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Stepping into the role of strategic visionary and business driver requires CIOs to have a new conversation with their C-suite colleagues, redefining IT value and sharpening the organization’s focus on the next generation of challenges and opportunities. It is the CIO who best understands where the technology is going and how it can be applied to generate new value.

TRANSCRIPT

Page 1: Change the conversation, Change the Game by Harvard Business Review Analytic Services, Sponsored by Dell

A REPORT BY HARVARD BUSINESS REVIEW ANALYTIC SERVICES

Change the Conversation, Change the Game

Sponsored by

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Copyright © 2013 Harvard Business School Publishing. All rights reserved.

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“Innovation is the key to the future—innovation in business models, business processes, and products and services. Only innovation can break the chains of commoditization that a global and frictionless economy encourages. Innovation is the only insurance against irrelevance. It’s the only antidote to margin-crushing competition, the only hope for outperforming the economy, and the only way to truly amaze and delight your customers.”

—JIM STIKELEATHER, EXECUTIVE STRATEGIST, INNOVATION FOR DELL SERVICES

IN THE WAKE OF THE GLOBAL RECESSION, organizations face an intense pressure to innovate not just products and services but also new ways of interacting with customers and managing people and operations. Social, mobile and cloud technologies are enabling and accelerating this pressure, creating a new opportunity for IT leaders to move beyond efficiency and operational excellence to take a lead in business innovation.

But stepping into the role of strategic visionary and business driver requires CIOs to have a new conversation with their C-suite colleagues, redefining IT value and sharpening the organization’s focus on the next generation of challenges and opportunities. That’s why Harvard Business Review Analytic Services partnered with Dell recently to explore how CIOs can help other executives understand how the game has changed in this new digital era and identify strategies and tactics to win in the global marketplace.

As you will see from the research, blogs and webinar panel discussion report included here, the conversations focused on the new dimensions of success and how IT leaders must be at the forefront of business model enablement, organizational architecture, management practice and innovation. One theme emerged again and again: It is the CIO who best understands where the technology is going and how it can be applied, both to develop new methods for generating existing value and to revitalize old methods to generate new value. Thus, it is the CIO who should guide and mentor the rest of the organization into its 21st-century model.

Clearly, it’s time to change the conversation and change the game for every organization.

Introduction

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Change the Conversation, Change the GameLIVE VIDEO WEBINAR PANEL DISCUSSION REPORTCIO LEADERSHIP FORUM • BOCA RATON, FLORIDA

This panel discussion, broadcast from the CIO Leadership Forum on May 6, 2013, was conversation among business and IT experts about the need for IT leaders to redefine IT’s value by moving beyond efficiency and operational excellence to be business innovators, innovating real changes in business models and organi-zational architecture.

THE PANELISTS

Gary Hamel, Author and Visiting Professor, London Business School Leni Kaufman, Vice President and Chief Information Officer, Newport News Shipbuilding Jim Stikeleather, Executive Strategist and Chief Innovation Officer, Dell Services Tim Theriault, Senior Vice President, Chief Information, Innovation, and Improvement Officer, Walgreens Angelia Herrin, Editor, Research and Special Projects, Harvard Business Review [MODERATOR]

CHANGING CEOS’ PERCEPTIONS OF IT

Dell Services’ Jim Stikeleather shared highlights from research his organization has done, which involved interviewing thousands of CIOs and CEOs around the globe. The results are not terribly comforting for IT.

ππ Over 50% of CEOs believe that IT should be purchased as services for most company needs.

ππ Over 50% of CEOs saw their CIOs in a negative light in terms of contributing new ideas for the business and fewer than 25% of CEOs rated the CIOs as better than average.

ππ Close to 50% of CEOs think there will be a significant change in the way IT is delivered, and almost 10% say there will be radical transformation in the whole concept of IT in their organizations.

Stikeleather finds these perceptions particularly troubling, since the same research, by the Economist Intel-ligence Unit, shows that IT is a key contributor to an organization’s future profits.

Tim Theriault said technology definitely has a business impact and can be a strategic weapon that differenti-ates a company from others in its industry. But for IT to have value, it must support an organization’s core strategy and the CIO must speak the language of the CEO. He noted that the health care industry, where Walgreens competes, has not taken full advantage of technology’s capabilities.

In Leni Kaufman’s view, part of the problem is that CEOs don’t understand IT’s value and contribution to the business. This is because CIOs often talk about technology as opposed to business value, growth, profitability and how technology helps the company achieve its goals. Kaufman, who worked in the business for more than 15 years before moving into IT, is intimately familiar with her company’s business and is passionate about it, as are other members of her team.

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Gary Hamel offered a slightly different perspective. He believes many CEOs don’t even know what to ask of IT. As a result, IT leaders can be put in a difficult situation if they just respond to what a CEO asks for or if they try to partner with the business. CEOs are under tremendous pressure because:

1. The pace of change is accelerating. Increasingly, the future is less of an extrapolation of the past, and CEOs realize that their organizations aren’t adaptable and aren’t built to change quickly.

2. They see technology as a disruptive force. Technology is bringing about new types of competitors and new business models, so it tends to be feared.

3. New generations of workers behave differently. They are resistant to authority and uncomfortable in traditional hierarchies. They favor transparency and meritocracy and are comfortable using social tools and technologies to share ideas and information.

CEOs recognize the significance of these changes, and many are questioning whether they have the right organizational architecture to cope with the changes taking place. Jim Stikeleather acknowledged that CEOs can’t run companies the way they have in the past. Information technology isn’t the solution; it is changing the management practices and management technology.

