The CIO’s Dilemma

CIOs are facing a dilemma. On the one hand, they must innovate with technology to help their businesses grow again as we come out of the recession. On the other, because the recovery of 2010 will be slow and drawn out, they must continue to cut costs and focus on operational efficiency. In fact, 57% of executives surveyed by Accenture in November 2009 said that innovation and cost reduction are equally important to their company’s ability to achieve future growth.

The list of seemingly competing forces CIOs have to manage is long.
Cut costs                   Build new capabilities
Be more efficient         Be more responsive
Standardize                Customize
Be secure                   Be open
Make IT predictable     Make business agile
Execute flawlessly      Think strategically
Enterprise goals          Business unit goals

And the list goes on.

CIOs have always been faced with competing imperatives, but curent trends have increased the tension. Today it’s not a matter of shifting from one end of the spectrum to the other but of finding a way to do the things on both sides of the list.

Stuart McGuigan, CIO at CVS Caremark, was recently quoted as saying, “Part of creating change involves holding two incompatible ideas in your head at the same time and somehow still functioning. Being highly responsive to our business partners’ and customers’ needs and creating standardized processes and technology platforms can seem like conflicting goals, but doing both is key to maximizing value.”

While there are many levers companies can pull in their quest for profitable growth, IT is one of the most important. According to research by MIT CISR, firms that are IT Savvy are 20% more profitable than their competitors. This is because everything about business is becoming more digitized.

We’ve finally put to rest the question of does IT matter. The question now is how do you make it matter when everyone has access to the same tools? Competitive advantage comes from how well you use technology, and how quickly your business is able to respond to new opportunities.

At this year’s National Retail Federation conference, Rollin Ford, CIO at Wal-Mart, said, “There are very few secrets out there anymore [and by secrets, he was talking about technology secrets]. The only competitive advantage becomes speed. Organizations need to keep embracing innovation and new technology models. At the end of the day, it’s about getting from point A to point B quicker than everybody else.”

A big problem in the quest for speed is that many companies are weighed down by overly complex or outmoded systems that have been built up over the past 20-30 years. Businesses have built up system upon system, feature upon feature, until their infrastructure looks like a hoarder’s basement. There may be useful stuff down there – the furnace, the very foundation of the building, some tools. But try finding what you need when you need it. Most of it is rarely used and never will be.

No one wants to give up their pet systems, but it’s time to clean house. Companies just can’t afford to have multiple disjointed systems – both for cost reasons and because fragmented data is a lot less useful.

According to various surveys, the average company still spends 70% of its IT dollars on non-discretionary fixed costs. Just think if you could shift an additional 20% of that to new capabilities – and make your core systems better at the same time. The goal is not only to reduce fixed costs — but also to reduce operating complexities, making it easier to respond quickly as business conditions change.

Consider this: Companies that spend more of their IT budgets on new rather than sustaining efforts have notably higher revenue growth and net margins than their competitors, according to MIT CISR.

There’s a big gap between where companies are and where they want to be when it comes to leveraging information. 85% of Harvard Business Review subscribers surveyed recently said that information is a key strategic asset, yet only 36% said their organizations are well positioned to use information for growth – and only 7% said they are very well positioned to do so. Respondents blamed organizational silos, a lack of data integration, a lack of analytic skills, and outdated, overly complex information systems for their inability to make better use of information.

It’s not like CIOs don’t know there’s a problem, but optimizing IT, like laying any new infrastructure, takes money.  And money is scarce. The good news is that things are starting to thaw. CIO magazine’s most recent economic impact survey shows a big shift in budget direction — while 50% said their budgets were decreasing and only 14% said they were increasing as recently as May 2009, by December those numbers had almost flipped, with 40% increasing and only 28% decreasing. Of course, the size of the increases are still small — not enough to do a lot of new things unless you do a lot of things differently.

There’s really only one answer to the CIO’s dilemma: Simplification. Simplification of processes, standardization of information and technologies – and enabling innovation at the edge. Simplification is not necessarily easy – or cheap — but it’s not brain surgery, either. The practice of IT management is reaching maturity. We have the tools and techniques today to build effective digital platforms.

My presentation, The CIO’s Dilemma, has examples of what a robust yet simplified enterprise IT model might look like. In future posts I’ll drill into these and other examples.

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2 thoughts on “The CIO’s Dilemma

  1. Krista

    CIOs may feel constrained in their ability to achieve a balance of innovation and cost reduction. Technology infrastructure budgets tend to be flat; IT departments are doing more with fewer resources.

    Reply
    1. abbielundberg Post author

      Absolutely – that’s why it can’t be an either/or. CIOs have to innovate for cost reduction, among other things. I worked on a really interesting research project recently that showed companies that had been pursuing “good” efficiency are better positioned for growth than their counterparts. I’ll post a link to that here when it becomes public. Thanks for your note, Krista!

      Reply

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