Timing is Everything

Bleeding, leading and trailing edge technologies all have a part to play in the modern enterprise. But how does a CIO pick the right time to invest? The key to mastering innovation, say local experts, is to never fly too high without a safety net.

The number one recommendation from Australia's National Innovation Summit was for the nation to "develop a broad innovation culture in the community". It is the sort of motherhood statement that will not offend anyone bar the staunchest Luddite.

The 2000 Summit argued in favour of a closer alliance between industry, education and research and government in order to restore Australia's appetite for innovation, and hence its ability to compete internationally and prosper. Innovation, it argued, was the only way forward.

But is innovation always appropriate when it comes to information systems, especially in turbulent economic times? The IT vendors would certainly have us believe so, and past generations of killer apps have demonstrated there are payoffs for innovation. Yet Australian corporations at the pinnacle of their industry sectors operate mainframes running assembler code, suggesting there is no need for technological innovation for its own sake.

Derek Goh is the general manager of IT for Challenger Financial Services Group, which recently merged with CPH Investment, and he believes there are occasions when information systems innovation is essential, and other times when it is less appropriate. "Innovation itself is key in the financial services industry; but the landscape has changed," he says. "Seven or eight years ago the funds business was a growth business and you just went with the wave. Now it is more of a semi-matured business, and you have to be quite innovative to have a place in the market.

"You have to consider the business framework. When you are in a semi-mature business you will be dealing with legacy products where the key driver is offering service to the existing investor. You need to be efficient, but innovation is not that important. Then there will be growth areas where differentiation is the key, and finally there is future product where innovation is everything." Challenger, Goh says, operates in all three environments.

He adds that within this business framework it is important for the CIO to recognise the implications for not just the technology, but for the business processes and people as well. "When you structure your team and look at your capability to compete in this sort of environment, you need to deal in different mind-sets and you need the right people. A key challenge is to get good people to maintain all three systems. You have to make sure they have career development opportunities and transition paths."

Until November 2001, Goh was the general manager of IT for Colonial First State, eventually leaving to start a consulting practice. When Challenger appointed Chris Cuffe as chief executive, he personally approached Goh to take on the IT role for the business. Goh likens running a financial services company's IT shop to being commander-in-chief of a modern day military campaign.

"It's like the recent campaign in [Iraq] where you have an air, land and sea, all-in-one campaign; whereas in World War II these were all separate operations," says Goh. "Today [our effort] is coordinated. We have one campaign comprising legacy, growth and future systems; the management challenge is to make it move as a whole and maintain harmony." To achieve that, says Goh, demands a focus on the people. He believes he has a strong team, capable of helping Challenger quickly elevate its information systems capability, which he acknowledges is presently somewhat behind its major competition.

Goh believes there are three levels at which a financial institute can compete via its information systems. First, through its transaction capability and the efficiency at which it can run those systems; second, through information competition by use of data; and finally via knowledge-based competition, which is more about business intelligence. "Our goal is to move towards business intelligence competition," says Goh. Which, as the innovation statement suggests, will require an innovation culture to support it.

Ron Johnston is the executive director of the Australian Centre for Innovation and International Competitiveness, and he suspects that the level of innovation in each company is largely decreed by the competitive factors at play in specific industry sectors.

"First, innovation in information systems is very sector-specific and will vary between manufacturing and mining and services, for example. Beyond that there seems to be an effort to extract the maximum value from existing systems which leads to incremental advance. But for the companies that are marked by innovation there seems to be some capacity to develop new approaches.

"There was a BCA study 10 years ago that suggested businesses need to combine this sort of incremental innovation with step change," says Johnston, who believes that finding still holds true. However, he notes that today business is far more risk averse than it was a decade ago - in part because the risks themselves are greater thanks to higher levels of uncertainty regarding the business climate, and much shorter business cycles. "The variety of risk is much greater," he says.

In addition, there is a growing population of companies that had been prepared to accept risks and explore new opportunities, which then came unstuck in spectacular fashion. Johnston offers the example of the AMP's bold push into Europe, including the relocation of its global CIO to London, as a strategy that foundered. Naturally, other companies observe that experience and adjust their own strategy to be more risk-averse.

