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Just two years ago, the prevailing wisdom held that information technology could be the main driver of business success. With so many companies investing millions in IT projects, the chief information officer was often seen as the second most important executive in the organization.
Today, CIOs are the target of a lot of grumbling. Perhaps feeling burned by IT investments that haven't yet paid off, companies reduced their spending on IT by 8.4 percent last year—the first such decrease since 1958. Analysts expect another decline this year.
So is firing the CIO the answer? That's not the right question, says Belmont, Massachusetts-based consultant Clayton Hubner. "A decade ago, you rarely heard about the CIO role. A decade from now, companies' understanding of how to use information to enhance business effectiveness will be more ubiquitous, and you won't hear about the CIO anymore. Companies don't require chief telephone officers or chief electricity officers. Before long they won't need an officer-level position for information either."
| Before long, companies won't need an officer-level position for information either. |
| — Clayton Hubner, consultant |
This trend away from centralized information management mirrors the larger shift of value creation to the customer-facing edge of a firm. Acknowledging that shift, other authorities in the field suggest several questions that companies should be asking:
How is the information infrastructure changing? According to C.K. Prahalad, a professor at the University of Michigan Graduate School of Business, the three assumptions about value creation upon which information infrastructures used to be based—that it was created by the firm, that it was exchanged with consumers at the point of sale, and that it was a firm-centered activity—have all been undermined.
Napster has "fundamentally changed the way we think about access," Prahalad continues, by making it possible for consumers to download music in whatever combinations they want. FedEx has made its operations transparent: Consumers can now check on the up-to-the-minute status of their packages. Lego relies on the community of users of its MindStorms robots to help develop new operating software. And in the medical arena, patients have become much more involved in dialogues about risk with their doctors and in collaborating to develop treatment modalities. "All three underlying assumptions about value creation have thus been called into question," says Prahalad.
"Business unit managers are increasingly looking outside the company for the information sharing that is crucial to value creation." Among their specific requirements:- Access to competence throughout the entire network of partners.
- The ability to reconfigure information resources on the fly.
- The ability to provide efficiency and innovation at the same time.
- The ability to design a cocreation process that includes suppliers and customers.
What business units need, in other words, is not information, but actionable insights. Such knowledge is contextual; it requires answers not just to what but also to where and when. "Cost, quality, and speed are just the table stakes," Prahalad continues. But most IT departments, set up on the old assumptions about value creation, are stuck with legacy software systems—prepackaged solutions that are very transaction-oriented.
How do you ensure that the information is useful? "Back in the 1990s, successful business process improvement required that you have a czar to drive changes through the organization," says John Seely Brown, chief scientist at Xerox. But the notion of a czar isn't well suited to today's task of "reengineering industries rather than just enterprises to create true win/win situations. How do you do this in a way that manages risk while growing trust?"
Such questions apply even to something like Web services. This array of emerging technologies relies on "widely shared standards for describing information to connect applications and computers in much more flexible and low-cost ways than ever possible before," says John Hagel, coauthor of Net Worth: Shaping Markets When Customers Make the Rules (Harvard Business School Press, 1999). One of the advantages of Web services, Hagel says, is that they permit so-called loose couplings between organizations—for example, the ability to do just-in-time outsourcing. "But just because I can couple quickly, it doesn't mean that when I say X you think X," says Brown. "When you take data out of one enterprise and put it into another, all the assumptions change. We need to wrap ribbons of social connection around our optical fibers so the information flowing through the pipes actually has meaning."
What new roles must CIOs assume? New information technologies such as Web services will require CIOs to master skills that very few have today, says Hagel. "Because enterprises will increasingly be focused on connecting with business partners and defining the common standards that will enable them to automate the interactions among partners, CIOs will need to become relationship managers and negotiators." Another vital role will be that of knowledge broker, getting the skill sets and cultures associated with different legacy systems and newer generations of technology to collaborate effectively.
How will the function of IT departments change? "Fifteen years ago, R&D was sacrosanct: it was managed centrally, with its own separate budget and its own staff," says Prahalad. "Today there's still a little R that is done centrally, but most of the D has moved to the business units. Information infrastructure budgets may go through the same process."
In such a scenario, the existing IT department would split into three functions, each of which might call for a very different culture:
- Investment decisions would be made in the individual business units, by the people closest to the need for unique applications and solutions.
- "A small group of talented information architects would be responsible for thinking about the social and technical dimensions of the emerging technologies," says Prahalad. Hubner adds that "these people would also serve as agents provocateurs, disseminating the knowledge about how to use information throughout the organization."
- The back office would take care of the legacy systems. Some 70 percent to 80 percent of the IT budget of most large firms currently goes to maintaining such systems. "But within five years, most of that money will resurface in the line managers' budgets," says Prahalad.
How can information help create new sources of value? In tough times, says Hubner, "you want to focus on where the major inefficiencies are in your operations." For the most part, the largest inefficiencies are now at the edge of the enterprise—in connecting core business processes with your business partners or, at the other end, your sales channel. "By focusing on those, you build the skill set that enables you to discover other ways of growing value." Adds Hagel: "Even without the latest technology, you can be a lot more innovative than you might think." The Mexican cement company Cemex, for example, has discovered how to use readily available technologies to meet the needs of a previously unserved market. By putting two-way radios and global positioning systems in all its delivery trucks, Cemex can deliver small quantities of cement to small businesses within a relatively short time frame. And by using convenience-based pricing, it is able to turn a profit. Whether you're an information officer or someone in a customer-facing business unit, it's crucial to have the right mindset. First, articulate your assumptions about what's required to create value in the particular business. Then, think about the organizational mechanisms you'll need.
"Only after you've addressed those issues can technology play a role in creating value," says Hagel. "In the absence of answers to those questions, technology just becomes an investment sink."