LEADING TRANSFORMATION AND INNOVATION

To survive amid the environmental changes taking place, organizations must rapidly transform themselves. Tim Theriault described how previously Walgreens was focused on opening new stores. Now the company is taking an outside-in perspective, to be more customer driven and to focus on engaging customers in the store. This requires empowering its people, leveraging technology to provide information in real time and developing customized solutions—which require cultural transformation.

And just as leading companies are transforming themselves, so must CIOs. Traditionally a CIO focused on operational excellence and incremental innovations. These are still expected. But now CIOs are increasingly expected to lead innovation that transforms the organization and the business.

Driving innovation does not involve creating a separate innovation team or organization, which was opposed by all the panelists. It involves making innovation part of everyone’s job and leading throughout by:

ππ Encouraging experimentation. CIOs need to be open to trying new things and new approaches. This requires thinking and acting differently and focusing on much more than just “keeping the lights on.”

The leading role or a key player

No role

47%37%

27%20%

■ Financially ahead of their competitors

■ Survey respondents

What Is the Impact on Performance When the CIO Is at the Strategy Table?

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ππ Changing processes and providing training. Often companies profess to be focused on innovation, but they don’t change any of their processes. They don’t provide ways for ideas to be generated, for small amounts of seed capital to be obtained and for people to allocate some of their time to a new idea. They also fail to provide innovation training at all levels of the company. Since many of the best, most innova-tive ideas often come from the front lines, all employees need to receive innovation training and pro-cesses need to be modified to encourage everyone to think of innovative ideas and act on them.

ππ Providing greater transparency. Jim Stikeleather observed that a necessary condition for organizational innovation is transparency; everyone needs access to information at all times to be able to quickly make informed decisions. Lack of transparency hinders innovation. Gary Hamel said that there is a trade-off between freedom and control, with most organizations coming down on the side of control. However, innovative organizations often provide more freedom, which is accompanied by greater transparency. Greater transparency equips people at the lowest level of organizations to access information and make the right decisions for customers.

ππ Supporting meritocracy. Innovative organizations don’t have centralized, top-down innovation. They realize that great ideas can come from any person, anywhere in the organization. All people in the organization are on equal footing in sharing innovation ideas. Title has less merit; what matters are ideas. Social tools and technology can be important in enabling a merit-based environment that encourages idea generation and sharing.

ππ Prioritizing innovation ideas. While innovative organizations encourage innovation across the com-pany, they also have the discipline to prioritize and focus. Jim Stikeleather offered the following criteria for prioritizing innovation when requests are made of IT: 1) Does this create value for custom-ers? 2) Is it something at which we are the best in the world at or could be the best in the world? 3) Is this something that must be done for legal or regulatory reasons? If so, can we get someone else to do it and become their customer?

Visualization of CIO Think Tank Discussion around the CIO Role in Unlocking Value

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ππ Measuring results. While today few companies measure innovation, doing so is possible. It is possible to measure how many people have been trained as innovators, how many ideas are being generated, how much time is spent on innovation-related projects and how much time managers spend mentoring such projects, the potential impact of innovations, how long it takes innovations to come to fruition, and the ultimate results from innovations. Doing so requires having a long-term perspective and some patience.

The panelists agreed that with a new generation of employees and new social technologies, great caution is needed regarding the incentives to drive innovation. Employees might be offended by traditional financial incentives, which might actually backfire. Employees today are often more motivated by autonomy, purpose, the opportunity to be creative, and the ability to make meaningful and significant contributions.

Panelists also concurred that CIOs are ideal candidates to lead innovation within companies. CIOs under-stand the business, touch all parts of the organization, and understand the perspectives of customers and suppliers. CIOs are also accustomed to leading major organizational initiatives, understand the importance of change management and see the potential for innovative technologies to drive the business forward.

VISION WITH A DOSE OF REALITY

In driving innovation and organizational change, it is important for CIOs to think as radical revolutionaries who can envision and articulate what the future looks like. But CIOs must also be pragmatic in understand-ing the organization’s current culture and accepting that visions are not achieved overnight; they come about through step-by-step change. One suggestion to engage the C-suite in the vision is to personalize their interaction with technology, perhaps by furnishing them with a smart phone, a tablet computer or other personal technology.

THE ROLE OF TECHNOLOGY

Much of the discussion focused on organizational structure, culture, and the need to change management practices, which requires new leadership mindsets and philosophies. Hamel suggested that in addition to the requisite technical skills, leadership in the current environment involves 1) being a contrarian and challeng-ing what others take for granted; 2) demonstrating courage in looking beyond “accepted best practices”; and 3) having compassion, which entails understanding and having empathy for customers.

However, the panelists remain strong believers in the power of technology. Tim Theriault described how state-of-the-art technology is allowing his company to leverage analytics to create more personalized one-to-one relationships with customers, and Leni Kaufman explained how new businesses at her company are using technology to innovate in new ways.

Gary Hamel sees IT as having leverage in three ways:

1. Changing the operating model. Over the past decade, IT has been used to improve supply chains, logistics and customer service, along with improving inventory turns, revenue maximization and other operational aspects.

2. Changing the business model. This is what Walgreens is doing in interacting differently with customers and empowering employees in entirely new ways. This is where CIOs can play more of a leadership role.

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3. Changing the management model. Historically too much authority was centered in too few people, making it difficult to experiment and try new things. But technology is the enabler that makes it possible to change the basic paradigm of management.

