In the continuing quest for business growth, CEOs are turning to their CIOs and IT organisations, because technology is essential to two compelling sources of growth: Innovation and integration. Innovation, of course, is doing new things that customers ultimately appreciate and value, not only developing new generations of products, services, channels and customer experience, but also conceiving new business processes and models.
Integration is making the multiple units, functions and sites of large organistions work together to increase capacity, improve performance, lower cost structure and discover opportunities for improvements that don’t appear until you look across functions.
Together, innovation and integration allow an enterprise to engage more customers and bring more goods and services to market. Successful innovation often depends on the ability to coordinate efforts across organisational boundaries, because innovations reach sufficient scale and impact only when integrated into the larger operations of the corporation. Neither pursuit is optional, in good economic times or bad, because stagnation on either front can doom a business, while success in both is the best guarantee of getting ahead.
Companies rely on IT as a catalyst, enabler and component of the new products, services, channels, processes and business models, as well as the way to encourage innovators to collaborate. And with its extensive experience working at the heart of major business-change initiatives of all kinds — implementing common infrastructures, shared databases and cross-functional and enterprise systems, IT is often the corporation’s de facto centre of expertise in business integration. Our research confirms this.
We had noticed several years ago that some CIOs were being asked to wear more than one executive hat. So, in 2006, with the aid of Nicholas Vitalari of nGenera, Keri Pearlson of KP Partners and Espen Andersen of the Norwegian School of Management, and other colleagues, we began investigating the roles of the contemporary IT organisation in 24 major, often global, US and European corporations.
We talked with many of these CIOs directly, examining the additional roles they and their IT organistions were being asked to play, and discussed the business strategies and drivers behind these roles. We found that 12 of the 24 were charged with improving horizontal integration of the business, while a third were focused on their corporations’ innovation and growth initiatives. A few were focused on both innovation and integration.
CEOs today are asking their CIOs and IT organisations to play a greater and more defined role in the growth agenda by providing the tools for collaborative innovation; by participating in innovation initiatives of all kinds; by building an integrated platform of business processes, information, systems, and technology; and by sharing their experience and expertise in how to improve the ‘horizontal discipline’ of the corporation.
So even as much of the traditional work of IT has been automated, commoditised and readily outsourced, today’s innovation and integration challenges are drawing IT deeper than ever into the central nervous system of the corporation.
But the work involves sometimes daunting challenges because business innovation and integration have something else in common — both are still “unnatural acts”’ in most large corporations. Businesses are better at stifling innovation than at capitalising on it and better at optimising local operations than at integrating them for the good of the enterprise and its customers.
The larger and more complex the organisation, the stronger the status quo can be in repelling both innovation and integration. Thus, large corporations need active, technology-enabled agencies to promote innovation and integration to overcome obstacles, focus on effort, and let the unnatural acts become more natural. Without such agencies, innovation and integration won’t spread far enough or fast enough throughout a large company to keep pace with smaller, younger, more technology-based competitors to whom innovation and integration come much more naturally.
Specifically, we recommend the formation of two agencies: A distributed innovation group (DIG), which doesn’t “do” innovation, but rather fosters and channels it. Innovation is an inherently distributed activity, encompassing innovators across and outside the corporation. The DIG serves as the centre of expertise for innovation techniques, scouts for new developments outside the company and provides experts for internal innovation initiatives. And it deploys technologies and methods that facilitate collaboration and innovation.
An enterprise integration group (EIG) is dedicated to the horizontal integration of the corporation. It picks from among competing integration projects and provides resources that enable them to succeed. It develops the architecture and management practices that make business integration easier over time. It may also manage a portfolio of integration activities and initiatives; serve as the corporation’s centre of expertise in process improvement, large-project management and programme and portfolio management; and provide staff and possibly leaders for major business integration initiatives. Sometimes these groups report to the CIO; sometimes they do not. Either way, they are home to some of the corporation’s most capable and experienced IT professionals, as well as many traditional IT activities that are key to each group’s respective mission.
By creating two IT-intensive groups, one focused on innovation and the other on integration across functions, a business can significantly improve these interrelated growth-driving activities.
How do the teams make a difference? They take an enterprise view of innovation and integration initiatives. This allows them to identify and prioritise the most-promising projects; capture and propagate best practices (and profit from mistakes); connect the dots across the silos, envisioning one project’s potential to enrich another; and fund Skunk Works projects that would otherwise be orphaned for lack of sponsorship. They also inspire by publicising success stories across the organistion. And because part of both teams’ agenda is to scout externally for emerging technologies and support services, they serve as de facto sources of real-time insight into proven state-of-the-art capabilities.
What businesses have tried this approach? Royal Dutch Shell uses “GameChanger” teams to scout internally for innovations. The teams make seed funding available for radical ambitious, or long-term ventures. At Procter & Gamble, scout teams have increased the percentage of new product ideas originating outside the company, from about 15 per cent in 2000 to 50 per cent in 2007.
What’s the role of technology? Innovation relies on IT for collaboration, prototyping, simulation and analytics capabilities. As more widely dispersed inside and outside contributors are invited into the innovation process, social-networking tools become increasingly important. Integration is an area in which CIOs and the IT function have long been deeply embedded, building up solid experience in solving enterprise-wide integration challenges. Indeed, the CIO might well possess the skills to lead either team.
To succeed, these groups need thre elements:
- Business platform. IT must develop, organise and manage information and technology assets as a platform of modular, reusable components rather than as a limited-purpose information system. Such components can be modified, combined in novel ways and put to creative uses, thus allowing business innovation to flower. Because the modules are inherently interoperable, they naturally facilitate horizontal integration.
- Outside services to focus key IT staff on business integration and innovation. As well, to compensate for shortages of skilled staff corporations must increasingly rely on external IT services. The global market for technology outsourcing has matured in capacity, quality and flexibility. Outside providers have better access to talent, lower costs and more incentive to remain technologically current in their areas of expertise. Thus it becomes hard to justify keeping commodity activities in-house.
- Web 2.0. The corporation must embrace the latest generation of tools for flexible communication and collaboration. These tools enable people to collect, share and productively use more sources and kinds of information conversations, opinions, and know-how expressed in audio and video, for instance, not just text and data records. They can spur creativity and help coordinate both formal and ad hoc interactions, and hence should form much of the tool kits of both the innovation and integration groups. Harvard Business Review
James I Cash Jr is a professor at Harvard Business School. Michael J Earl is a professor at of Oxford University. Robert Morison is an executive VP at nGenera.
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.