I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

I work for ThoughtWorks, the global leader in software delivery and consulting.

Monday, February 27, 2012

Utilities, Strategic Investments, and the CIO

The Financial Times recently ran analysis and guest op-eds that sought to explain value in and from IT. One went as far as to challenge whether the corporate CIO has a future. Each is a new take on an old theme, echoing one part of the contradiction that has riddled every business with a captive technology department: we want to minimize how much we spend on IT, and we want IT to be a source of innovation.

In one camp are those arguing that IT has become largely irrelevant. Personal technology such as spreadsheets and smartphones empowers increasingly tech-savvy knowledge workers. The rise of renting over owning, such as outsourcing, IaaS, PaaS and SaaS, has commoditized IT services. Most IT dollars are spent on business as usual: maintenance and upgrades represent 70% or more of the annual IT budget. IT, the argument goes, is less a source of value and more a cost of doing business.

In the other camp are those arguing that IT remains a source of value, just as it has always been. The advent of mobile and social media allow firms to interact more directly, more frequently and more intimately with customers than ever. The rise of Big Data - the ability to store and analyze large volumes of structured and unstructured, internal and external data - promises to let companies react more nimbly than ever before. The advent of cloud computing untethers customers, employees and even algorithms from captive ecosystems.

There is merit in both arguments, but only so far as they go.

E-mail and ERP are not sources of competitive advantage. Nor is cloud computing. They are utilities that enable people to conduct business. These services are no different from tap water or electricity. A megabyte of cloud-based disk storage is no different from a kilowatt of electricity. A business is best served by minimizing the amount it spends on the consumption of each. It is disingenuous to ascribe "value" to these: business don't measure value or return on their electricity or tap water. Nor should they on a technology utility.

At the same time, firms invest in themselves through technology. Fashion magazines are launching electronic retail sites. Airlines are pursuing new revenue streams with captive in-flight technology. Apple is now in the greeting card business, Google in travel. Although at some point each makes use of utility services such as cloud computing and ERP systems, these are strategic competitive investments into the business. Treating them as utilities relegates them to being costs, starving them for investment and suppressing the innovative punch they should pack.

Both arguments are just the latest incarnation of the financial paradox posed by IT at least as far back as the 1980's: should corporate Information Systems departments (as they were called then) be a profit center or a cost center? As the FT articles make clear, that debate rages on.

What they all missed is the change that is already taking place in corporate technology leadership today.

More and more, we're seeing corporate eCommerce chiefs who are "digital asset investors", responsible for the digital strategy and assets of a business. He or she is responsible for a portfolio of technology investments made through software and digital media. The proto-eCommerce chief is business-fluent, financially aware and technology-savvy, concerned with organizational learning and adaptability, with the confidence to fail fast. Their success is measured in revenue and yield. They may also be responsible for a P&L.

This fell to the CIO during the tech bubble, when IT was going to "reinvent the business". Firms gorged on technology that, in the end, provided zero, and often negative, returns. This came to an abrupt end with the ensuing recession, and with it went the luster of business leadership for the CIO. But in the decade since, firms have discovered ways to make money from technology investments through advertising, merchandising, subscriptions and licensing. The margins on those activities make investments in digital assets attractive. Technology has subsequently re-emerged as a business leadership role, but equally (if not more) heavily weighted in business and finance than technology.

The CIO, meanwhile, is becoming a "digital platform provider". He or she is responsible for negotiating with different suppliers to obtain core operating services that meet service and performance agreements (availability, performance, response and resolution times, and the like), have suitable features for business operations, are highly secure, and are obtained at the minimum price possible. The proto-CIO is a strong technologist with vendor management and negotiating skills, with a steady-as-she-goes disposition. The CIO's success is measured in terms of "levels of dissatisfaction" - the absence of delays, drag and downtime - more than it is measured in levels of satisfaction.

No matter how ubiquitous utility services become, and how tech savvy the workforce becomes, it is naive to think that responsibility for obtaining utility technology services will simply disappear. Regardless of how it is obtained and maintained, this is the firm's digital platform, core to it conducting business, and with which most digital assets will interact. It will evolve: today's source of strategic advantage is tomorrow's utility, changing the digital facilities that sit at the core. Also, the needs and priorities will change over time: to the CIO, the minutia of cyber-security are more important and the details of the data center less important today than they were a decade ago. Those priorities will be different again a decade from now.

Organizationally, one is not subordinate to the other; they are peers. The two organizations work together, but not exclusively. The eCommerce chief is a customer of the CIO, particularly for utility services that strategic digital assets consume. But the eCommerce chief is most likely not sourcing development services from the CIO. eCommerce invests in digital applications that interact with the digital platform provided by the CIO. The skills and capabilities that define application development are not the same as those that define platform development.

Companies break-up all the time when the whole is less than the sum of the parts: Motorola into handset and network businesses, Kraft into snacks and grocery brands companies. This liberates value by managing each to respective strengths and distinct characteristics. A firm investing in digital assets should similarly separate that activity from utility IT to get maximum bang for its technology buck.

It is happening today. It is most evident among firms such as publishers and retailers caught up in a technology arms race. The trend is likely to spread as industries from commercial farming to transportation become dominated by software. That shift to software means the split may prove durable. If it does, it just might put paid to the persistent paradox of IT: it is both value and utility, only separately.