Recent research by Harvard Business Review Analytic Services suggested that all three of these changes, enabled by technology, are key in creating new value.

CONCLUSION

CIOs thus face significant challenges—and have unprecedented opportunities. They must continue to demonstrate operational excellence and efficiency in supporting the organization’s core needs while making continuous incremental innovations. At the same time, CIOs have the unique opportunity to lead innovation in the processes and technologies used to engage employees in new ways, leverage information to create customized solutions for customers, and manage the company differently. For CIOs who act as leaders, their opportunities and those of their companies are significant.

Changes to organizational structure

Required technology investments

Performance management metrics

Changes in customer engagement processes

Employee training in new technologies and processes

Talent changes

Changes in sales and marketing processes

Changes in support processes

Changes in product development processes

Formal change management and communication programs

35%

34%

34%

33%

26%

25%

23%

21%

19%

18%

Factors Affecting Creation of New Value

QUESTION: Which of the following has had the most significant impact on your organization’s ability to create new value?

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GARY HAMEL AUTHOR AND VISITING PROFESSOR, LONDON BUSINESS SCHOOL

Dr. Gary Hamel is an American management expert. His specialties include management innovation, web-based management models, strategic renewal, organizational adaptability, innovation as a core competence and employee engagement. The Wall Street Journal recently ranked Gary as the world’s most influential business thinker, and Fortune magazine has called him “the world’s leading expert on business strategy.”

Hamel has authored several books including, Competing for the Future, Leading the Revolution, The Future of Management, and his latest, What Matters Now. Over the past 20 years, Hamel has authored 17 articles for Harvard Business Review and is the most reprinted author in the magazine’s history. He has also written for many leading publications around the world.

Since 1983, Hamel has been on the faculty of the London Business School, where he is currently visiting professor of strategic and international management. Additionally, as a consultant and management educa-tor, Hamel has worked for many diverse companies. His pioneering concepts such as “strategic intent,” “core competence,” “industry revolution” and “management innovation” have changed the practice of manage-ment in companies around the world.

Hamel speaks frequently at the world’s most prestigious management conferences and is a regular contribu-tor to CNBC, CNN and other major media outlets. He has also advised government leaders. Hamel is a Fellow of the World Economic Forum and the Strategic Management Society. He lives in Northern California.

LENI KAUFMAN VICE PRESIDENT AND CHIEF INFORMATION OFFICER, NEWPORT NEWS SHIPBUILDING

Leni Kaufman is vice president and chief information officer for Newport News Shipbuilding, a division of Huntington Ingalls Industries in Newport News, Va. She is responsible for establishing the IT strategic direction and the day-to-day leadership of all information systems at the shipyard as well as for the HII corporate office.

Prior to her CIO role, Kaufman served as a program director for Northrop Grumman’s Integrated Systems sector in Melbourne, Fla. She began her career with Northrop Grumman in 1979 and has held several leader-ship positions of increased responsibility that include project manager of integrated solutions, manager of software engineering and technical specialist of manufacturing systems.

She is a member of CIO magazine’s executive council, a national collaborative network of leading CIOs. As part of this organization, Kaufman is the first CIO to participate in the ITWomen Role Model Speakers Program. She also participated as one of 14 CIOs nationwide in the fourth annual ITWomen Scholarship drive to raise scholarships for young women pursuing technology degrees. Kaufman is also an executive sponsor for the Hampton Roads Chapter of Women in Shipbuilding Enterprise (WiSE).

Kaufman earned her bachelor’s degree in professional studies at Barry University.

About the Panelists

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JAMES STIKELEATHER EXECUTIVE STRATEGIST AND CHIEF INNOVATION OFFICER, DELL SERVICES

Jim Stikeleather is chief innovation officer for Dell Services, where his team enables, facilitates and acceler-ates new technologies, business models and processes to address evolving business, economic and social forces for the company and customers. For more than 30 years, Jim Stikeleather has designed, developed and implemented award-winning information and communications technologies that help businesses and institutions succeed, as well as started and grown multiple companies. He has spoken and consulted interna-tionally on digital infrastructures and evaluation of emerging technologies and provided strategic guidance on their application to achieve business outcomes. He participates in international technology standards bodies, has multiple book and industry-article contributions to his credit, and advises a number of technol-ogy incubators. Additionally, Jim holds two patents. Jim came to Dell via Perot Systems and Meadwestvaco. Perot acquired a company he started, the Technical Resource Connection (TRC), in 1996.

TIMOTHY J. THERIAULT SENIOR VICE PRESIDENT, CHIEF INFORMATION, INNOVATION, AND IMPROVEMENT OFFICER, WALGREENS

Timothy J. Theriault is senior vice president and chief information, innovation, and improvement officer for Walgreen Co., based in Deerfield, Ill. Theriault is responsible for the innovation, information technology and continuous improvement division, which implements the company’s strategy to grow revenue and reinvent its cost structure through continuous improvement and innovation. He also oversees Walgreens health IT infrastructure, which encompasses all health care technologies driving the company and solutions for B2B relationships, which include centralizing patient health information and developing capabilities for payers and providers to view patient data.

Since joining Walgreens, Theriault has restructured the IT organization to support new company strate-gies and enable innovation. Theriault currently heads initiatives to use technology to better understand the customer, enhance the online business and integrate new health care products that support the core retail activities.

