This report addresses the question: How should CIOs adapt their leadership and management in 2015 and beyond, to ensure that their enterprises survive and thrive in an increasingly digital world? "Flipping to Digital Leadership: The 2015 CIO Agenda" was written by members of the CIO and executive leadership research group, led by Dave Aron (vice president and Gartner Fellow), assisted by Graham Waller (vice president, executive partner) and Lee Weldon (director). We would like to thank the many organizations and individuals that generously contributed their insights and experiences to the research, including: The 2,810 CIOs who responded to this year's survey, representing more than $397 billion in CIO IT budgets in 84 countries. The contributors to our interviews and case studies: Steve du Preez, Anglo American (U.K.); Arvind Gupta, BJP (India); Jeff Bingaman, Crutchfield (U.S.); Olivier Crespin, Frances Boon, David Gledhill, David Backley and Choon Boon Tan, DBS (Singapore); Suzanne Bump, Pamela Lomax and Paul McLaughlin, Massachusetts Office of the State Auditor (U.S.); Gilson Manfio and Luiz Malere, Natura (Brazil); Linglong He, Quicken Loans (U.S.); Zheng Liangang, Spring Airlines (China); Charles Nicholson, Ultimate Software (U.S.); and Klas Bendrik, Volvo Cars (Sweden). Other Gartner colleagues: Frank Buytendijk, Carolyn Damon, Cameron Haight, Heather Keltz, Nick Jones, Kathy Kenny, Poh-Ling Lee, Talmor Margalit, Pierluigi Piva, Paul Proctor, Saif Qezilbash, Claudia Ramos, Jan Sӧderberg, Christopher Sprague, Christie Struckman, Cristiane Tarricon and Joseph Yeo. Other members of the CIO and executive leadership research group: Owen Chen, Ed Gabrys, Partha Iyengar, Jorge Lopez, Patrick Meehan, Álvaro Mello, Tomas Nielsen, Kurt Potter, Mark Raskino and Andrew Rowsell-Jones.
Last year's CIO Agenda explained how we were moving beyond IT craftsmanship (focusing on technology) and IT industrialization (focusing on process efficiency and effectiveness) into a third era of enterprise IT, where digitalization is transforming business models and determining who will win. The third era requires two modes of IT: traditional IT and a more agile, experimental IT. Things have moved on apace, and this year, it is clear that the digital world and its ramifications have already moved from the shadows to center stage, creating winners and losers in all industries and geographies. Cloud, mobile, social and big data are already central to business thinking, and the next set of digital technologies, trends, opportunities and threats is creating yet another competitive frontier.
This isn't just a high-tech story, a U.S. story, a private-sector story, a large-company story or a startup story. These brief summaries of the nine case study enterprises show that digitalization is transforming all types of companies. More often than not, these transformations represent both massive opportunities and substantial challenges for the CIO and the IT organization. A great example of digitalization determining success is the BJP, a political party that won the recent general election in India. We interviewed Arvind Gupta, the party's innovation evangelist and information and technology head. He shared how mobile, social networks, the Internet and holograms played a key role in mobilizing 10 million volunteers, engaging the biggest democracy in the world and ultimately electing the BJP's candidate for prime minister. When asked why other parties didn't exploit digital in the same way, Gupta talked about it being in the BJP's DNA. Intriguingly, digitalization is not only a way to gain a competitive edge, but also provides a powerful ability to flip disadvantages into advantages. Crutchfield, a consumer electronics retailer, has flipped the space constraints of small retail stores into advantages by creating a technology-driven ability to select components and test them in a custom simulation of a car or house.
The "glass half full" perspective is that digital opportunity is everywhere; the dark side is revealed when looking through the lens of risk. According to the 2015 CIO Survey, the overwhelming majority of CIOs agree that the digital world engenders new, vastly different and higher levels of risk, and that the discipline of risk management is not keeping up.
The number of CIOs reporting to their CEO is about the highest it has ever been (see the next slide), a result of the digital narrative gaining prominence in the boardroom and on the executive committee.
