Much has been written about the need for IT organizations to focus more on innovation and less on delivery of technology services. This brief will assess the pros and cons of both as well as outsourcing service delivery.
Call for Innovation
Much has been written about the need for IT organizations to focus on innovation. Technology has become an important element to achieving business objectives to create competitive advantage. New business models are driving the need for mobile, information, social and cloud technologies, Gartner’s “Nexus of Forces”[1]. The C-level is looking for more clearly defined business value from their technology investments and contributions to financial objectives for top-line and bottom-line growth that comes through innovation. For this transformation of the CIO role to happen, IT should move closer to the business and play a bigger role in business innovation and devote less time to sustaining basic technology services. Gartner states “IT organizations are in transition toward more strategic business contribution roles and away from a predominating focus on the delivery of technology services.” [2]
A recent article on CIO.com, which talks about four stages to move from a scrambler to a leader, says: “The next rung on the ladder is Innovator. It’s very difficult to become an innovator if you’re spending much of your time chasing production problems or working significant overtime to hit project milestones.” [1]
Call for Sustainment
At the same time, technology is becoming highly embedded in the delivery of key business products and services. Threats to its “production environment” are growing due to more complex ecosystems reliant on broad networks, processing and data storage, some private and some public; advancement of disruptive capabilities through the Internet; and, physical threats caused by climate and political change. “When you look at the role of executives and senior IT leaders, they’re being told to focus on being transformational and to direct their efforts to larger, strategic objectives. That focus, while admirable, takes time and energy away from their ability to monitor and manage the effectiveness of the technology they already have and how that drives business now”, stated Bharath Gowda, director of technology performance, Compuware. This is based on a recent Compuware survey that found 48% of those surveyed had daily technology performance issues, and 3 out of 4 in that group said the frequency and severity is not improving. [2] However, the business case for sustainment tends to be a lower priority for many business leads versus the clearer value of innovation of new products.
Call for More Outsourcing
Another growing trend is the outsourcing many IT services, considered non-strategic, to third party service providers in order to enhance the CIO focus on innovation. A potential downside is that much control is ceded to these providers’ as resources are not “owned” by the CIO or business. As an offset, retained IT resources must become more focused on strategic activities that deliver significant ROI, as their time is freed-up from managing daily systems production. An article on CIO.com states: “Outsource your commodity work. I was certainly in the weeds when I was first hired,” says Ron Kifer, group VP and CIO of Applied Materials. “So very early on, we did a core-versus-context analysis to determine how to direct our internal resources. We held onto competencies that drove business performance, but outsourced commodity work.” [3]
A Balanced Approach
So what does all this mean? Without a focus on innovation, the future of IT as an internal function becomes threatened. Without a focus on sustaining the current environment, there is inherent risk of business disruption and loss of revenue from system outages and security breaches. Without an effective sourcing strategy, there is lost opportunity to optimize current operations and incur bottom-line improvement through cost reductions. CIOs are challenged to meet the needs of all stakeholders (including shareholders) while maintaining operations. It is critical for companies to view both sustainment and growth of the business as strategic. “The business value of IT is expressed via improvements in business performance. This is as true of investments in IT infrastructure as it is of investments in informational, transactional and strategic applications.” [4] Therefore, the ability to balance business needs and more strategic areas of focus are critical for CIO success. This can be accomplished by taking steps such as these:
- Focus on sustaining the business while demonstrating value by continuously optimizing the way services are delivered.
- Look for opportunities to reduce the baseline budget without loss of vital services.
- Constantly communicate the value of basic services delivered in terms of business outcomes (e.g., without an upgrade to security infrastructure, likelihood of a breach that interrupts business operations is increased).
- Insure business cases for sustainment projects are required to calculate ROI like discretionary projects, including a quantification of business risk (e.g., loss of revenue).
“In a nutshell, the CIO must optimize the IT infrastructure and lower ongoing support costs so that IT budget and staff time can be focused on more value-added activities.” [5]
- Assess opportunities for strategic sourcing.
- Perform a risk assessment of each IT function in terms of its strategic importance to innovation and sustainment of the business.
- Evaluate risk factors to determine what makes sense to outsource, balancing cost, risk to business disruption, and contribution to business growth.
- Make sure you consider that a low cost solution will contribute to bottom-line growth, but this advantage needs to be balanced with any potential negative impacts to security that could interrupt revenue generation.
- Build trust with your business peers and establish an engagement model with them to build a strong partnership.
- Be at the table with the business at the inception of idea generation.
- Act not only as a part of the innovation, but also be part of the forward planning to bring an idea through product development to a successful launch.
- Provide the cost and benefit planning for each new development idea and provide the business with assurance that, provided existence of an appropriate business case, you will support the initiative and free up “sustainment” spending to re-direct to innovation for their critical projects.
- Don’t move forward with new technology without buy-in from business leadership, alignment with corporate strategy, and clear requirements from business management leaders.
Critical Success Factors This is not a simple solution. Many factors are critical to success including:
- Board of Director (BOD), C-Level and business unit leadership support
- Financials and budget support from the CFO
- Clear focus on ROI of both sustain and innovation activities
- Good talent and quality service providers
- Strong architecture capabilities, and an effective product life cycle process and technology strategy
Footnotes:
[1] Bob Ronan, Is Your IT Shop a Scrambler or Leader?, CIO.com, February 26, 2014.
[2] Sharon Florentine, Tech Performance Issues Plague IT and Businesses, CIO.com, January 10, 2014.
[3] Martha Heller, How to Make Time for Strategy, CIO.com, April 22, 2010.
[4] Business Performance is the Value of IT, Gartner EXP Signature CIO Report, April, 2007.
[5] Elevating the Role of the CIO, Computer Economics Research, November, 2011.
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