Before joining Walgreens in 2009, Theriault was president of corporate and institutional services for North-ern Trust Corporation in Chicago. Theriault worked at Northern Trust for 25 years, during which time he also served as executive vice president and chief technology officer, heading the company’s worldwide opera-tions and technology department.

Theriault earned a bachelor’s degree in business management from Illinois State University, Normal, Ill., in 1982 and completed the advanced management program at Harvard University Business School in 2007.

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The IT Conversation We Should Be HavingBY JIM STIKELEATHER

It has been a while since I was a parent of teenagers, but I remember when the question “Have you had the conversation yet?” made me break out in cold sweats. The Conversation is also a 1974 film by Francis Ford Coppola whose themes include the role of technology in society and being so focused on what you are doing that you forget why you are doing it and become oblivious to what is happening around you. Both examples fit the conversation that should be going on in the C-suite but isn’t, because it makes people nervous and because people lose visibility into and perspective on what is changing around them as they focus on their goals. It is a conversation about the increasing importance of information technology and the role it must assume in every enterprise, regardless of size, industry or geography.

Over the last two years, we have been engaged in primary research with Harvard Business Review, The Economist, CEB (formerly known as the Corporate Executive Board), Intel and TNS Global in an attempt to paint a picture of how the roles of the CIO and the IT department are changing. We also engaged with CIOs around the globe in discussions about what they were experiencing and what changes were surprising or bewildering them.

A simple summary of the work suggests that CEOs believe that CIOs are not in sync with the new issues CEOs are facing, CIOs do not understand where the business needs to go and CIOs do not have a strategy in terms of opportunities to be pursued or challenges to be addressed in support of the business.

KEY FINDINGS FROM OUR RESEARCH:

ππ Almost half of CEOs feel IT should be a commodity service purchased as needed.

ππ Almost half of CEOs rate their CIOs negatively in terms of understanding the business and understanding how to apply IT in new ways to the business.

Keep the Conversation GoingStepping into the role of strategic visionary and business driver requires CIOs to have a new conversation with their

C-suite colleagues, redefining IT value and sharpening the organizations focus. In a series of blogs published on

HBR.org, Dell’s Jim Stikeleather outlined a framework for these conversations, setting out the business challenges

and opportunities for the organization in a rapidly-changing environment, and the role of the CIO in identifying

strategies and tactics to win in the global marketplace.

These pieces offer simple steps that CIOs can take to begin repairing the dissonance between business and IT, and

guiding their organizations into the 21st century. These discussions will not focus primarily on technology, but on the

changing needs of customers and the organization. Tomorrow’s businesses will have a very different make-up, and

the CIO must lead the charge in the face of these changes as we reinvent our organizations.

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ππ Fifty-seven percent of the executives expect their IT function to change significantly over the next three years, and 12% predict a “complete overhaul” of IT.

ππ Only a quarter of executives felt their CIOs were performing above their peers.

OUR OBSERVATIONS:

ππ CEOs are demanding more visible value from their CIOs, in terms of generating revenue, gaining new customers and increasing customer satisfaction.

ππ Increasingly, the CIO and IT must be seen less as developing and deploying technology, and more as a source of innovation and transformation that delivers business value, leveraging technology instead of directly delivering it.

ππ The CIO must be responsible and accountable if technology enables, facilitates or accelerates competi-tion that the C-suite didn’t see coming or allows the enterprise to miss opportunities because the C-suite did not understand the possibilities technology offered.

ππ CIOs today must adapt or risk being marginalized.

WHY THIS IS HAPPENING:

As we worked with the data, while we saw “what” was happening, it became clear we were missing the “why” it was happening. Why is this dissonance between the CIO and the C-suite happening? It could be the rapid pace of technological change, but historically that only facilitates or accelerates change already desired or under way. The more we looked for an answer, the more we realized we were at an impasse. Then we realized that what we were seeing were not changes in IT, but secondary effects from changes going on in business.

In order to understand the future of enterprise IT, the evolving future of business itself must be considered.

Trends that are affecting fundamental concepts of business and in turn IT:

ππ The basic ideas of capitalism—return on investment (ROI) and return on assets (ROA)—are being chal-lenged by the historical stalwarts of capitalism (Harvard, Drucker Society, Forbes, the London School of Economics and many more). Many of these ideas shun ownership for rent on those elements of the enterprise not tied directly to value creation, suggesting a rethink in how IT is delivered.

ππ As we transform from industrial work more easily and efficiently done by robots to creative and knowl-edge work leveraging humans, we are balancing the values of scale and efficiency (industrial work) with the need for agility and efficacy (creative and knowledge work). This means that transactional systems that ensured security, encouraged conformance, and drove operational goals of predictability and pro-ductivity lose value to new systems of collaboration, transparency and agility.

ππ The nature of economics is transforming as complexity science and behavioral science provide valuable insights about how value is created, markets work and buyers think. The nature of value that is momen-tarily created and quickly perishes in turn drives the new economics as it diverges from classical ideas of value chains. As a consequence, the boundaries between customers, suppliers, partners, staff, contrac-tors, channels and even competitors begin to diminish and even disappear, creating a whole new user community for enterprise IT systems.

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ππ All these ideas are drastically changing how we organize to accomplish the necessary work and in turn, how we manage those organizational structures and resources. This suggests closer to unique, highly focused niched application systems with integration of information and systems across organizational and agent boundaries—no IT system is an island.