The IT discipline within most enterprises has developed a set of behaviors and beliefs over many years, which present persistent issues that impede digital opportunities: • Legacy technology and associated mindsets have such momentum that most enterprises still think of innovation in terms of the technology paradigm. Digital leadership means flipping the approach from supporting the business with information technology, to starting with the digital world and what is possible — thinking cloud, mobile and highly contextual first — and then to considering “how do we get there from here?” using information and technology. • Value management and measurement is every business's dirty little secret. Most enterprises and their CIOs disproportionately focus on what is easily measurable (e.g., IT cost), rather than what is most valuable or requiring the most attention (e.g., the value of building a digital capability). Moreover, a project's value focus typically dies when a business case is approved, replaced by a task management game — another situation that absolutely has to flip. • Through both nature and nurture, CIOs have evolved into control-style pragmatic leaders. Given the characteristics of the digital era, this bias is dangerous. CIOs must invert their style to be more vision-led and inspirational. CIOs already know this. These problems aren't new, but the prizes for solving them, and the dangers of ignoring them, are growing exponentially.
In relatively short order, cloud has moved from a concept, to a possibility, and to a viable option. For a significant minority of enterprises (10% for IaaS, 16% for SaaS), cloud is now the default option when a project comes along; for the majority of enterprises, cloud is considered alongside other alternatives. Less than 20% of enterprises will not consider cloud at all. Gartner believes that IT vendors are shifting fast in this direction. We recently predicted that by 2015, 50% of all new independent software vendors will be pure SaaS providers.
Similarly, a very significant proportion of IT-intensive investments are designed to work on mobile platforms, either as the primary or secondary interface. This is especially true for customer-facing investments. What does this all mean? Is shifting to the cloud or mobile just like shifting from one vendor to another, to one programming language from another? Not quite. CIO opinions on contextualization provide a clue. Seventy-one percent of CIOs feel a growing need for services that are highly aware of, and adaptive to, their context of use, such as the user's location, preferences and usage history. Clearly, this means architecting new and replacement services from the outside in, starting with the assumption that a public cloud solution will deliver services consumed in a mobile setting requiring contextualization. Then, CIOs must force themselves to make the case for why this might not work. This is a very different mindset from viewing cloud, mobile and contextualization as exotic options to be considered in a small minority of cases. It is very different in terms of the architecture and development approaches, and equally important in terms of the mix of skills that CIOs look to retain in their IT organizations and enterprises.
To parody the way most enterprises are set up to create value from information: They devote almost all of their attention to structured, easy-to-process data and use it to report on the recent past for primarily administrative purposes. Even if enterprises are not changing their approach to value yet, the figure opposite reveals that CIOs know that the possibilities and imperatives of the world of information and analytics are evolving fast. The opportunities are increasingly with unstructured, harder-to-process information, such as multimedia and social information. Given the levels of change, backward-looking reporting is less and less valuable. Rather than attempt to optimize based on yesterday's news, CIOs in all industries and types of businesses need to develop the capabilities to generate forward-looking predictive analytics and combine this information with experimentation to create the future. The challenge is to make this a reality with skills, investments and actions. As a general rule, enterprises need to shift the ratio of structured/backward-looking reporting to unstructured/forward-looking data and analytics-driven experimentation from 90%:10% to 40%:60%.
As mentioned, the Nexus of Forces (mobile, social, cloud and information) is no longer the exotic — it is the place where all enterprises live. Digital has moved to center stage. However, we must not view the nexus as the end of the journey. This is not the time to say, "We have a plan for cloud, we're developing mobile capability, we're stepping up our social and information game. We're done." The next set of digital technologies and trends is coming down the line much faster than we think. The chart shows the penetration of the five SMART technologies: sensor networks/the Internet of Things; maker machines, such as 3D printing; augmentation of humans with devices or smart decision-making systems; robotics; and thinking machines (e.g., IBM's Watson). (See "The Five SMART Technologies to Watch" [G00259931].) A minority of enterprises are significantly investing in these leading-edge (or bleeding-edge) technologies — the position of the Nexus of Forces only a couple of years ago. CIOs must ensure that their information and technology horizon doesn't stop at the nexus. A continually updated view on which post-nexus technologies can add the most value to the enterprise is a necessity — ideally informed by active experimentation.
Founded in 1927 in Sweden, Volvo Cars is an automobile manufacturer, majority owned by China's Geely Holding. Research showed that about 60% of customers had a delivery problem with online shopping: Failed first-time deliveries were costing the industry about €1 billion (US$1.3 billion) per year in redelivery costs. Because the trunk of a car can store deliveries with a fair amount of security, Volvo and its partners conducted a live trial of "Roam Delivery," which provides deliverers with a temporary digital trunk key.
Founded in 2005, Spring Airlines describes itself as China's first and only low-cost airline. The company owns 14 planes and operates more than 40. In 2013, revenue was CNY6 billion (US$975.3 million). Beyond these nexus technologies, Spring has developed a "smartwatch" check-in service, (to be deployed when the smartwatch market becomes less fragmented), and it is building a Google Glass information system for flight crews (to be deployed when battery life issues are solved). Bullish on the future of wearable technology, CIO Zheng Liangang sees two paths for innovation: personalizing services more and extending Spring Airlines' service to the passenger's whole trip. "We want to do business in the entire ecosystem — the long tail," he says.
