Management Practices for Effective CIOs

by David A.J. Axson

Founder & President of the Sonax Group

The last few years have certainly been interesting times for CIOs. During the halcyon days of the dot.com boom, IT budgets seemed to expand exponentially and new technologies promised to transform all aspects of business and ensure profitable growth for years to come. However within the space of six months during 2000 IT budgets were frozen or slashed and CIOs found themselves on the hook for dramatic cost reductions as well assuring delivery of long promised benefits. The incremental impact of 9/11 and numerous corporate accounting scandals has ushered in much more sober economic times causing business and IT leaders to reflect on the changing role and value of technology in their businesses. The conclusions of many are that business use of technology is rapidly becoming a commodity rather than a source of advantage; increasing security, integrity and availability concerns dominate the management debate; effective integration across multiple businesses, geographies and technical plat forms remains a key concern; as does the attraction and retention of required skill sets. So how should CIOs respond to these changes?

While there are many potential objectives that CIOs strive to meet, three seem to be pre-eminent in the current environment: cost optimization, information leverage, and risk mitigation. IT organizations that can successfully achieve these three objectives are demonstrably adding value to the businesses they support. Lets look briefly at each.

Cost Optimization

Much effort has been expended in recent years to try and reduce IT costs. However rather than focus on absolute cost, effective CIOs need to focus on cost elasticity if they are to provide flexible IT environments that can adapt to changing levels of business activity. This change in focus can be seen in many recent moves to outsource IT and business operations. Instead of the traditional justification of lower operating costs, many companies are arguing that outsourcing is a strategy that allows them to convert a largely fixed cost, namely, internal IT investments into more of a variable cost where the expense varies more directly with changes in the level of business activity. In addition, companies cite reduced capital investment requirements, mitigation of project risk, maintenance risk and execution risk, and access to higher caliber specialist skill sets as reasons for more outsourcing. Given the ever increasing revenue volatility that most companies experience, IT needs to seek ways to increase the elasticity of IT costs.

Information Leverage

For much of the last twenty years, IT professionals have sought to deliver on the promise of using IT for competitive advantage: there were some notable successes: American Airlines and its Sabre system; Federal Express and its shipping system; Charles Schwab and its online brokerage. However today the opportunities to achieve and sustain competitive advantage through the use of technology are increasingly transitory. One major driver of this is that investment is no longer a barrier to entry. The costs of deploying top class technology have been reduced to such a level that even the smallest players can afford world class functionality and performance. A second driver is that technology in isolation is less likely to offer distinctive advantages without the right content and the right user motivation. Witness the success of Apple’s iPod and iTunes service or the growth of video games, the technology without the content would be of little value. In business terms the content is information. The challenge is to develop mechanisms that derive insight from the vast amount of information now available to every organization. The winners will be those organizations that develop powerful filtering and delivery mechanisms that ensure focused, timely, relevant insight that speeds decision making. Both eBay and Google represent powerful examples of technology serving to rapidly focus customers on information that meets these criteria; unfortunately many companies are unable to deliver comparable value internally.

Risk Mitigation

IT executives have always been consumed with the management of risk from the earliest days of ensuring the security of mainframe data centers. The big change in the last five years or so is that technology related risks have become and political, economic and societal issues. IT is expected to mitigate concerns over security, integrity, reliability, and stability across not just IT systems but across business processes that frequently extend beyond the boundaries of the organization itself. Recent data security concerns highlighted by incidents at HSBC, Choice Point, and Bank of America highlight the sensitive nature of the subject. The challenge for CIOs is to extend the management of risk beyond the IT organization and ensure that risk and uncertainty are explicitly addressed in both planning and execution. This requires that IT form partnerships with other functional areas especially finance to develop, deploy and sustain effective business risk management practices that mitigate risk without unnecessarily impeding service delivery.

Summary

CIOs that can develop and execute strategies that deliver cost and service flexibility, leverage the latent value in the vast information reserves of a business and ensure that risks are understood and where necessary mitigated will be able to clearly demonstrate the value of technology as an integral and value adding element of an organization. Those who do not will perpetuate the rapid turnover that has characterized the tenure of CIOs in the past. Make your choice – now.

Sidebar

CIO Realities

• Simply investing in technology is no guarantee of success
• Opportunities for competitive advantage through IT are transitory at best
• IT expenses have become the largest non-labor cost
• Cost flexibility is more valuable than cost minimization
• IT is so embedded in most business processes that there is no such thing as an IT project anymore
  

About the Author

David Axson is the founder and president of the Sonax Group (www.sonaxgroup.com). He was a featured speaker at Taos’s Spring IT Directions Event. He is also the author of the book Best Practices in Planning and Management Reporting (John Wiley). He can be contacted at daxson@sonaxgroup.com.