HOW THIS AFFECTS THE CIO AND ENTERPRISE IT:

All this is changing the role of the CIO before our very eyes. Not only are there new systems, business and delivery models, types of information, technologies, etc., but also whole new roles for IT in the enterprise’s ecosystem. These new business insights, tied to the emergence of new technologies, are creating an oppor-tunity for IT to lead business transformational efforts, creating new business models, initiating new business processes and making the enterprise agile in this challenging economic environment.

Leveraging that change requires starting with a conversation that CIOs, CEOs and the other members of the C-suite should be having but aren’t. Here’s a start to that conversation.

In future pieces, I will explore the dramatic business changes and challenges that are affecting the C-suite and the role of the CIO; look at how innovation, as the only way to create long-term profit, provides a solution to these challenges; and outline the new conversation that CIOs should be having in the C-suite.

How CIOs Can Keep in Step with CEOsBY JIM STIKELEATHER

We know there’s dissonance between corporate IT and the C-suite. New research, conducted with Harvard Business Review, The Economist, CEB and TNS Global, reveals that CEOs believe CIOs are not in sync with the new issues CEOs are facing. CEOs also tell us that CIOs do not understand where the business needs to go and how IT should support strategic goals. The dissonance is due to the changes in the business world and the resulting second- and third-order effects on IT. CIOs need to be aware of these changes in order to keep in step with their business leaders:

1. Goods and services are becoming rapidly commoditized. The natural cycle of products through diminished economic frictions and supply/demand curves approaching equilibrium are causing decreasing margins, so executives desperately seek new ways to differentiate their company, products and services. But even though they know they must innovate in response, they don’t know how to do so in the complex global market.

2. Traditional products are simply becoming windows into information-based, services-delivered value. The value of a cell phone is more based on its app ecosystem than its function and features. Running shoes are differentiated by their sensors and supporting web analytics and user networks. 3-D printers email them-selves updates that they then print out for their users to install. Toys become total ecosystems of innovation, collaboration and adaptation.

3. Barriers to entry have been destroyed. The same diminished economic frictions, along with new busi-ness models, organizational structures and enabling technologies, have accelerated the appearance of new,

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unanticipated competitors with new value propositions or the old value propositions presented faster, better and/or cheaper. So business leaders relentlessly drive down costs to maintain share.

4. Value is becoming highly individuated. This is a consequence of introducing the horizontal enablement of social media, where value is a function of time, place, participants and other factors beyond the control of supplier individuals or organizations. Value is not just financial; it is also social and emotional. The transac-tion is less about money exchange than it is the co-created experience and engagement. Witness the “apps marketplaces” with apps that generate thousands of new, instantaneous value creation events and profits through collaboration (e.g., the “liking” on Facebook of a new restaurant may cause five friends to visit it for lunch that day).

5. The nature of competition is changing. With the evolution of cloud computing, even the smallest, least-funded organization in an out-of-the-way town can appear and deliver like the largest global entity. Today, I can have a new idea, sketch it out using world-class design software via the cloud, find and route it to the best possible prototype manufacturer anywhere in the world who will produce it using 3-D printers, and have it delivered to my door via FedEx. If it turns out the idea has legs, I can do everything from crowdsource busi-ness plans to turn my customers into a superior support organization through companies with self-service web sites—from the comfort of my desk and with my personal credit card. The companies enabling these capabilities, such as InnoCentive, Tongal, 99designs, TopCoder and Kickstarter, are being used by organiza-tions large and small. This is great for the consumers of world: Any need or demand can and will be met faster than ever. It is challenging, to say the least, to existing enterprises.

6. The nature of the workforce and management is shifting. The business and economic landscape has shifted from industrialization and its focus on reliability, predictability, discipline, alignment, control, repeti-tion, scale and efficiency, to value creation and its focus on originality, adaptability, innovation, engage-ment, collaboration and efficacy. As a result, the nature of work and the workforce is changing. Many of our assumptions about what motivates and dissuades people are wrong—especially when knowledge, creativity and innovation are desired. Management is trying to adapt to these new realities of the workforce.

OUTCOMES

As a reaction to these business changes, the enterprise is beginning to respond in a number of ways:

1. Outsourcing services. We are at the early stages of seeing large organizations outsource specific services such as HR, accounting, payroll and IT support while breaking themselves up into smaller, more agile enterprises to address specific markets, geographies or customers. Interestingly, even employees are starting to pursue this path, preferring to be independent and focused on delivering value rather than feeding an organizational structure.

2. More partnerships. We are starting to see more relationships among organizations (and even among competitors) in order to better serve customers. Think of the interesting ecosystem among Apple, Google, Amazon, Yahoo and even Microsoft with their mobility businesses, apps and services sharing each other’s capabilities in order to better engage and serve customers. It is better to be highly focused and utilize other highly focused firms (even your competitors and other customers) to service your customers’ needs rather

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than to try and do it all yourself. Otherwise, you lose flexibility, agility and adaptability and even scale economics begin to reverse. Finding other enterprises that can add value to my value (and vice versa) is the key to responsiveness, individualization and meeting the market’s needs in the moment.

3. A focus on customers. Organizations are starting to realize that they should zero in on what creates value for customers and what they are better at than anyone else, then become someone else’s customer for every-thing else. As Peter Drucker said, “There is nothing quite so useless, as doing with great efficiency, something that should not be done at all.”

4. Structural changes. Future successful enterprises will be socially enabled, and they will operate as digital business ecosystems—very different from the contemporary hierarchical, fixed, integrated, transactional structures of today. Both of these characteristics are necessarily, but not sufficiently, driven by the CIO.

