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Bridging the cxo gap


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Bridging the cxo gap

  1. 1. Horizons Survey 2012 – Bridging theCXO gapCIO Connect’s annual IT leadership survey highlights agrowing gulf between boardroom expectations and CIOaspirationsBy Roger CamrassBusiness executives recognise technology is migrating aggressively from the back tothe front office in almost every organisation. The context for such change is anexplosion in the use of consumer-focused IT, such as cloud computing technologies,social media tools and mobile devices.Digital has become a key differentiator in the modern and highly competitivemarketplace, and one of the few levers available for the business to increase revenues.Business leaders are hungry for new technology-based ideas, and are keen to see theCIO step up and provide genuine thought leadership.But CIOs are also experiencing a dramatic shift in the way IT services are sourced fromthe vendor community. Sourcing has never been more complex due to the advent ofcloud computing and the rise of a flurry of software as a service specialists. Constantpressure from the business for further IT efficiencies, and improved service stability,means the CIO has ever-diminishing bandwidth to support front office transformation.There appears to be a growing gulf between board expectations for strategic IT supportand the hard-pressed CIO community, who must continue to drive down costs and
  2. 2. improve operational efficiency. Such a gulf poses two central questions: how canmodern CIOs cope with an accelerating change of pace in both demand and supply ofIT services; and how does the c-suite community judge IT leadership success?CIO Connect undertook its annual Horizons survey and polled IT leaders across theglobe to understand their answers to the key questions surrounding the future of the ITleadership role. For the 2012 survey, CIO Connect worked alongside managementconsultancy Blueground Partners to approach board-level executives and CEOs intwenty leading companies. The aim is to extend conclusions emerging from our surveywith 100 CIOs, and to gain an outside-in view of the IT function.CIO Connect’s 2012 Horizons research, as will be demonstrated below, shows the timehas come to fundamentally review the role and structure of the IT organisation. Thetechnology department must make appropriate changes to satisfy key stakeholdersfrom the board and its associated business executives.The board’s perspective on ITCEOs and their c-suite peers recognise the central strategic and operationalsignificance of IT in the business, but few senior executives have sufficient knowledgeto master the rapidly developing area of digital technology. Executives are eager foreducation and guidance from the IT community, but frequently feel let down by currentinput.There is, however, a contradiction. Many senior executives also admit that their numberone priority is an efficient and stable IT platform, rather than a continuous flow oftechnology-inspired innovations. The message for many CIOs, therefore, is to stick toyour knitting – the operational day job should remain the IT priority despite calls fordifferentiation through IT innovation.Other CIOs face a more complex arrangement. CEOs in certain sectors, such asentertainment, finance and information services, recognise that IT is already integral tothe business, and provides the firm’s operating platform and its primary channel tomarket. The board has often taken responsibility for all technology-related decisions insuch sectors and relegated the CIO, and the IT organisation, to a purely tactical role.“We no longer set IT strategy distinct from business strategy, its intrinsic,” said onemember during our research process. Senior executives see stable IT operations as theoverriding priority for the CIO, and feel confident enough to set strategy and directionwithout recourse to the traditional IT expert, the CIO. As one CEO of a technology-enabled business told us: “Half our executive team, and the majority of the managementin the business, are technologists.”
