Estimating Risk
CIOs are well aware of need for fusion between business and technology strategy. Business strategy also decrees in large part when and how a company should innovate with regard to its information systems.
When it comes to estimating the risk associated with emerging technologies, CIOs need to be mindful of the business context in which those new technologies would be deployed, says Sauro Nicli, principal of McKinsey & Company's Singapore practice. "Think of bleeding edge, leading edge and mainstream technology and relate it to how it fits into the existing processes of the organisation. For example, phones are never bleeding edge because of the way they fit into the business framework. They are an extension of an existing matrix," he says, even if a phone itself incorporates pioneering technology.
Nicli also points to instances where bleeding edge technology is quite logical and easily implemented by one company, but difficult and risky for another. "For example, Dell uses absolutely bleeding edge technology and bleeding edge business processes. It was the first and the only one that could do it. HP is trying and is suffering, but it's using the same sort of technology and business processes [as Dell].
"The real trick," Nicli says, "is more or less related to the capability of the organisation to figure out whether adopting technology and business changes will make a big change in the organisation."
It is guru-speak for: Can your business handle it? Does your business need it?
Nicli offers an example in the pharmaceutical sector, where two companies, Novartis and Johnson & Johnson, are taking different approaches to gain a competitive edge. Novartis chooses to use technology to improve its complex modelling, allowing it to come up with more and more sophisticated products quicker. Johnson & Johnson, while in the same sector, focuses its technological innovation on sales force support technologies in order to realise its corporate strategy. Both are valid, but require radically different information systems innovations. Nicli says these different approaches dispel the notion that there is a single linear spectrum of technologies from bleeding edge to trailing behind, along which CIOs can simply pick a point where they are comfortable.
"A good CIO works with a heat map looking for the technology drivers that can help their business," Nicli says. "For BP, their heat map may be heavy toward exploration. They are the biggest spender on reservoir modelling and spend over $1 billion a year on that - but it's the jackpot for them. At Cisco they spend their money on order-to-cash processes. The CIO has the heat map and will apply technology to those elements of the heat map."
Corporate heat maps, however, do not exist in isolation from other realities, and as Cesare Tizi, CIO of electronic toll road developer Transurban, notes: "We are in a climate where the budgets we are given are for purely holding patterns." Nevertheless he sees it as a CIO's duty to continue to sell new technologies to the corporation, especially where those new technologies hold the promise of delivering more agile, more efficient information systems in the future.
"A lot of IT today is about point solutions that are intended to keep the cost down and match the timing of the business. The technologies as CIO that I'd love to invest in allow IT to be more flexible in matching demand," says Tizi, adding that the infrastructure of most businesses today makes information systems development too hard and too rigid, and takes too long.
Transurban is only three years old, and so has not built up too huge a population of point solution information systems. But Tizi still puts his arguments for a more flexible infrastructure to his board, and not always successfully. "It is still very hard," he says, "because boards are in a bit of a holding pattern. They say: 'Can we hold it back for another year?'"
Tizi acknowledges that now is not an ideal time to be canvassing for extra funds in order to re-engineer an enterprise's underlying information architecture. "There is no doubt that the economic situation makes it harder. The return on investment is harder to sell because the benefits are long term in the shape of business agility and flexibility and that is hard to sell. We also are still living with the nightmare of Y2K and the dotcom era. For example, we are still fixing up the systems that were installed to fix Y2K," he says.
Yet Tizi is adamant that CIOs cannot afford to continue investing in point solutions indefinitely. "If we carry on with point solutions then the costs pop out in IT operations. Where we have hundreds of point solutions, they are hard to manage; they go wrong easily and they are hard to fix.
"The CIO's job has to be to align the systems into a better platform and there is a big investment needed. It is a tough one, but we have to reach a point where we stop [with the point solutions] because the operational costs get high. Those hundreds of NT servers in different places are becoming a nightmare to maintain and we will turn around one day to find we have thousands of guys in IT operations," he says.
And the longer the situation is allowed to persist, the more difficult it will be to dismantle. "The real risk where an organisation has lots of point solutions and workarounds, is that to remove those and devolve to core applications is very hard," Tizi says.
For CIOs it's the innovation conundrum: there are limited funds, there is the need for a more innovative information platform to support the entire enterprise, there is an immediate need for systems to allow the business to innovate immediately, but there are risks mounting for the future if that need is satisfied with point solutions. Without careful consideration, innovation today in the form of point solutions threatens to suffocate a business's ability to innovate at some point in the future.
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