Nothing But Value

Corporations grapple with the shifting nature of competition on a daily basis. Once competitive advantage could be held in your hands - it was a better mousetrap, a richer mine, a faster car.

But today, at least in developed economies, "the whole fundamental basis of competition has shifted from tangible assets, which are easily managed on a balance sheet, to intangible assets, which are human resources and information technology and knowledge", according to Professor Mark Dodgson, director of the technology and innovations management centre at the University of Queensland. "The fundamentals of success today are about the speed of access to quality information and knowledge."

Dodgson teaches the Master of Technology Management program, which aims to demonstrate how to "harness the power of innovation" because "today's successful managers are those who can best leverage innovation and technology within their organisations". It makes for a nice marketing slogan for the course, but the fact is that a great deal of technology spending today will not deliver competitive advantage. Instead it is a competitive imperative; a better breed of ATM will not deliver a bank a competitive edge, but having the ATMs is necessary for it to compete at all.

However, there are technologies - strategic technologies - which, when meshed tightly with the business strategy and delivered effectively, can deliver competitive edge. They can make a business more attractive to shareholders, to analysts, to customers and to potential suitors.

Ultimately they can affect the competitive position of nations; but to do that the technologies cannot be purely tactical, they have to be strategic.

A report published in late 2002 by the Canada-based InfoTech Research Group found that 65 per cent of all companies with a strategic IT plan felt they were more competitive because of it. Fifteen per cent said their organisation was significantly more competitive thanks to technology.

The report, which surveyed 149 IT professionals (just 53 per cent of whom had strategic IT plans in place) in medium-sized companies in the US, Canada and the UK, found 30 per cent of US companies considered IT to be a key strategic weapon, compared to 17 per cent of UK companies and just 6 per cent of Canadians. Sadly, the report did not explore other international markets, however, it reflects some of the findings of the World Economic Forum (WEF) regarding the broad spectrum of competitiveness experienced around the world.

In a study released earlier this year, the WEF found that nations with an innovation edge, thanks to a historical clustering of technology-based industries, were more competitive than their less technological peers. It is therefore not surprising that US companies in the InfoTech study were more aware of the competitive edge offered by technology than were Canadian or British businesses.

And ultimately it is the corporations that are any nation's engines of competition. Although the WEF tracks national prosperity and competitiveness, it acknowledges that national "wealth is actually created in the microeconomic level of the economy, rooted in the sophistication of company strategies and operating practices as well as in the quality of the microeconomic business environment in which a nation's firms compete". To that end, it also produces a Microeconomic Competitiveness Index, which gives greater insight as to corporate competitiveness in different countries.

The Global Competitiveness Report for 2002-2003 rated Australia as an overachiever in regard to its GDP per capita relative to microeconomic competitiveness; but found that was largely due to a favourable business climate rather than the savviness of its corporations. Australia ranked 14th overall in the microeconomic competitiveness index; but its company operations and strategy ranking was only 19th. It managed to haul itself up to 14th position thanks to Australia's business environment being ranked as 11th best in the world.

In a report for the WEF, Harvard University's Professor Michael Porter notes that the Australian business environment ranks ahead of current company sophistication. "In some countries, such as Australia, part of the problem stems from rapid improvements in the business environment that have not yet been taken advantage of by companies who remain focused on traditional ways of competing. Efforts to improve entrepreneurship, strategic thinking, managerial practice and business education are high priorities in these countries."

Fundamental to that is technology. As the WEF notes: "Without technological progress, countries may achieve a higher standard of living for example through a higher rate of capital accumulation, but they will not be able to enjoy continuously high economic growth".

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The Avenue of Ideas

Innovation and the strategic application of technology to support current activities and permit new avenues to be explored is what delivers competitive advantage to both corporations and nations. It may be up to the world's economists and management gurus to spell out to chief executives and governments around the world the link between innovation and competition, but a lot of the donkey work of making it happen will fall back to CIOs.

Brian Finn, a former managing director of IBM Australia and currently the executive chairman of winemaker Southcorp, is fully aware of the fact. "The CIO should be a catalyst to stimulate the thinking of . . . executives and to help identify areas where technology can bring competitive advantage. To do that, the CIO must develop a clear understanding of the key drivers of the business and must be able to communicate with other executives about business issues," Finn says.

"Information systems can be a key differentiator and attract outsiders - whether they be shareholders, customers or potential merger partners. They can be assessed in some respects in the way that management capability is assessed and can be just as important a consideration in evaluating a company," Finn adds.

Information systems can also support increasingly global structures, the need for real-time information flows, and provide networks that allow staff to work flexibly and remotely, which may prove highly important for knowledge-based industries where retention of key human capital is seen as a huge competitive challenge.