  3. 3. Not all companies are the same, however. Several CEOs expressed strong interest inreceiving strategic input from their CIOs and were prepared to spend more time indialogue about technology trends. They regard the visionary and educational elementsof the CIO role as increasingly important and are seeking more business leadership inthis critical area.“I don’t need a CIO as a mechanic doing yesterday’s job, I need a visionary,” said onesenior executive, while another commented: “We baby boomers need some seriouslygood IT leadership, to help us understand, navigate and exploit modern IT, especiallywhen it comes to digital innovation, the impact of social media and the new go-to-market opportunities. Our problem is we don’t really understand this stuff.”For the majority of the CEOs interviewed, IT is a service to the business. There is anexpectation the CIO should run the technology organisation as a commercial business,with appropriate attention to demand-side requirements for new systems and services.Executives seek a genuine business partner from their IT organisation. However, manysenior leaders also referred to the need for low cost and reliable IT operations, often asa more important priority than innovation.Influencing go-to-market strategiesSocial media, mobile applications, consumer IT and cloud services are transformingtraditional, outbound marketing techniques and creating an entirely new format that isfuelled by digital technology. Take the example of one pharmaceutical company, whosemarketing director is planning to substitute thousands of sales people with electronicchannels to market, in an attempt to reduce costs and increase revenues.The IT organisation, however, is noted by its absence in many of the companies wespoke to. Marketing executives feel their CIO colleagues have little to offer in the frontoffice, or take too much time to step up to help with new, digital opportunities. Several ofthe interviewed CMOs are purchasing cloud-based services directly from vendors, orengaging mobile commerce software houses to develop independent solutions.“Go-to-market is more of a battle ground between the business and IT, rather than acollaboration,” said one CMO. “IT tends to evolve as a separate shadow organisation, acottage industry. IT is too internally focused on enterprise solutions.” Marketingexecutives admitted that taking an independent approach, outside the control of IT,posed serious risks in areas such as security, compliance, regulation and integration.However, most CMOs also felt they are caught up in a tactical race and have little timeto consider the longer-term, strategic implications of their current actions. “The worstoutcome is that IT doesn’t move with the times, the business then goes and does itsown thing, and we’re left with a mess,” said one CMO.
  4. 4. Maximising returns from IT investmentsFinance directors, perhaps unsurprisingly, have a very different take on IT priorities fromtheir marketing colleagues. CFOs often reiterated the expectations and concerns oftheir CEOs: IT should maintain an operational focus and the CIO should resist anyopportunity to become distracted by new and costly business innovations. As one CFOsaid: “IT departments have enough transformation of their own to do right now in orderto get their own house in order and that’s a big enough ask.”Two themes dominated our discussions with CFOs. The first was the need to extractmore value from the very large investments made in enterprise resource planningsystems, such as from SAP and Oracle. The second was the increasing challenge ofhaving to deal with changes in the sourcing of IT services from the external community,especially in the light of past failures in outsourcing and the current emphasis on cloud.Many CFOs emphasised how their IT organisations have spent nearly a decadeinvesting in new ERP systems, with little tangible evidence of financial returns. Take theCFO of a blue-chip oil company, who explained how more than $10bn had beeninvested in a global SAP system at his firm with no proven return on investment. Hebelieved his IT organisation should now focus on improvements in the supply chainassociated to SAP before moving on to other areas, such as big data or social media.When it comes to outsourcing, many CFOs readily admitted that traditional contractsfrequently failed to live up to expectations, with up to 70% of deals ending in disputes.Vendors frequently extol the virtues of partnering at bid stage, but revert to the letter ofthe contract post-engagement. In many cases, unforeseen project expenses relating today-to-day changes negate potential savings in IT running costs. “Outsourcing has beena disaster, mainly due to lack of clarity on what we want done,” said one surveyrespondent.Despite such concerns, CEOs and CFOs remain committed to externalising largechunks of operational IT. Such c-suite executives recognise the demand for new ITsystems and services is accelerating as we enter the digital age. But it is CIOs whomust deal with the everyday reality of creating a cost effective, yet agile, IT platform.The Horizons survey sheds light on the challenges and opportunities confronting largeIT organisations.Three quarters of respondents believe the cloud will transform supply-side relationshipswithin the next 12 to 24 months, and two thirds expect pay-as-you go arrangements toreplace strategic sourcing relationships. An even higher percentage (81%), believemulti-sourcing will become more popular than single supplier contracts. Such trendsrepresent a revolution in regards to traditional IT sourcing, which is often based on long-term and strategic relationships.The move towards flexibility and multi-sourcing will require a very different sort ofretained IT organisation to handle the associated complexities. “Cloud based services