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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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Map the Gaps

Innovation is fundamental to a company such as Alcatel. In Australia it partners with universities on research and development, and this year opened a multimillion dollar communication solution centre in Sydney, which allows customers to trial new applications in a live but quarantined environment.

"You can't sell on slideware any more. There has been a bit of healthy cynicism, not just in the enterprises but also in the carriers. They all want to see it working before they sign up," says the company's chief executive, Ross Fowler.

Fowler delivered the Zunz Lecture at the University of Technology earlier this year tackling the issue of innovation. According to Fowler, when it comes to Alcatel's enterprise customers the reality today is that "no enterprise can afford to be working on the bleeding edge of technology". Rather, Fowler believes Alcatel's carrier customers should "explore at the bleeding edge with friendly customers". There are benefits to both parties, he says. Problems will be ironed out early, the trialling customer may get a competitive edge for little outlay, and once the technology is ready to be more widely marketed the carrier has existing reference sites.

"It is very hard to do business with customers without references. As a rule, customers are generally more cautious, and it's a case of ROI or goodbye. You can't get in the door without a good value proposition." That, Fowler says, often leads to companies doing incremental projects where the risk to the business is quite small. He suggests companies should consider projects "not from the perspective of what technology can do, but instead map the gaps in the current value proposition".

Once again the innovation conundrum raises its ugly head. Fowler's suggestion makes for an easier sell to the board, but as Tizi warns, puts the organisation at risk of yet more point solutions.

McKinsey's Nicli proposes a more radical approach to innovation. He says many organisations are already in a situation where they have too much technology and un­manageable processes and need to redesign the business itself. "This is new; three of the five projects I'm doing now would have been anathema in the 90s. Now we take a clean sheet, without systems, and are taking out huge investments."

He offers an example. "Say you have an integrated supply chain like HP and you want to go to a Dell model, then you have to neutron bomb their entire infrastructure. You have to take the legacy systems - and most of them are legacy - and 'ring fence' that [infrastructure] and only have new systems in front of it."

It's neither easy to sell nor easy to do. Even for a genius consultant.

"The only way forward is prototyping the whole thing. Despite all the genius of a consultant, when you actually do it there is a huge delta," he says. Add to the mix the sheer scale of some of these prototypes; Nicli, for example, is currently working on a prototype of a new plant management system for one company. "There are 40 plants managed on one server and 40,000 people affected by the prototype," he says.

And the challenge will get larger, he says, as enterprises grow internationally. "Technology is getting better and better but the world is getting more complex. One of my clients, their IT department has 250 MBAs, and they have 850,000 people in the world. It makes sense for them to have their books closed on the one day.

"It's easy to say but how is it done? The complexity is increased," Nicli says.

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Doing It Tough

Nicli sees innovation from a lofty vantage point. For many businesses, however, innovation, and timing an investment in technology anywhere on the innovation spectrum, is more of a rolled-up-sleeves affair.

"Innovation comes when a CIO, or anyone else, identifies a business problem or an issue. Then you see an existing or emerging technology to assist with that or rectify it," says Steve Ash, director of IT for Blockbuster in the Asia-Pacific region. "We spend a lot of time actually trying not to be propeller heads. We are a support service to a business that is not an IT business. Because we work close to the business we would have to be blind not to notice their problems, and you can often think of a technology solution to assist with or eradicate the problem."

While not averse to bleeding-edge efforts, Ash says that when it comes to "absolutely bleeding edge, unless we can identify it will work we won't do it". He does admit, though, that in the past the company was prepared to go further out on a limb when "we had more money to spend and the bucket was a lot bigger".

"The disposable spending is not there," he says. "We've never done as much with as little." It is a situation that leaves him very careful, even canny, when it comes to innovation.

"The thing about bleeding edge is that I have no problem being an early adopter, but I'm not keen on being first." Ash says Blockbuster was among the first organisations to work with Telstra installing ADSL, but he protected the company by developing a contract with Telstra where there would be financial penalties for the carrier if the system did not work.