As in last year's CIO survey, IT budgets are not growing exuberantly. CIOs estimate that 79% of IT spending will be "inside" the IT budget (up slightly from last year), but much digital innovation can and will be funded outside the planned IT spending.
One of the biggest obstacles to value maximization is treating all IT-intensive investments the same — insisting that they share business case formats, metrics, hurdle rates, discount rates and more. A minority (39%) of CIOs use separate categories of investment, despite the reality that there are different categories of investment and CIOs should manage them differently. Gartner has been talking about run/grow/transform investments for many years. The slide adopts somewhat different categorizations: fear, fact and faith. A fear-based investment is made to make sure the business stays in business. It may be a regulatory requirement, an infrastructure upgrade or a security improvement. These investments should be looked at as a tax on the business. The best management systems for controlling fear-based investments are internal and external benchmarking, combined with measuring cost, quality and risk exposure. Fact-based investment entails an estimate of direct value impact in terms of cash flow and productivity, for example. Introducing a new product, addressing a new geography and reducing business process cost are typical fact-based investments. Classic financial and productivity metrics and ratios, such as net present value (NPV) and ROI, work well for them. Faith-based investments are essentially bets by senior management. A realistic estimate of direct cash flow or productivity benefits may be difficult or impossible — for example, establishing a social-listening capability. These investments are best managed by maintaining strong and vocal senior executive sponsorship, and ruthlessly controlling scope. In an uncertain digital world, faith-based investments are increasingly important.
With 97% of 2015 CIO Survey respondents focusing on IT cost, it is by far the most common measure of IT performance. IT cost certainly cannot be ignored, but if it is the dominant metric, the message is to generate value from IT by reducing IT cost. Since IT cost is normally only a small percentage of revenue or of overall business costs, even a substantial reduction has very limited impact on the bottom line. Moreover, this is a game of diminishing returns — we can't keep reducing IT cost forever.
CIOs should, therefore, consider flipping IT cost from numerator to denominator. Flip the focus from reducing IT cost per dollar of revenue to increasing revenue per dollar of IT cost, which equals IT productivity. With this simple but powerful inversion that puts the focus on what a business is all about — productivity and profitability — there is no limit to value creation. When we think about the value that information and technology can generate in businesses — like the tens of millions of dollars in questionable transactions found through superior analytics at the Massachusetts Office of the State Auditor, the digital platform driving growth from $70 billion to $80 billion in loans at Quicken Loans, or the BJP prime ministerial candidate's ability to participate in 2,000 rallies instead of 180 — the right-hand ratio in the slide seems much more helpful than the left-hand ratio. Based on this IT productivity focus, we suggest that a CIO work with the CFO in building a tree of value drivers specific to the business.
Aside from defining operational metrics, CIOs need to make value come alive in their enterprises, becoming the driving force in what the business chooses to do and how it is done. Everyone knows that value, or benefits realization, is a critical issue, but very few organizations successfully address it. In a world of IT-enabling process automation, weak benefits realization is a problem. As the chart shows, penetration of good benefits realization is very low, with only 7% of CIOs consistently executing sound harvesting practices. Anecdotally, we know that, where benefits realization is a little more mature, it relates to projects that are more certain, with benefits that are easy to measure. Yet, in another part of the survey, 60% of CIOs rated their enterprise as strong at benefits realization for IT-intensive investments. This reveals complacency about the weak value management practices endemic to modern businesses. As we move to a more digital world, where value is complex, uncertain and adaptive, this situation becomes a killer. When we segment CIOs based on business performance, we see a strong, direct correlation between benefits realization and leadership. In high-performing businesses, there are far fewer business leaders with weak benefits realization practices — and a much higher number with strong practices.
Benefits realization clearly matters, and it will matter even more as digitalization takes hold. Meanwhile, CIOs and their enterprises need to take action across the three phases of the benefits life cycle: • Plan smartly, keeping not only cost but also all forms of financial and strategic value in mind. • Execute with both task and value in mind. Do not forget the value focus, especially when things change through internal and external shocks. • Fully harvest the benefits from IT-intensive investments after implementation. As a general rule, aim to rebalance the amount of effort expended on value measurement and management across the plan-execute-harvest benefits life cycle from 90-10-0 to 40-20-40. The CIO of ServiceCo, a business services company in the EMEA region that wishes to remain anonymous, has begun to address benefits realization, thus far applying it to seven of his most transformational projects. His team of value engineers helps project sponsors and project teams build concrete, measurable business cases, and then monitor the value measures throughout the project life cycle (up to three years after going live). "Benefits Realization: The Gift That Keeps on Giving" (G00219568) provides a step-by-step maturity model for improving benefits realization.