CIOs must be aware of the changes in the business world and the enterprise, and how these changes are affect-ing the roles in the C-suite and their own leadership role. How we run companies today can best be described in a phrase I have heard many times from many sources: “Maximize efficiency by minimizing deviations from standard practices.” But to succeed in the new business environment, enterprises must be more than well-oiled machines; they must also be adaptive and innovative. How to get there is the next topic.

The Metamorphosis of the CIOBY JIM STIKELEATHER

As we all know, the very nature of the enterprise is changing. This is the result of the rapid shifts that have been occurring in the business world over the last few years—the commoditization of goods and services, the individuation of value, the transformation of the workforce—that I discussed in my previous blog post. In order to keep up with these changes and to succeed, future enterprises will need to have three clear charac-teristics: They will be socially enabled; they will operate as digital business ecosystems, offering innovative services and products as rapidly and inexpensively as possible; and they will view innovation not as an optional advantage, but as the only advantage.

This is very different from the way large businesses have operated for decades. Originally, business consisted of neighbors exchanging the products of their labors, dedicated craftsmen traveling from town to town and localized general stores. Eventually, businesses became department stores, specialty stores and malls, and finally today’s e-businesses and networked organizations that support them. Traditionally, they have been hierarchical, fixed, integrated, transaction-based and risk averse. Only a small percentage came up with anything that was truly innovative.

Tomorrow’s businesses will have a very different makeup, and the CIO must lead the charge in the face of these changes. As Erik Brynjolfsson said, to succeed in the future, “we must reinvent our organizations and our whole economic system.”

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WHAT DOES IT MEAN TO BE A SOCIALLY ENABLED ENTERPRISE?

Companies comprise business units, work groups, communities of practice, and alliances with sup-pliers, partners and customers. The role of management can be broadly thought of as the processes that tie these components together to produce value. Until now, the goal has been to standardize and optimize transactions among these components to reduce costs and achieve efficiency. Most of these benefits have been achieved.

Now, management needs to focus on enabling and optimizing the connection, communication and col-laboration among employees, customers and partners. As those new dynamic business networks form (and dissolve), management moves from trying to plan and direct them toward preparing and mentoring them on the challenges the business faces; from trying to staff and control them to engaging their participants and framing their interactions; and trying to impose structure and authority to encouraging activity and direc-tion to emerge.

This will lead to new business models, new processes, more meaningful business interactions, innovation, improved and faster decision making, and a more agile organization. Companies that fail to facilitate these interactions will stagnate with old processes and strategies and eventually fail.

WHAT DOES IT MEAN TO OPERATE IN A DIGITAL BUSINESS ECOSYSTEM?

A digital ecosystem is a business community of organizations and individuals transacting across a distrib-uted, adaptive, open, social, technical system with collaboration, transparency, constant evolution, self-organization, scalability and sustainability. This is not a new idea. Each participant focuses on its customers (including members of the ecosystem) and what it does best while distributing all other enterprise activities dynamically and fully to other participants, in order to deliver value to each other’s customers with rapidity and agility. In the same way that markets have always outperformed command economies, the transactional efficiencies possibly lost are more than made up for by the ecosystem’s value effectiveness.

Digital business ecosystems dynamically create and operate value chains that extend their participants’ markets. This allows the smallest of firms to compete globally with the largest of firms. The European Com-mission believes that digital business ecosystems are critical to Europe’s future competitive ability and the key to realizing “this promise of fostering the development of those technologies, systems, applications and services that are critical to achieving higher growth, more and better jobs, and greater social inclusion.” Also, the concept of digital business ecosystems has drawn more academic business, economics, process, scien-tific, mathematic, systems theory and engineering attention than has any other business idea.

WHAT DOES IT MEAN TO VIEW INNOVATION AS THE ONLY COMPETITIVE ADVANTAGE?

The nature of competition is changing. With the evolution of cloud computing, even the smallest, least-funded organization in an out-of-the-way town can appear and deliver like the largest. Any need or demand can and will be met faster than ever. Traditional economic frictions and barriers to market entry are disappearing. The downplayed downside of this convenience is that there is usually no long-term profit from such ventures.

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When enterprise value propositions are racing to the bottom, commoditization and the limits of efficiency-driven margins, there is one form of profit left: monopoly profits. Those come at moments in time when you have an offering that no one else has—a unique value proposition. Such propositions come from innovation. This is why innovation is so important and takes up so much room in press and annual reports. Innovation is the key to the future—innovation in business models, business processes, and products and services. Only innovation can break the chains of commoditization that a global and frictionless economy encourages. Innovation is the only insurance against irrelevance. It’s the only antidote to margin-crushing competition, the only hope for outperforming the economy, and the only way to truly amaze and delight your customers.

The Rise of the CIOBY JIM STIKELEATHER

CEOs don’t think CIOs understand the business and how to apply IT in new ways to benefit the business. CIOs must become aware of the changes in the business world and the enterprise and how these changes are affecting the roles in the C-suite and their own leadership role. They must then help lead the enterprise’s evolution to a socially enabled environment and a digital business ecosystem and provide the platform upon which innovation is encouraged, nurtured and manifested.

But CIOs also need to not get caught up in the technology trap. Changing technology alone will not cause the changes discussed here; changing management will. The CIO’s role becomes one of helping management change by supplying vision, direction and supporting technology. Gary Hamel asserts that management innovation is the critical component and starting point for all innovation—in terms of operations, technol-ogy, product, strategy, etc. He also identifies many validating examples, including the history of consistent military competitive advantage: the ability to break with the past and imagine new ways of motivating, staffing, training and deploying warriors. The key is not size, scale, technology, tactics or strategy—though each provides transient advantage for a short time. Adaptable, agile management above all sustains competi-tive advantage.