He says that one of the good things about being an early adopter is that, "on the bleeding edge, you can negotiate the price on the technology when it's young because they need you more than you need them".

SIDEBAR: IT Customers Rule Innovation

Users must demand technologies to improve business by Mark Hall

David Moschella's book, Customer-Driven IT: How Users Are Shaping Technology Industry Growth, should send chills down the spines of executives inside the boardrooms of major IT vendors. He brilliantly argues that since the beginning of the computer industry, IT suppliers have been the main drivers behind technology innovation and, therefore, its growth and success. But that game, or "wave", as he calls it, is over. Customers are now the big players in the innovation game, and the likes of Bill Gates, Scott McNealy and Carly Fiorina are mere onlookers.

Moschella rightly labels this a "huge cultural and business change" that's fraught with danger. That's because users are too comfortable letting IT suppliers point them in the right direction with cooler, faster and more efficient technology to improve existing systems. But IT customers no longer need to improve IT for its own sake. Now the reason they need technology is to make their businesses better. And if IT users fumble the opportunity to exploit IT for that purpose, Moschella writes, "IT business will almost certainly stagnate".

And fumble they might. The author points out that users can botch opportunities to exploit technology by refusing to see its value to business. He cites the music industry's opposition to peer-to-peer systems such as Napster as the kind of backward customer thinking that can stifle IT innovation.

He also slams some customers' narrow focus on sifting every IT opportunity through the return on investment sieve. He writes that "customers have to forget formal ROI numbers and simply 'Rely On Instinct'."

Customer-driven innovation is also at risk because IT vendors need to get with the new program and shift their focus to developing products that let users innovate. One other pitfall facing this new wave of technology innovation is that the historical supplier-driven waves are boosted by entrepreneurs motivated by wealth and status. But among users in markets such as health-care and insurance, that motivation is sorely lacking and "will likely remain a serious IT industry market barrier", Moschella writes.

But not all is gloom and doom. Throughout the book, Moschella cites numerous examples that IT users can study to see how other customer innovation of IT has worked. And he also shows where it's likely to play out in the future. For example, in one two-column chart, he identifies 40 areas where customer business innovations are likely to inspire vendor product development and not the other way around.

Nevertheless, Moschella posits that IT's future is no longer centred amid engineers in Armonk or Redmond or even Silicon Valley. It rests with IT leaders in every IT data centre in the world.

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SIDEBAR: Modern Medicine

At Children's Hospital, IT means more than information technology. It also stands for insightful thinking.

Dr Ralph Hanson was a physician working in Emergency at the Children's Hospital in Camperdown, in Sydney's inner-west, when he first realised there must be technologies available which would improve patient care and provide better support for clinicians.

Working with the clinicians and the IT department, he started to help shape some of those systems, and gradually transitioned away from full-time patient care and into information systems. For the past three years he has been director of information services for the Children's Hospital, now relocated from Camperdown to Westmead, on Sydney's western fringe.

Given his background, Hanson is acutely aware that the hospital's information systems serve multiple needs - improve patient care, support the hospital's administration and aid executive decision making.

One of the key innovations that he and his team have delivered is the electronic health record, which chronicles a patient's history, and can be automatically updated with the results of clinical tests or procedures ordered by doctors using an online entry system. This will in time be complemented with a document imaging system to provide the full patient record at the point of care.

Outside these more generic information systems, Hanson says there are other "madly exciting" technologies in the medical arena. These include digital medical imaging, telemedicine, interventional technologies and computer-based tools that can support research into gene therapy, all of which support the hospital's fundamental charter to provide exceptional health services to children.

However exciting the technology, Hanson remains anchored by limited funds. "It is easy to be innovative when you are in a well-funded environment, but being underfunded also drives innovation," he says, explaining that some aspects of the electronic health record initiative came out of a need to do more with less.

