Imagine a juggler with 20 balls in the air, balanced on one leg, and beset on all sides by unreasonable people, each of whom desperately wants to add just one more ball to the mix. And the juggler has only two words in their vocabulary when asked to explain if one more ball is even possible: “Yes, but…”

Such is the bane of the chief information officer (CIO) in the age of digital transformation. No wonder they are so popular.

After being deliberately shunned at the start of the digital revolution, CIOs are finally being dealt back into the main game, and new research suggests those that do it well are making their businesses much more profitable.

What just happened?

The emergence of cloud-based software as service solutions (Saas) initially allowed business managers in disciplines like sales or HR to circumvent the usual company processes around buying IT. Likewise, Gartner famously predicted CMOs would spend more on IT than their IT colleagues by 2016 — which was all the encouragement CMOs needed to do just that.

While the jury is out on how well that little experiment ended, there is no doubt the rise of shadow IT — spending on technology outside of the regular IT budget — has been increasing for at least two decades. It started with PCs, and exploded with the web. Then came the cloud.

Most importantly, buying software as a service kept the implementations free from the gravity of the dreaded IT queue, that mythical and endless blackhole of priorities which for managers everywhere always seem to outrank their own, and which never seems to shrink.

SaaS products also felt much cheaper and they were certainly faster to implement than traditional IT projects. And as an added bonus the costs could be operationalised, which otherwise might mean boiling the ocean for months writing lengthy CapEx business plans.

But there were two big problems caused by excluding IT from digital initiatives.

Oh damn, security

First, it turns out all those IT managers had sound reasons for wanting to insert themselves into the process — as anyone who has ever had their personal data stolen or their email account hacked will understand.

And second, with IT relegated to business-as-usual, digital skills failed to take hold in the technological core of the enterprise. 

But as businesses increasingly offer digital products and services to improve customer experiences, and turn to data for insights, the need to build and secure, integrated technology architectures that all hang seamlessly together has sparked a rethink of the role of IT and of the skills required inside IT departments.

Now, new research from MIT Center for Information Systems Research (MIT CISR) demonstrates in very material terms why this matters.

It turns out that companies with digitally savvy IT departments are 26 per cent more profitable than their competitors.

The results, contained in the study “In The Digital Era, Digital Savvy IT Units Pay Off’, are taken from 1,000 CIOs who participated in the Harvey Nash/KPMG CIO Survey, and who provided additional information including company name.

Stephanie Woerner, Research Scientist for MIT CISR

Research co-author Stephanie L. Woerner told Which-50 there are four areas driving digitally-minded IT departments which impact profitability: two that lower costs (building digital discipline and delivering operational efficiencies) and two that encourage a focus on innovation (advising the executive team on strategy and focusing on customer engagement) which in turn help drive revenue.

Woerner describes a digitally savvy IT department as one which can deliver great services and is engaged with the overall business strategy.

“An IT unit is digitally savvy when it is an integral part of how the entire enterprise develops and delivers a great digital vision — providing both leadership and digital services. Digitally savvy IT units have great leaders,” Woerner said.

“Rather than being an ‘order taker’, the IT department has an ongoing conversation with the business about what is possible with digital and helps the business prioritise and implement what it needs to do.”

According to Woerner, digitally savvy IT controls more of the IT spending, “directing it toward enterprise capabilities that enable innovation consistent with the enterprise strategy.”

The digital discussion

“Many forces are driving the shift toward bringing digital projects back under the purview of the IT unit — not completely back in — but more balanced,” Woerner said.

The necessity for secure, interoperable systems is one key reason.

“Doing digital well demands integration; customers expect a seamless experience and that is difficult to deliver without integration. And all projects have to be designed from the ground up with privacy and security compliance in mind. It’s much harder and more costly to layer them in after the fact.”

“IT units are experts in enterprise architecture and that’s where decisions about privacy and security have to be made. IT units also help with reuse — for example providing an API that says “who is this customer”. This  not only speeds up time-to-market but also reduces cost.”

Hilda Clune was formerly the business transformation leader and CIO at PwC Australia and is now the Technology and Transformation Leader at PwC Global. She says technology teams today are more focused on integration, developing the user experience and helping to lift the digital skills within the business.

Clune says business units will continue to drive the selection of Saas technologies, but IT will continue to help the business select the right technologies and get value out of the investment.

Hilda Clune, Technology and Transformation Leader at PwC Global

“[For example], Human Resources will drive the adoption of Workday or marketing will drive the adoption of Salesforce. The role of technology is becoming less about building tech infrastructure and much more about integration and adoption.”

According to Clune, “The role of IT in a company is more about brokering the right services for the business rather than building the right services for a business.”

The move to the cloud is changing the work involved in delivering those projects.

“The role of IT is absolutely changing at a time when technology decisions are being made much more quickly and much more frequently.”

“Technology is much more accessible and the business is much more reliant on technology to differentiate and lead in the market,” Clune said.

Of course, the role of the CIO or technology leader varies from company to company. At West Australian mining company Roy Hill technology is integrated into the business operations.