The contribution of CIOs to all this is to rise up and enable, facilitate and accelerate its uptake by their organization. It is the CIO who is the one person in the organization to best understand how it operates, since every transaction passed through his or her systems. It is the CIO who best understands where the technol-ogy is going and how it can be applied, both to develop new methods for generating existing value and to revitalize old methods to generate new value. Therefore, it is the CIO who should guide and mentor the rest of the organization into its 21st-century model. In the last post of this series, I will explore how exactly the CIO should begin this process.

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Three Ways CIOs Can Connect with the C-SuiteBY JIM STIKELEATHER

There is a marked dissonance between CIOs and the C-suite—a fact that we uncovered in new research con-ducted with Harvard Business Review, The Economist, CEB and TNS Global. We have identified the problem, which is that CEOs believe that the CIO does not understand or help with the CEO’s issues and the needs of the business. We have explored the dramatic business changes that have contributed to this dissonance, and we have described how the enterprise is adapting in order to keep up with the changes. Now, I’d like to address the solution to the problem by providing three simple steps CIOs can take to begin repairing the dissonance between business and IT and guiding their organizations into the 21st century.

1. FIND YOUR VOICE IN THE C-SUITE

To put it simply, CIOs are not engaged in the strategic decision making that goes on at the executive level. Only 46 percent of CEOs think their CIOs understand the business. To be fair to the CIO, CEOs have created this problem by emphasizing efficiency and cost-cutting over value creation. However, time and time again, statistics show that CIO and C-suite alignment drives financial success. Economic performance for organiza-tions whose CIOs were part of the overall development of strategy outpaced that of other organizations by a scale of two to one as discovered in our Economist and Harvard Business Review studies. It is clear that CIOs must lead their organizations in discovering and then providing balance between efficiency and efficacy.

Increasingly, the CIO and IT must be seen less as merely developing and deploying technology, and more as a source of innovation and transformation that deliver business value, leveraging technology instead of directly delivering it. In the end, the CIO must be responsible if technology enables, facilitates or accelerates competition that the C-suite didn’t see coming or allows the enterprise to miss opportunities because the C-suite did not understand the possibilities technology offered.

CIOs must be an integral and vocal part of conversations on new ventures and resource allocation. The role and effect of technology should be a part of conversations on business decisions, and the CIO should have a pertinent and relevant point of view. To that end, the role of the CIO must be strategic instead of tactical.

2. DEFINE YOUR STRATEGY

CIOs need to develop an affirmative IT strategy that begins by identifying old behaviors to give up, new behaviors to adopt and remaining behaviors to do differently. This means a lot of change for enterprise IT organizations. CIOs will need to free up time and resources currently dedicated to traditional IT respon-sibilities—delivering transactions, infrastructure, technology and code—to focus more on facilitating and accelerating collaboration; choreography; orchestration; and the provisioning, management, monitoring and securing of services. These are the things that will create more value for the customer and enable the enterprise’s agility.

If you are a CIO, the starting point is to begin to standardize what you do. Decide what you should be doing—those things that create value for your customers, that give you a differentiating capability or that you can do

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better than anyone else—and begin to modernize them in preparation for the evolving capabilities of IT. As for everything else, either quit doing it or find someone else to do it for you.

Begin doing things differently, simplifying to make sure there is one place to get things done. Whether it is virtual or physical, there should be only one version of truth. Begin preparing for the inevitable adoption of cloud technology—virtualize everything you can, and for those things you cannot, figure out why and start making the changes to eliminate those obstacles. Extend the concepts of virtual and cloud to business processes and business models in anticipation of the future digital business ecosystems and the socially enabled enterprise.

Then, decide which tasks need to be done manually vs. automatically. Future value comes from the collabo-ration and creativity of people in solving problems or realizing opportunities. If the work to be done requires neither of these, then automate it.

Finally, resources and customers should not be constrained by dependence on others to be able to do their work. Organizations operate 7x24x52, work is done across organizational boundaries, and value creation is more a function of the right people, resources and ideas coming together at the right time and in the right place. Consequently, self-service and on-demand should always be a first-order design principle for any IT offering in the future. Get IT out of the way of the immediate, serendipitous opportunities that arise to create value, solve a problem or service a customer.

3. CHANGE THE CONVERSATION IN THE C-SUITE

As new business models take shape via technology advances, older ones will wither and companies’ abilities to survive will rest on their capacity to adapt or think outside the box. CIOs must lead the charge in getting other executives to understand that the game has changed and explore strategies and tactics to win it and keep pace with global market changes.

Every time the C-suite decides to start a new venture—whether it’s business- or IT-related—the CIO needs to ask three major questions:

ππ Does it create value for the customer?

ππ Are we required to do it for legal or regulatory reasons?

ππ Are we the best in the world at it?

Only if at least one of these questions is answered “yes,” should it even be considered for action. If no answer is yes, then find a partner in your ecosystem to do it for you. Or maybe it doesn’t really need to be done.