The budget constraints mean that innovation at the hospital is more incremental than big bang, but Hanson does involve the hospital in technology pilots where he can. For example, Children's Hospital is participating in one of two NSW pilots for the Child Health Information Network, which is a precursor to the creation of a statewide electronic health record. Ultimately this project will allow doctors across NSW to view the same online patient health record as a treating specialist at the Children's Hospital.

Hanson does not see it as his role to impose technology applications on the doctors, however. "The high-end technology in the clinical space is driven by the clinicians - and largely by the clinician who has trained overseas," he says. So the main innovation driver as far as clinical technologies are concerned comes from the clinicians. Hanson then innovates around the concept with the introduction of complementary technologies, such as wireless networking or handheld terminals, to extend the reach of the clinical tech­nology. For example, he is currently piloting wireless networks in Emergency to take the PC to the bedside.

Whatever the doctors may have seen overseas, though, Hanson is reluctant to be an alpha site for a new technology. "It's difficult enough being a beta site," he says. "And there is a cost to being an alpha site. [The technology] may look cheap at the time of buying in, but if you look at the pain you go through then it's not worth it" - particularly given the time some new technologies take to start delivering real value to an enterprise. Hanson adds that installing the technology in isolation does not necessarily result in benefits. Payback from new technology also requires a comprehensive change management approach that involves the chief users of the technology.

"You have to learn to focus on the core users and not on the technophiles who might raise expectations beyond what you can achieve," Hanson says. "At the same time you cannot be slowed by the technophobes. Sometimes you have to forget the tail and let them carry on their own way because they can derail a good strategy."

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SIDEBAR: Innovation: When to Say 'No'

There is something contradictory in a CIO's job today. On one hand, CIOs are expected to be on the cutting edge of a company's use of technology; they are expected to be the most innovative part of the company. On the other hand they are supposed to support reliability and security. So says Danny Hillis, co-founder of Applied Minds, formerly of Disney, Thinking Machines and the MIT Media Lab.

So if being innovative and being reliable and efficient don't go well together, how much do you avoid innovation to make the system efficient, reliable and secure, and when do you stick your neck out? To help think about these questions, Hillis points out three myths regarding innovation and creativity.

The first myth, according to Hillis, holds that innovation is necessarily good. In fact, it's sort of a chancy thing. Think of it this way: if you have a heart attack and you're being wheeled into the operating room, you don't want them to say: "Hey we've got this new innovative thing we want to try." You want them to say: "We've done this a million times."

So, Hillis says, CIOs have to divide the world into places where they can afford to fail and those they can't. Innovation always puts a strain on the system. CIOs have to pay that price if they are going to be creative. And innovation is always inefficient. With every new thing, people have to learn, systems have to adapt around it. That ripple effect causes inefficiency. Bring in creativity when it's worth the risk.

The second myth, says Hillis, is that creative people are what make creative organisations. Hillis recalls being invited to some companies' let's-make-our-company-more-creative events, where people are wearing paper hats and waving their arms and basically being humiliated in order to "stretch" themselves. Hillis believes that people who go through these things say: "We have lots of good ideas but we can't get them done in our organisation." He says that managers have a gut feeling that it's dangerous to pursue these things and that lack of innovation probably results not from lack of ideas, but from organisational blocks.

The third myth, according to Hillis, holds that creativity has to be visible. The key to innovation is not whether you notice it but whether it works. For example, he says, a development feature in animation that emerged with Disney's "Cinderella" was practically invisible, certainly not consciously noticed by viewers - background colour changed with the tension of the scene. That technique has been used since. Hillis believes that those innovations that come in under the radar screen tend to be the best innovations.

For those CIOs who still want to be innovative, Hillis offers three suggestions. First, put thought into where you want what kind of creativity. In Hollywood, for example, they have "suits", who are creative about making money. "Creatives" are the ones who come up with artistic innovations.

Second, ask yourself constantly where your blind spots are. Lack of creativity comes when people stop looking at something. People develop blind spots because they get inoculated early. They're exposed to a bad version of something, and then they don't want a good version.

Third, and perhaps most important, find a way to co-opt "troublemakers". There are always people trying to do or use something different. There are a few ways to react. Hillis advises people to "Just say 'No'."