Keep a seat for the CIO at the executive table

A fundamental shift is taking place within organisations in the orchestration of enterprise information technology (IT) – it’s catalysed in part by subscription services or cloud computing and the “consumerisation” of technology.

Few successful IT departments today exist in splendid isolation, dispensing solutions from on high. For years IT departments have stressed the importance of strong alliances with other business units to achieve a better strategic fit between technology and business process. The need for this tight integration is being accelerated by the advent of cloud computing and consumerisation.

Previously, if business users did not like the systems served up by the IT division, there was little they could do apart from sack the CIO and start again. Today business users can use their own technology and buy access to cloud-based services, in some cases bypassing the IT department entirely.

A gauge of the spread of these trends came from the global survey of 700 CIOs carried out by software company Citrix in 2011, which found that 28% of workers were already using their home computers for work-related functions. In a survey of international financial institutions – arguably the most conservative private sector organisations regarding “the cloud” – IT analyst Gartner found that only 5% were using software as a service today, but predicted that figure will surge to 38% within three years.

Chief information officers the world over are grappling with such trends. It is their responsibility, as stewards of corporate information and the technology that supports it, to influence the CEO’s thinking about future business strategies. They not only have the vantage point to examine how internal business processes may be reformed by technology – but how technology can shift an entire sector on its axis.

It’s these second-order effects of technology that CIOs need to identify and make clear to CEOs and board members so they can plot their future course. Simultaneously, CIOs need to forge and maintain close alliances with the business and their C-suite peers to encourage them to embrace the new processes or systems that technology permits. They also need to orchestrate access to a robust and well-governed IT fabric that’s capable of accommodating emerging trends such as consumer devices in the workplace and the rise of cloud computing.

A research project involving the Australian School of Business (ASB), Massachusetts Institute of Technology (MIT) and Australian energy giant AGL is examining how – given these shifting conditions – IT can integrate optimally with the broader business. Peter Reynolds, an ASB alumnus and now a research scientist with the MIT Sloan Center for Information Systems Research, believes it is critical for the enterprise CIO to have a seat at the management table. “The issue is whether the CIO has influence over the corporate strategy to develop the executive team’s shared view of how IT will be used across the organisation to compete,” he says.

While it’s desirable for the CIO to report to the CEO, it need not always be the case. Where the CIO does not report to the CEO this may be about limiting the direct reports to the CEO or to achieve tighter integration of operations and IT functions. Reynolds says there are many successful models where CIOs report to the chief financial officer or chief operating officer. In the US an increasingly popular role is that of chief administration officer who may have oversight of the IT, finance, human resources and property functions. “In the best organisations, the line between business and IT hardly matters. They have clear and shared understanding; clear and shared methodology,” notes Reynolds.

There is also recognition that an enterprise IT department will likely not create all the IT solutions – instead turning to the cloud and strategic sourcing for at least some of its systems.

But not all roles can be outsourced, offshored or handled by a cloud vendor, and it’s important companies determine the most logical location for those skills. “Do you take the skills for business analytics, data management and architecture into the IT group or into the business structure? It comes down to choice and company culture,” says Reynolds.

AGL chief information officer Owen Coppage benefits from extensive sectoral knowledge. Deep understanding of how the business works is an important asset in a sector as complex as energy, he acknowledges, but he is also keenly aware of the cultural shifts taking place.

High-energy change

The energy sector is facing profound change, in part due to the Australian government’s recent introduction of a carbon tax. Coppage understands that there is no part of AGL – with the possible exception of the upstream gas production team – that can achieve its ambitions without “a partnership with technology organisers”. “And I mean organisers – not creators or providers but organisers of technology who are able to identify through partners how technology can move the business forward,” says Coppage, who has a seat at the executive table and is a direct report to AGL’s CEO Michael Fraser. He believes that only about one in three of his CIO peers enjoys that situation.

“However, there’s the potential for that to change quite quickly if the value that technology brings to a business is recognised,” Coppage says. “It depends on what business you run. Our business is all about data and information to make decisions – fuel decisions upstream or to engage with customers – it’s all on the basis of data and information. You need good governance, good data frameworks and to have the stability and performance of underlying systems. The critical success factor for anything that happens in the future is having a robust and flexible digital platform.”

Chief executives who understand their business also understand that the enablement of business strategy and delivery almost entirely depends on technology – and, of course, people, says Coppage. However, the sell regarding technology’s strategic importance can be harder to C-level peers, some of whom remain unconvinced about the fundamental importance of technology, he observes. It seems some business executives would still prefer their IT locked away in white rooms, and are uncomfortable that it now percolates so freely into the business.