The most difficult value to address accompanies faith-based investments. Many digital investments fit this profile, especially when they relate to building a digital capability or platform that will position the enterprise to generate future value. What can CIOs and their enterprises do about these projects? Essentially, they have four options: 1. Simply do not invest in these highly uncertain areas. This is safe in the short term, risky in the long term. 2. Reserve funds in an innovation budget, and allow experiments. This is like playing the lottery if it is the only approach to transformational investment. 3. Use probabilistic valuation methodologies, such as decision trees and scenario planning, to estimate value creation potential. This is powerful, but investments are inevitably skewed toward scenarios that are easy to envisage. 4. Use techniques such as "real option valuation" to assess platform and capability investments as options for the future. As the most challenging but most exciting approach, this gives the enterprise the right but not the obligation to invest in future value-creating opportunities. The downside is that these techniques are complex, hard to understand and carry the risk of making poor decisions based on spurious accuracy.
Seventy-five percent of CIOs recognize the need to flip their leadership style in the next three years, from "control first" to "vision first." This is necessary, but it won't be easy.
Being a powerful digital leader and influencer takes time — there is no way around that. If CIOs don't spend time being digital leaders, it doesn't matter what their intentions are or what documents such as job descriptions say. Running an IT organization is a complex business, and when we compare the 2011 and 2015 Gartner CIO Surveys, we find that the average CIO is spending more, not less, time running the IT shop — 5% more, or an extra day per month. However, the survey data also tells us that, all things being equal, CIOs with higher performance as IT leaders spend significantly less time running the IT shop and delegate some business unit leader engagement. This gives them an extra 5% of time, or a day per month, to engage the board, senior leadership and external customers (see the next slide). This might not sound like much, but imagine if you were given a "time bonus" of one day per month, and more important, your board, CEO, other CxOs and customers were open to spending that day with you.
There are many ways to create more time, including being more disciplined, simplifying the IT estate and hiring better-qualified people. An upcoming report by Gartner analyst Lee Weldon will talk about using an office of the CIO to give the CIO more time. A specific way for a CIO to make time for leadership is to have a deputy responsible for running the whole IT shop day to day, including support and development. One might call this a "COO of IT." Some organizations call it a CTO, a title that can be confusing because of its many meanings. Whatever the title, decoupling the day-to-day running of IT from being the digital/information leader and influencer in the enterprise and its ecosystem, reveals a powerful opportunity for CIOs. The data shows that just under half (47%) of CIOs have just such an operational IT role under them, and it reduces the time they personally spend running IT by 5%, or about a day per month, which is not insignificant. This message clearly isn't rocket science, but the key is to take action, commit and be disciplined with the use of time.
For most CIOs, aspiring to visionary leadership will not be simple. Nature and nurture have created a "CIO gene pool" dominated by pragmatic leaders. Of CIOs taking the Myers-Briggs psychometric test, more than 64% have the NT subtype known as the pragmatist. This compares to about 40% of executives found to be pragmatists in a study of 22,000 managers by Ashridge Business School (and to 10% of the U.S. population). The good news is that pragmatist leaders tend to get things done and earn good salaries; the bad news is that they don't favor visionary leadership. Psychometric tests are limited in their usefulness, and many people have noted that the development and testing of Myers-Briggs has not been academically rigorous. Nevertheless, taking such tests can yield insights into a CIO's style. At the same time, psychometric test results should not be viewed as a straitjacket. Whatever they suggest, anyone can flex his or her type to some degree, and no one fits a type exactly. CIOs should take three concrete actions with regard to style: • Use leadership tests, mentors and coaches to become more conscious of your style, and how people perceive it. Request 360-degree feedback and engage in personal reflection. • Target how you will adapt your style over the next three years, and measure your progress. • Review the business and IT leadership teams you belong to, and examine whether other team members complement your style strengths and preferences. Where there are gaps or too much overlap, consider taking action to address them.