Keith Roscarel, the CIO of the Nine Network Australia, is as keenly aware of the need to be seen to be delivering value as any of his peers. Not only does he work for the ultra-competitive Kerry Packer in the highly-contested television market, he also has a new boss - John Alexander, now in charge of all PBL media operations - who intends to strip about $30 million of costs out of the business while maintaining or growing its competitive positioning.

Roscarel, however, does not see the appointment of Alexander as a source of increased pressure, but rather as a "positive affirmation" of what he was doing in any case, which was to pump up the value within the organisation by providing information systems that can, for example, help drive up advertising yield. As a CIO, Roscarel is a prime example of an executive who is fluent in the language of the business and focused on corporate revenue stream. It is reflected in his attitude to information systems.

"We have always maintained that our projects are a business solution. It would be very rare to have a project for IT's sake. Even for infrastructure we tend to ramp up the business case; the essential driver for infrastructure is the business," Roscarel says. That infrastructure then allows overheads to be cut; drives down the business cycle of an order; supports sales and marketing applications; develops information indicators, which allow executives to better understand the business, and at the same time improves efficiencies for customers and drives more business towards the Nine Network.

Ultimately the purpose of the information systems is to improve the advertising yield, which is Nine's primary revenue stream. The information systems therefore are "more of a value proposition than a strategic proposition", Roscarel says. He does not, however, shy from the need for a strategic vision; but he characterises this as a mentoring rather then a lecturing opportunity. "It is the CIO's role to question, to inspire and to mentor executives about technology for the betterment of the overall company; to identify opportunities in those spaces," Roscarel says.

"Go back to the 1970s when technology was the new kid on the block and it was owned by IT. Whatever came over the partition was what the business had to use," Roscarel says. Today, though, IT has no right to claim ownership of the information systems that are used by the business, he says. Ultimately it is the executives in the business who are accountable for how they perform, so they should claim ownership of their tools and support systems. The CIO's role is more of a mentor, steering the business towards valuable information systems - but ultimately leaving the business to make the decision and the investment.

But Roscarel cautions that a CIO who wants to be taken seriously as a mentor, or even as a change agent within a corporation, first has to ensure that today's tactical information systems are delivered on time and on budget. "That is fundamental," he says.

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Let's Get Fundamental

Finn says that when chief executives and their management teams formulate strategy, particular attention should be paid to fundamental information systems capability. "Nothing would be more frustrating than to find that our ability to react to a market of competitive pressures is inhibited by information systems limitations. It's just not acceptable," he says.

Once the strategy is formulated, however, Finn recognises that there are opportunities to apply new information systems to boost competitiveness. "There is no doubt that the information systems investments we've made in the past three to five years have paid off handsomely," Finn says. "Our distribution systems are superb and they give us a very real competitive advantage in terms of cost and ability to get our products to market quickly. Similarly, our winemakers are able to react quickly and make the products demanded by consumers and our channels of distribution because of the effectiveness of our systems."

Southcorp is currently being touted as a potential takeover target following a share price plunge after a poor profit performance (a wine discounting strategy that soured and the company's managing director being sacked were catalysts). If Finn is right about the value that information systems add to a company, he should still be able to use it as a bargaining chip in order to negotiate a good price for the company.

But can CIOs prove IT's value or its (and the CIO's, for that matter) contribution to the enterprise? The CFO has the audited balance sheet to point to; the CIO, it seems, has nothing so substantial. As CEOs and boards put the thumbscrews on CIOs to demonstrate the business value of IT, CIOs must find "proof of the pudding" management, measurement, and monitoring tools and methods.

According to industry analyst META Group, as IT organisations migrate from providing efficiency towards allowing business effectiveness (that is, competition), there will be more need to quantify IT value. META suggests that some of that will be possible through service level agreements with the business.

"I certainly believe that the CIO's contributions can be measured - after all, if you can't measure something how can you expect to manage it?" Finn says. "However, I don't have any universal set of criteria. It seems to me that the CIO, working with the top management team including the CEO, should figure out what are the measurements to apply and then assess performance against them on a regular basis."

The fact that information technology systems are perceived as having an effect on the valuation of a company demonstrates that they are far more than corporate utilities. "IT is too often seen as a support function - which it is. But technology [also] provides new opportunities to add value and make a company more competitive in the marketplace," Dodgson says.

