In recent IT Odyssey* interviews, over 60%** of CIOs said that the IT organization is now actively involved in revenue generation, business development, and service and/or product development. Enterprises are embracing the use of IT for business development possibilities, but we question whether businesses’ maturity level will enable this to be successful.
Recently, the CIO of a major hospitality/entertainment chain said: “In most enterprises, IT and the IT organization spent the last 50 years in what the restaurant/hospitality business calls the ‘back of the house,’ enabling business processes. IT organizations (ITOs) are now being asked to play a major role in ‘front of the house’ activities that touch customers, generate revenue and are a part of our basic products.”
ITOs are still involved in back-office business processes, but a shift that includes a major role in front-office activities surfaced in almost every IT Odyssey interview. Executives described some of these ITO roles:
- Being given responsibility for a part of business, product or service development
- Linked with marketing to find and exploit communications offerings
- Supporting an active role in the software life cycle of business products or service offerings
- Working with business leaders to conceive and support alternative revenue products and services
- Sharing responsibility for the customer-facing aspects of the business
Since October 2010, examples of the above have arisen in every industry interviewed, including the public sector.
What Is the Why?
Over the past two years, many organizations have said their current business models were not viable going forward. The senior executives struggle to enhance their product and service offerings, with IT-supported capabilities that can provide the needed differentiation.
“We don’t want to be the next victim like Nokia,” said the CEO of an industrial goods manufacturer. “Nokia, like us, thrived as a hardware company. Creative, embedded software and a robust IT-based ecosystem left it blindsided. We have the same vulnerability. We must rethink our product.” Another CEO said all of his company’s growth now comes from embedded sensor, software and IT-service-based products.
Another CEO justified putting the CIO in charge of business development as “the only way I could get our business and product development people to take seriously the potential of information and communication technologies. Our young folks get it, but current business managers are clueless. The CIO lacks many of the required experiences, but his last three business opportunity ideas have been blockbusters. He sees what has to be our future.”
Over 300 examples of IT actively involved in business development emerged in the last six months. There appears to be more progress in smaller and midmarket organizations. Initial business impacts include:
- A series of smartphone apps that increased sales of a building product by over 30%
- A sensor-based version of a former commodity product that has captured over 60% market share
- The fastest-growing revenue source of a professional services firm – packaged services rather than billable hours, which has also driven major share growth
- Three IT-oriented acquisitions, which have had dramatic impact on revenue growth and earnings per share in a distribution business
On New and Shaky Ground
CIOs in most IT Odyssey interviews exude confidence in themselves and their staffs when talking about their back-office work. When asked about their new front-of-the-house roles, they recognize they are on new and shaky ground and are full of questions. It is too early to identify the pitfalls, but three major challenges are consistently cited.
First is how to build trust, credibility and constructive working relationships with disparate organizations within and outside their enterprises. The incumbents in the front office often resent or question ITO involvement. There are major style, experience and incentive gaps.
Second, CIOs acknowledge that their staffs often lack the front-office skills, finesse, design talent, market understanding and ability to deal with ambiguity. Because many of the front-office skills are new to IT leaders, CIOs aren’t sure what is needed, so a capability gap analysis should be done.
Lastly, most ITOs have emphasized process and discipline. Such an experience foundation does not translate into a working relationship with the marketing, business strategy and acquisition, and product or service development staffs. CIOs are frustrated that the working relationships
cannot be broken down to waterfall processes, discrete projects and responsibility assignment matrices (RACI: responsible, accountable, consulted, informed).
No one interviewed felt they had found the best starting point, strategy or continuing way forward. Most CIOs expressed concern about whether they could overcome these challenges and add recognized value before the organization ran out of patience.
CIO CALL TO ACTION
CIOs who were making progress offered some constructive tips:
• Limit the scope of the ITO front-office efforts, and if possible, focus on no more than three obviously apparent business opportunities or threats.
• Be humble and share major concerns about fit, skills and working relationships.
• Inspire a culture of distinctive competencies where IT plays one role rather than assuming there is a mandate to take charge.
• Engage a respected (and possibly retired) front-office mentor for the CIO and ITO.
• Work on the skills, styles and working relationships rather than process and project discipline.
IT leaders’ shift to a front-office role represents a major opportunity and/or exposure for IT professionals. Successfully deploying a single-instance ERP globally doesn’t prepare a CIO and his/her ITO to redesign a business product line that exceeds customer expectations at an acceptable margin. As mentioned in previous Road Notes, this is a totally new direction for most CIOs, with multiple dimensions.
Businesses realize that they must change. They look to information, sensor, automation, software and communications technologies to provide that something special for business, product and service development. Get it right and the company can become the Apple of its industry. Get it wrong or lag and it is very hard to catch up. Looking to IT to help is a logical, but shaky step.
*IT Odyssey: Each year, Bruce J. Rogow independently conducts face-to-face visits with more than 120 IT executives under the banner of his company IT Odyssey. As a Gartner Executive Programs affiliate, he summarizes his observations and thoughts based on what he is hearing.
Of the 55 IT or business executives interviewed since October 2010, 35 described this “front of the house” activity.