  5. 5. are inevitable,” said one survey respondent. “The challenge we face is how to strike theright balance between control and liberalisation. Cloud is a huge disruptor to thetraditional IT delivery model.”Our research shows a number of different factors are conspiring to transform thesupply-side and make the cloud more attractive. Two thirds of respondents see ITconsumerisation as influential, especially in areas such as bring your own device andthe adoption of publicly available software.The remaining third of c-suite respondents are attracted to the cloud by flexiblecommercial terms that substitute capital for operational expenditure, and the ability tointroduce pay-as-you go pricing schemes for the majority of IT services. The attractionof flexibility reflects the volatility of the modern business environment and the need toadopt variable costing models.Focusing on business solutionsCIOs are optimistic that the challenges surrounding outsourcing represent a short-termissue rather than a long-term preoccupation. CEOs and CFOs also recognise IToutsourcing is here to stay and will become the primary vehicle for providing IT servicesin the future. Attention, then, will shift from an optimisation of current IT spend, throughto smart sourcing and on to a renewed focus on producing timely business solutions.The large majority (78%) of Horizons survey respondents intend to focus on end-to-endbusiness solutions during the next five years, preferring to delegate IT operations tothird parties. In the words of one CIO of a utility company: “Today 80% of my staff isengaged in operations, while only 20% focus on business solutions. In five years time, Iexpect entirely the reverse situation, with 80% facing our business partners.”However, the shift to new business solutions will be problematic given the anticipatedvolatility of the business environment during the next five to ten years. Two thirds ofHorizons survey respondents recognise that business requirements for IT services arebecoming harder to predict, and almost 90% believe IT planning horizons need to becompressed to match shortening business planning cycles. CIOs must also consider thepotential for individuals within an organisation to adopt their own applications and ITservices directly from external parties.In contrast to the perceptions of some c-suite executives, CIOs believe the ITdepartment remains the rightful hub for technology-led business innovation. TheHorizons survey indicates that as much as 80% of CIOs regard themselves as thequalified pathfinders for new applications, tools and techniques. In this respect, the CIObecomes the enabler for business innovation and the competency centre for new IT-related techniques.
  6. 6. Describing a future role for the CIOWhat emerges from the survey work is a complex pattern. C-suite executives continueto see IT as a traditional service delivery channel, with its main emphasis on costreduction and investment optimisation. CIOs also view cost control as priority for thenext 12 months, and recognise the increasing complexity of external sourcing.But, on the other hand, businesses demand innovative IT solutions and frequently by-pass the IT organisation as their preferred partner. CIOs believe the by-pass is just atemporary fix, while they master new sourcing arrangements, and will be removed fullyin the next three to five years. Clearly, then, there is no dampening of CIO aspirations.The CIO community is keen to expand away from operational roles into the strategicareas of their parent organisations. When asked what sort of role they would prefer inthe next five years, the following preferences were registered: Chief information officer (34%), focusing on business solutions and information management Business transformation director (31%), responsible for organisational change and development Digital business architect (21%), helping the CEO and board to design structures for the new digital landscape Enterprise services tsar (14%), focusing on operational excellence across all back office services, such as procurement and facilitiesBridging the gap between the board and the CIOOur evidence suggests IT organisations will be busy dealing with strategic sourcingissues for the next two to three years as cloud and multi-sourcing begin to transform thevendor landscape. C-suite executives see the resolution of existing sourcing issues as atop priority for the CIO, and are pressing for a stable, cost efficient and responsive set ofIT services. CFOs, in particular, are keen to see a positive return on recent capitalinvestments in areas such as ERP, and are unlikely to sanction further substantial ITspending projects.At the other end of the management spectrum, business and functional directors, suchas the CMO, are desperate for tactical IT to help respond to the fast evolving marketswhere digital technology is transforming every aspect of the front office. CMOs cannotwait for IT to catch up and are forging their own trail.Remarkably, the one thing that was absent from every c-suite conversation was anyreference to an IT strategy. The strategy of IT has been consigned to a lost art and littleattempt has been made to communicate the strategic intentions of technology. Theimplication of these two diverging points of focus – the c-suite executive eagerly seeking
