO of Liberty Mutual's Global Specialty business. The answers to these questions drive a company's technology choices.

CEOs do not implement the digital business. CEOs open doors for CIOs to implement it. "We are as much an information company as we are a drug company," says Diana McKenzie, CIO at Amgen. "When the CEO is demonstrating that leadership and vision, it's much easier for that to cascade down through the organization in terms of priorities."

A CEO who sets a digital vision makes it easier for the other C-level leaders to collaborate on it, she says. Digital business is "a team sport," says Thaddeus Arroyo, who was CIO at AT&T Services until a recent promotion. "The CEO's vision determines the focus, and collaboration comes from that," he says.

What about CEOs who don't get it? CIOs have to show CEOs the data that makes the digital story compelling, says Ray Voelker, CIO at Progressive Insurance. He confesses he's lucky: Progressive CEO Glenn Renwick preceded Voelker as CIO. But for the unlucky, at least in consumer businesses, Voelker advises building a presentation showing how rapidly transactions are shifting from the traditional Web to mobile platforms, the technical diversity of those mobile platforms, and what it costs to keep up with that diversity.

CIOs should also highlight the impact digital is having on other industries, says Le­febvre. "If the CEO looks around and sees how other industries have been disrupted and companies have gone out of business because customers have leveraged other technology or business models, they'll get it," she says.

At State Street Bank, CEO Joseph (Jay) Hooley definitely gets it. "Jay is the No. 1 champion of the role technology can play in this environment," says State Street CIO Chris Perretta, pointing out that Hooley is aware that companies ignore the impact of technology at their own peril.

For CIOs, the challenge is to be ready to engage with business colleagues and make the vision real.

--M.F.

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