Digital leadership is almost always about creating the new and leading with speed, often in areas with a high degree of uncertainty and no well-trodden paths to follow. It also typically requires leading and inspiring — both inside and outside your area of control, and inside and outside the enterprise — while engaging with customers and influencing the business ecosystem. Command-and-control leadership doesn't suit this digital world; in fact, it can be an obstacle. Vision and inspiration are typically the most powerful attributes of digital leaders. As the slide illustrates, CIOs recognize this: 75% plan to change their leadership style over the next three years, most commonly by amplifying their vision (47%) while reducing their command and control (65%).
Most everyone accepts that culture is somewhat important to business success, but few would find it easy to define culture; fewer still have active programs to manage and measure culture. "Hard" management systems that are easy to see, such as organizational structure, metrics and governance mechanisms, traditionally get much more attention than "soft" systems such as leadership style and culture. Yet, as management guru Peter Drucker famously said, "Culture eats strategy for breakfast." A traditional, risk-averse corporate culture that views IT as only an infrastructural enabler of transactions will devour even the most innovative digital business strategy like a small snack! To avoid this fate, CIOs and other leaders need to lead a digital cultural revolution across their businesses, possibly extending it into their business ecosystems.
CIO Linglong He of Quicken Loans emphasizes the importance of culture to the company's success, which is considerable — home loan volume grew from $70 billion to $80 billion in 2013. She describes the culture of innovation, backed up by Monday afternoon's "Bullet Time" (undirected experimentation), and by a full day of culture training for every new employee, with both the founder and the CEO. Quicken Loans has 19 "ISMs" — pithy statements representing its culture, such as "Innovation is rewarded, execution is worshipped" and "The 'inches' we need are everywhere around us." The ISMs remind all team members what it means to work at Quicken Loans, no doubt leading to a number of awards citing the company as a great place to work.
What is the main job of CIOs? Their most valuable role? What is it that only a CIO can do? Traditionally, the main job of a CIO has been to run the IT shop and make the big decisions. CIOs still need control of these aspects, but in an increasingly digital world, the one thing they must do is inform, educate and inspire — and lead the use of information and technology to maximize business success. Almost all CIOs intend to do this, and while some take action, very few make this their central role, giving it the time and attention it deserves. Put the tasks of education and inspiration at the center of the CIO's role. To seize the digital opportunity, CIOs need to help the enterprise understand and get excited about where digitalization can take the business. Education and inspiration have the following components: • Engender a shared purpose in terms of digitalization, and ensure that it reaches every corner of the enterprise. • Stimulate the appetite of the enterprise for higher levels of digital value. • Inspire people to higher levels of performance, and attract great people to the business and IT organization.
CIOs and their enterprises can use techniques like the ones in the chart to increase the digital savvy of the enterprise. Brazilian cosmetics company Natura uses "hackdays" (innovation marathons with internal and external participants), and Quicken Loans gives team members Monday afternoons to freely experiment. Select and deploy the techniques you feel will have the most impact in your enterprise. Dave Gledhill of DBS observes that the bank's wealth management project, using IBM Watson, has intrinsic business value, but also acts as a mechanism to force the staff to think less "transactionally" about what information and technology can do for the business.
In summary, a CIO may run a great IT shop, be aware of digital trends on the horizon, and even participate in digital experiments and innovations. However, CIOs also need to proactively flip their leadership approach to people, value and risk, and information and technology. Map the leadership flips discussed in this report to one of five places, according to these definitions: • Unconscious incompetence — "Our culture does not recognize this as a possibility or issue." • Conscious incompetence — "We recognize the importance of this issue but have not taken action." • Conscious competence — "We are focusing on this issue, but it takes effort and doesn't come naturally." • Unconscious competence — "Digital leadership capabilities have become embedded in our culture." • Not relevant (for now) Once you have completed the mapping, choose five items to focus on in 2015, then take action: • For an unconscious incompetence, build a plan to raise awareness and appetite. • For a conscious incompetence, stop admiring the problem and outline a plan of action to move things forward, including defined measures of progress. • For a conscious competence, prepare an approach that will embed it deeply in the company's culture. Gartner will be providing workshop materials to assist with this mapping process.
Digitalization is no longer a sideshow — it has moved to center stage and is changing the whole game. CIOs have a unique opportunity to take a strong digital leadership role in the transformation of their businesses. Seizing this opportunity requires flipping long-held behaviors and beliefs — from "legacy first" to "digital first" in information and technology leadership, from a focus on the visible to the genuinely valuable in value leadership, and from "control first" to "vision first" in people (and cultural) leadership. As our case studies show, the prize is new business models driven by innovative uses of information and technology.
CIO Agenda 2015 - Flipping Into Digital Leadership