  7. 7. technology-led innovation, and the CIO seeking greater stability within the supply side ofIT services – indicates that there is a clear case for three IT-led imperatives: 1. Strong IT policies to ensure that the myriad of new IT applications and services, that are being introduced within businesses, work effectively in the future. CIOs must adopt an IT strategy with teeth; in other words, one sanctioned directly by the board 2. Smart sourcing of services within the IT organisation to ensure best-in-breed performance. A strengthening of retained IT skills, and the development of new capabilities to perform the service integration layer, will be essential. The other option, here, is to work with a suitable and independent third party, who will help impose the required standards and disciplines for a digital world 3. IT representation at the boardroom table, to help educate and facilitate technology driven business innovations. Such representation will require the CIO to allocate progressively more time to business issues and adopt a genuinely outside-in view of the IT function, recognising that he or she is running a service business in its own rightDeveloping new corporate structure for ITDespite the many changes in the nature of IT services over the years, the ITorganisation itself has remained relatively intact. The primary components today includeclient engagement (through business managers), new service development and servicedelivery. In addition, most IT organisations will support a policy section dealing withenterprise architecture and back office functions, such as human resources and finance.Given the increasing independence of business partners, and the freedom of individualmembers of staff to select their own devices and applications, we suspect that the threecore activities of any future IT organisation will be: Setting corporate standards to ensure interworking, which will require a powerful policy unit that could reside at group level Sourcing and managing IT service delivery, which will require a strong retained IT unit that is able to purchase and integrate best-in-breed services Establishing a business innovation hub, which will assist the business as it evaluates, pilots and integrates new IT servicesSuch specific activities suggest a move away from a monolithic IT organisation towardsa virtualised activity, with smaller IT units assembled at group, business and functionallevels. For example, each business will have a locally embedded IT function thatconsults on new technology options and advises on appropriate tools, techniques andsources.The retained IT organisation facing off to the vendor community will exist as a separateunit, providing service integration skills and processes. The policy unit will sit at group
  8. 8. level and work closely with corporate strategy, marketing and finance functions. As withother functions, we expect 60% to 75% of skills and assets will be sourced from outsidethe organisation, leaving a smaller team of highly experienced IT professionals tomanage supply and demand.Our survey work highlights a widespread dissatisfaction with the results of IToutsourcing. In many cases, critical skills have been lost to IT, and the CIO’s ability tosource and manage suppliers has come under question. If CIOs are going to succeed atmanaging new digital challenges, they must learn the lessons of the past and rebuildretained IT skills as aggressively as they outsource its delivery.To find out more about the Horizons research or CIO Connect, please or go to www.rogercamrass.comThe research process behind CIO Connect’s 2012 Horizons surveyCIO Connect polled 2,000 IT leaders for its 2012 Horizons survey and undertookdetailed question and answer surveys with 100 CIOs. Samantha Osman of CIOConnect managed the survey process. Independent IT experts Roger Camrass and BenShenoy on behalf of CIO Connect interpreted research results.CIO Connect CEO Nick Kirkland, director Alistair Russell and editor Mark Samuelsundertook further analysis. Richard Bowler and Roderick Roy of managementconsultancy Blueground Partners helped provide an additional layer of clarity. CIOConnect worked alongside Blueground Partners to approach board-level executives andCEOs in twenty leading companies.Emerging conclusions were then presented to CIO Connect’s Advisory Board of leadingCIOs in a series of specially-convened scenario planning sessions. Feedback fromthese sessions was used to help create the final report.