He acknowledges, though, that the competitive advantage of IT has been oversold in the past, leaving more than a few senior executives cynical. "Often with the introduction of new thinking there is a period when it is oversold," says Dodgson. "We see it with marketing fads such as total quality management or business process re-engineering. First they are oversold and there is a massive period of disillusionment. But when the hype retreats the kernels of value are retained." And for business, those kernels of value are that information systems can not only underpin current strategy, but also be used to enhance competitive stature. Dodgson, however, does not believe this message has penetrated far into this country's boardrooms.

"In Australia there is a very long way to go. Periodically we get some good rhetoric from the Business Council of Australia [regarding innovation]. We have had some interest from major business, but it has been very piecemeal," he says. "In contrast with the European, Asian and US firms, Australia is a long way behind getting the message that it is innovation and access which leads to competitive advantage. A lot of business schools are still pretty conventional and teaching distribution as a competitive tool. They are teaching the old way rather than the new ways.

There are some improvements in the MBA curricula and the message is getting through slowly."

Slowly is not good enough, however, Dodgson warns. "We are complacent at the moment because the economy is going very, very well, courtesy of the microeconomic reform of the 1980s and 90s - the workplace reform. But the main game has moved on since then. Now companies have got to use innovation and knowledge to drive competition."

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The Epicentre of Competition

Dane Anderson, the Hong Knog-based vice president of consulting and IT research for analyst IDC, claims that IT is now the "epicentre of competition" for most sectors. That factor, combined with technology's ever-increasing orbit beyond the back office and the improvement of technology support, is altering the CIO role.

Anderson says that if an organisation is intent on using information systems to make it more competitive it must "require CIO accountability for achieving improvements in business processes". This must be in tandem with another significant shift: no longer can business identify an information system it needs, throw the specifications over to IT, and then take delivery of the finished computer system. Rather, the business unit has to be made accountable for the success of the IT project. And, he notes, CIOs who really are able to boost competitiveness will have to take on more of a consultancy role within the corporation, rather than "thinking you can do everything yourself".

To really deliver value, the CIO has to focus most of his or her efforts on converting IT investments into business value. That said, although the CIO must establish IT priorities and building and maintaining information platforms and architectures, the legwork ought to be delegated. CIOs ought not to be cutting code.

"Too many CIOs remain focused on the technical minutiae," Anderson says, an issue he considers as potentially career limiting, especially as corporations become less dependent on in-house technologists and more enamoured of third-party service providers such as EDS and IBM GSA. Ultimately Anderson believes that many of the CIO's current responsibilities with regard to IT strategy will be taken on by CEOs as they become more IT-savvy. But he maintains that there will always be a need for a senior executive "who understands how to [act as the] bridge between the company, the IT department and external resources".

SIDEBAR: Adding Real Value

Paul Rizzo is Dean of the Melbourne Business School. His migration into academia comes after a long and varied business career. Most recently Rizzo served as CFO of Telstra for seven years. Prior to that he was the chief general manager of retail banking with the Commonwealth Bank of Australia, and before that CEO of the State Bank of Victoria.

Given his unique perspective on corporate values, CIO magazine asked Rizzo how a CIO might add real value to an enterprise, above and beyond supplying information systems that allow it to run efficiently from day to day.

CIO: When you ask a CFO how he has added value to a business he can point to the balance sheet. But how can a chief information officer demonstrate what he has achieved?

Paul Rizzo: Value is best seen in two areas: having information and technology that enables strategy and product development which is ahead of competitors; and the provision of accurate and timely core information.

CIO: How well does business understand how much value can be added to an enterprise through well-constructed, well-run and efficient information systems?

PR: The concepts are well recognised but the deficiency is in capturing and using the actual advantages.

CIO: How can a CIO make a business more attractive to an outsider? For example, more valuable as a takeover target.

PR: Through having a demonstrable track record of success in using management information for strategic gain and operational excellence.

CIO: Ought a CIO to be content providing IT solutions to support the business, or actively work to change the business to make use of technology's potential?

PR: Clearly, the latter; the first is a passive role.

CIO: How best can this be achieved when there seems to be a continuing antagonism between CEOs and their CIOs, with neither claiming to speak the language of the other?

PR: A key is for the CEO to create a supportive climate for excellence in information management, and for the CIO to be seen to actually deliver.

CIO: From your unique vantage point, how has the CIO role matured in Australia and why does the CFO continue to exercise more clout still than does the CIO?

PR: The CIO role has matured largely because we are in the information and technology age. But, the CFO continues to dominate because the role is the only one after the CEO that has a full company-wide perspective and is the window for the market into the company. I don't see real difficulties in the current relationship.

CIO: Do you see a time at which CEOs will have to be as astute about their technology dealings as they are about their financial operations - or risk being accused of failing in their duties?

PR: Absolutely, as more CEOs succeed or fail on the back of their technology.