In some organisations – those that have embraced Agile methods, for example – IT/business boundaries have been totally demolished. Agile avoids the traditional “waterfall” approach to IT development that follows a rigid process of concept, analysis, design, construction, testing and maintenance. Instead, Agile brings together IT professionals and business people to sketch out rough parameters for a system, and then build prototypes that can be quickly refined or junked. In Australia, the financial sector’s Suncorp is the poster child for Agile development, and cross-disciplinary teams built from business and IT are today considered the norm.

Beyond the obvious

Whatever approach enterprises take to systems architecture and development, it is important they look beyond the obvious implications of how they develop and harness technology, emphasises Alan Thorogood, senior visiting fellow in Strategy and Entrepreneurship at the Australian School of Business and course leader for IT strategy in the Australian Graduate School of Management’s MBA programs. Thorogood believes organisations must consider the second-order ramifications both for their own business and more broadly across the economy.

“We all want iPads, but what does that mean for book publishing, education and other new industries? IT transforms the way organisations perform. I think you need to think big picture about how you can democratise the workforce and automate existing processing to drive down costs, increase productivity and improve scalability,” says Thorogood. “Widespread access to up-to-date information for executives and managers is also key to improving decision-making.”

Developing a technical fabric to support that is critical and that role still seems to fall more naturally to the CIO than the business. “There is the strategic investment where you deliver strategic benefits and the infrastructure investment, which can be technology with no clear benefit in itself,” argues Thorogood. “Without that infrastructure investment, however, the higher-order benefits are unlikely and CIOs need to clearly articulate that to senior management.”

It remains critical that the IT infrastructure takes account of, and supports, business processes. While it may be acceptable to have an AGL salesperson use their personal device to show a marketing application in the cloud, says Thorogood, “AGL field workers who are opening and closing switches in the field also need to have a system controller who can see the whole circuit and what’s energised. This creates a hierarchy and the IT needs to align with that hierarchy.”

Entrenched hierarchies need to be challenged if an organisation is not to become moribund compared to nimbler peers. “There’s a whole stream of academic research into how organisations develop an IT strategy – the IT strategy often ends up developing the business strategy with IT as the catalyst for business transformations,” Thorogood reports. How that is achieved can still be quite messy though, particularly in sectors where an enterprise’s customers are taking a hand in shaping business strategy by communicating directly with businesses through social media, or involved in co-development of products. CIOs need to understand how technology and information flows are impacting the business, even if it’s at the very perimeter of the enterprise.

Thorogood outlines the labyrinthine nature of the challenge. “Project sponsors should be from the business but in practice they are often from IT,” he says. “IT people know how to run projects, and business people know how to run processes. So IT ends up executing the strategy.”

Thought leadership

AGL’s Owen Coppage understands the challenge and assumes the mantle of IT influencer by analysing technology’s influence and impact over the business and the sector, then convincing the CEO and his peers of the value that can be unleashed through the judicious application of technology. “You have to be able to deliver, to show value, be a thought leader and demonstrate opportunities for competitive advantage by leveraging the platform you have,” Coppage says. And that leveraging has to be across the business. “The marketing and sales people are driving the revenue side of the business and need to be as much in touch with technology and the opportunities as the CIO,” he says. “The CEO looks to me for thought leadership about direction and possibilities of technology about how IT can be used in our business.”

Coppage does not acknowledge boundaries around the IT role. He is just as likely to suggest a change to the way in which the retail business operates, underpinned by technology, as he is to suggest a change within the traditional confines of IT. And that includes understanding and leveraging the range of options that are available both inside and outside the organisation’s perimeters.

“We are an energy company – not an IT company,” says Coppage. “We need the right level of expertise to ask the appropriate questions but look to others to provide the IT capabilities. We work with a number of IT organisation partners – our organisation extends beyond the perimeter of AGL to those technology organisations. One of my core requirements is to create and maximise the value from those organisations-to be able to work through others and create relationships to mutual benefit is quite important.” AGL has engineered long-term relationships with vendors including SAP, Microsoft, TCS, Accenture, NSC and Telstra. Coppage believes the maximum benefit for both sides of the IT equation – supplier and buyer – comes when they are both convinced of the mutual benefits of a tight partnership sharing both the risks and reward.

The suppliers also need to understand the forces at play in the enterprise, such as Coppage’s plans to introduce iPads for directors, to allow some consumer devices to connect to the corporate network, and to roll out Microsoft’s Office 365 cloud solution during 2012. This demands that in concert with his suppliers, AGL puts a “digital platform in place that gives the flexibility and opportunity to try new things and present new tech to users or consumers”.

“The conversations that go on at executive team level around strategy more and more rely on the implementation or direction of technology,” notes Coppage. The challenge is not diminishing. “Technology is getting twice as fast and half the cost – and that keeps repeating itself. If you are a business and have not got the CIO at the executive table then, almost inevitably, you are having discussions that aren’t direct and the cycle times will be longer than they should be and you won’t be as efficient.”