Then, much as the IT strategy was developed, ask the members of the C-suite to identify old behaviors to give up, new behaviors to adopt and behaviors to do differently. This will also mean dramatic change for the enterprise, but old strategies and processes that were time-consuming and didn’t create value need to be automated, outsourced or eliminated to make room for new strategies and processes that encourage collaboration, innovation and value for the customer. Gary Hamel maintains that the key to future success is management innovation. It has to come before technology innovation, product innovation, operational innovation and all the other areas where we eventually must innovate. It is the CIO, who knows both the

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business and the technology, who should best understand what, where and how technology can enable, facilitate and accelerate management innovation and therefore lead the enterprise in its pursuit.

In a time of increasing business and economic change, the role of the CIO and IT is changing in exciting ways. As Seth Godin has said, “Change almost never fails because it’s too early. It almost always fails because it’s too late.” The time to get ready for that change is now.

Advice for CIOs on Changing the ConversationBY JIM STIKELEATHER

We’ve heard the sobering statistics about how CEOs view CIOs and the job they’re doing. A few of us tackled this thorny issue in a webinar sponsored by Harvard Business Review, Dell and CIO.com called “Change the Conversation, Change the Game.” It was an enlightening conversation with business strategy guru Gary Hamel, Newport News Shipbuilding’s CIO Leni Kaufman and Walgreens’ CIO Tim Theriault, with Harvard Business Review editor Angelia Herrin moderating. The entire webinar is worth watching for its many golden nuggets, but here are a few key takeaways on what CIOs need to be doing differently to meet this brave new world in which IT can no longer afford to be just a service provider.

Don’t talk IT. Talk business. As Leni Kaufman noted: “I think often people come into a conference room, they come into a meeting, and then they talk IT. Well, don’t talk IT. Talk business. Talk about the goals of the company, the growth plan, the projection it’s on, how you’re going to improve profitability, talk about what the government is funding, what’s happening with sequestration. Be part of that conversation, and then you become part of what is on the CEO’s mind. You have to do the job that you’re there to do, but really make it much bigger, much broader than that.”

Talent management is critically important. “You need to make sure that your people, in your next line of the reporting structure, are absolutely top talent that can carry the agenda forward,” said Tim Theriault. “I want to spend more of my time on continuous improvement and innovation. So the good news is it represents more opportunity for others—people who want to be CIOs someday. I get to focus on the things that really align to the CEO, but at the same time I have to make sure the IT agenda is being carried out exceptionally well. You absolutely are still responsible. So your reliance on talent management is critically important.”

Be a compassionate contrarian. “What does it mean to be a leader in this kind of environment today?” asked Gary Hamel. “Beyond all the technical skills, for me there are three things that are really critical. One is, you have to be a contrarian in your heart. You have to be able to look at what everybody else takes for granted and ask, ‘Is there another way of doing this?’ Number two, you have to have a lot of courage today. You have to be able to look beyond what everybody else takes as best practice. And I think the third and most important thing is, if you really want to be a change leader, you have to have compassion. This is not about IT; it’s not even just about the business. It’s about working from the customer backward. And when people understand that that’s who I’m here for, and that’s my ultimate reference point, , people will give you enormous amounts of runway to try things, to take risks, to experiment. I think that that contrarian heart and that compassionate spirit, that courage, those are huge multipliers for anybody today who’s trying to be a leader in this chaotic world we’re in.”

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Hamel said the CIO faces three dilemmas. “First, I need to help the CEO figure out how to reorganize the company—not that he’s going to specifically ask you that, but what are the technology capabilities and potentialities that can be used to create management innovation?” Hamel said.” Sometimes when you think innovation, you think products and services, but the reality we should think about management innovation.” CIOs, who have developed great strength in creating efficiency now have to focus on how to use technology to create a true value proposition, he said. “We’ve been so good at efficiency, now we have to move efficacy,” Hamel said. “How are we going to do that? How are we going to integrate information into our products and services? And by the way, we do have to keep the lights on. So hoow can the CIO do all these things at once? The answer is you can’t.

“You’ve got to start prioritizing. The CIO needs to step up and become the mentor to the organization, because you should understand how the business operates. You also understand the potentials and threat of the technologies, and you can act as the mentor in the C-suite on the change that’s coming at us. Because it’s coming, and it’s whether you’re going to change catastrophically or whether you’re going to transform. It’s really the choice you’re facing.”

My view is that the CIO is facing three dilemmas. One, I need to help the CEO figure out how to reorganize the company—not that he’s going to specifically ask you that, but what are the technology capabilities and potentialities that can be used to create management innovation? Sometimes when you think innova-tion, you think products and services, but the reality is management innovation. The other piece of it is, how am I going to use technology to create the true value proposition, because we have been so good at the efficiency gain that drew all of us into commoditization. Everything is a commodity now. Because we have been so good at this, at efficiency, now we have to move efficacy. How are we going to do that? How are we going to integrate information into our products and services? And for the entire time, by the way, we do have to keep the lights on. How can the CIO do all these things at once? The answer is you can’t. You’ve got to start prioritizing. The CIO needs to step up and become the mentor to the organiza-tion, because you should understand how the business operates. You also understand the potentials and threat of the technologies, and you can act as the mentor in the C-suite on the change that’s coming at us. Because it’s coming, and it’s whether you’re going to change catastrophically or whether you’re going to transform. It’s really the choice you’re facing.

ABOUT JIM STIKELEATHER

Jim Stikeleather serves as Executive Strategist, Innovation for Dell Services, the IT services arm

of Dell, where he leads a team of information technology and business experts who identify,

evaluate and assess the potential of new technologies, business models and processes to

address evolving business, economic and social trends.

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Notes

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