Rebbecca Kerr, General Manager Technology at Roy Mill, describes the company — which exported its first shipment of ore in December 2015 — as a “digital mining business.”

“We are a new business so we’ve been technology-enabled from the beginning. To be able to build on that technology and make sure we maximise the value from that spend means that the technology [department] has to be part of that decision making,” Kerr told Which-50.

“If people go and buy their own technology or their own software, we usually come undone pretty quickly because the key for us is about the flow of data from the beginning of the process to the end of the process.”

Technology plays a strategic partner role for the business, Kerr says, and a lot of the time that’s about making sure the business has  access to the data and the information they need to make the decisions.

Rebbecca Kerr, General Manager Technology, Roy Hill.

Roy Hill isn’t a development shop and prefers to buy its technology solutions off the shelf, Kerr said.

“That’s not where we think our differentiator is. We think our differentiator is in how we use the data, so we don’t necessarily need to develop programs from scratch,” Kerr said.

The main business focus for Kerr and her team is managing the mine’s operation costs. The company is constrained by the amount of iron ore it can ship annually — 55 million tonnes — so, with the exception of price fluctuations, there aren’t a lot of opportunities to impact revenue.

“The big focus for us is always making the most of the existing investments and then over the next one to three years we will look at driving optimisation around process and operations through automation,” Kerr said.

“The intent is that we automate key assets to improve productivity and safety, that we utilise data and integrated systems to deliver a coordinated and consistent approach to planning and execution of our operations.”

CMO meet CIO

One of the most prominent areas where technology has led to an overlap in responsibilities is marketing. CMOs have seen their technology budgets grow to comparable levels to that of the CIO. But, according to the analysts, increasingly the two c-suite positions need to work together.

Sheryl Pattek, VP, CMO Executive Partner at Forrester says CMOs and CIOs need to have a joint vision for customers.

Sheryl Pattek, VP, CMO Executive Partner at Forrester

“Technology use in marketing is here to stay, entwined together forever. It’s time for CMOs to understand how technology fits into the new marketing equation and lead efforts to implement the right technology solution for their organisations,” she said.

“And, it’s also time for CMOs to build and maintain a strong relationship with their CIO to lead this charge. At the end of the day, CMOs must achieve their marketing objectives, grow the business, and improve customer experience. And when it comes to that, technology is the key to the kingdom.”

CMOs that fail to work with IT will  miss key integration points, Pattek argues.

Governance over Shadow IT

US respondents in the Forrester Data Global Business Technographics Budgets Survey, 2016 outlined where decision making fell:

  •  32 per cent of firms’ total technology purchases were made by the business unit without IT involvement;
  • Of the remaining half of tech purchases made by IT, respondents indicated that 41 per cent was business-initiated spending that was purchased by IT, and 33 per cent was spending for which business provided significant input but was still purchased by IT;
  • Finally, 26 per cent was for items that IT purchased without significant business input.

According to Forrester’s Pattek, this trend continues to increase.

One senior IT leader who is not authorised to speak to media in their current role told Which-50 getting the balance right between centralised versus decentralised IT (and who owns the budget) has been a discussion point for many years.

“The risks/exposures around cybersecurity are causing a rethink however of how to manage the expectations of more decentralised and empowered customer-focused business units which create better customer experiences, whilst potential increasing the risk of data exposures which inevitably lead to reputation and trust issues,” the executive said.

MIT’s Woerner meanwhile identified three types of governance approaches companies used when it comes to managing and acquiring technology.

The first is a consolidated approach that brings almost of all of the investments and decisions under one person and group.

At the other end of the spectrum is letting business units freely innovate and only providing standards in a few key areas like privacy, security and data.

“Both of these approaches work but it can be difficult to balance the need for integration with the need for innovation,” Woerner said.

The most common governance model was a coordinated approach, one with standards for privacy, security and data, along with some shared services, and a focus on reuse and integration.

“Coordination allows business units to make investments in technology with organisation-wide standards, using a variety of governance mechanisms like detailed technology road maps, and decision-making committees with members from across the enterprise. Leaders across the enterprise have to be involved in the committees that are making decisions on the standards and the investments or those decisions won’t be seen as having any weight. Those committees are integral to creating cost savings and speed of reuse.”

CIO: still room to grow

The MIT research argues there is still room to improve the strategic impact of CIOs. One thing that’s holding them back, Woerner argues, is how their colleagues view their role.

Woerner suggested several steps CIOs can take to change the reputation of the role internally.

“CIOs must first make sure that the services part of the CIO job run smoothly, by developing and mentoring staff and providing a dashboard of digital services for all to see,” Woerner recommends.

“Then the CIO can begin take more strategic actions. One is to increase time spent with external customers.”

Woerner argues CIOs who understand the needs of customers can bring that information back to the business to amplify the voice of the customer and improve CX.

Another way is to work closely with business units on their digital projects or to make innovation a core responsibility and identify startups that can bring needed skills and services to the business, Woerner said.

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