Technology is woven so tightly into the fabric of business today that it’s risky to make a judgment call without a firm grasp of both the technology and business issues involved. Managers are struggling with the sudden rise of the empowered consumer, forcing them to experiment with new tools and new technologies as they race after consumers who are skipping across channels and between times. Managers are also smashing together supply chains to support pop-up stores or, along with digital product development processes, to speed the introduction of new products and services.

While these managers have a firm grasp of the business issues involved, technology (for many of them) is something that they’ve used, not something they’ve managed. There’s a difference between having experience using solutions, and in understanding the opportunities and risks inherent in the technology that underpins those solutions.

The success of all businesses now rests on their ability to astutely use technology to engage customers and nimbly craft solutions. Managers that can successfully straddle both business and technology are thriving. Those that can’t are struggling, and their firms are suffering with them.

CIOs, too, are struggling to define a role for themselves and their IT department in an age when everyone considers themselves to be an IT expert. However, there is a clear need that remains unfilled in many businesses. Someone, some group, needs work across the business and bring sense to the chaos.

While the IT department can no longer claim a monopoly on IT knowledge, it is still the group best positioned to work with the lines of business, across the organization, helping stakeholders to step back and see the broader context, and to ensure that the solutions the lines of business are using enable the firm to meet its compliance and reporting obligations.

Technology is not someone else’s problem

I’ve heard more than one CEO claim that “the reason I hired a CIO is so that I don’t have to worry about IT”. In their view technology was something to be dealt with by technologist, allowing the CEO (and the rest of the C-level) to get on with the challenge of running the business.

The most recent version of this seems to be the announcement of a newly hired Chief Digital Officer (CDO), someone who will come in and transform the business, tossing out all the old and crufty non-digital stuff and replacing it with shiny new digital stuff. McKinsey is so bullish on the idea of hiring a CDO that they published a recent report called “Bullish on digital” which concludes that firms need to “Find the right digital leaders. Leadership is the most decisive factor for a digital program’s success or failure”.

Setting aside the question of why the CIO or CTO isn’t leading the transformation, the rise of the CDO hides a bigger problem that executives need to address.

Hiring a CDO might be a symptom, rather than the cure

Technology is now a general business skill, and not a specialist skill like it was in the past. Going forward, all executives will need a solid understanding of technology, along with how it can be used to create opportunities, and its limitations. If not, then they should find a replacement who does.

We live in the age of the empowered consumer. Consumers have grabbed control of their relationship with merchants. Wielding their smartphone with both thumbs they can buy what they want, when and where they want, and obtain the best price. They can also use social media to peer into a firm’s operations, and they’ll take their business elsewhere if they find something objectionable.

Firms are scrambling to respond as they watch their traditional revenue streams leak into other channels. A key strategy is to take a holistic and customer-centric approach that enables the firm to follow consumers as they skip between places, times and trends. Doing this means investing in programs who’s benefits are not easily qualified. These programs are either enabled by, or rely heavily on, technology.

We don’t have “digital programs”: we have “programs”, since they all use digital technology. Similarly we don’t want “leaders” and separate “digital leaders”. We need “leaders” who understand both the business and the digital worlds, as the two are the same.

Amazon, for example, was born digital. Technology is not treated as something separate from business; interactive and social media are commingled with traditional media, and the merchandising team is responsible for wholesale, stores and web.

How we measure value has changed

Managers trying to paper over knowledge and experience gaps by hiring in the expertise will soon find that it’s not enough. The person accountable for a firm’s (or a department’s) performance will need to understand the trade-offs they’re making. Increasingly these trade-offs cannot be captured by return on investment (ROI) or net present value (NPV) calculations, as the key factors in the trade-off are intangibles. Tim Cook has even famously disparaged “bloody ROI” when he explained at a shareholders meeting that Apple does “a lot of things for reasons besides profit motive”.

Trying to make judgment a call without an intuitive understanding of the trade-off being made is fraught with danger. If the factors that will sway the decision are not easily quantifiable then it can be challenging (if not impossible) to separate the technical and business expertise.

Management need to straddle business and technology

Management, from line management on the shop floor up to the executive and the board, need to have both a firm understanding of the business the firm is in, and the technology that is woven into the fabric of the business. In the lower ranks the focus is on identifying opportunities and solutions that can drive up firm performance. Higher up, the executive through to the board will make the judgment calls on where to direct resources. They must also be capable of defending these judgment calls to the owners.

Hiring in technical expertise will allow a firm to modernize its infrastructure and operating model. It will not, however, solve the more significant challenge of constantly evolving the firm’s business model in response to the evolution of the technology environment around it. Companies that have made this cultural shift do not have, nor will they probably ever hire, a CDO. Nor will they see IT as something they hire a CIO to worry about. Younger firms, such as Amazon, achieved this by being born digital. Older firms, such as Burberry, have hired or developed digitally savvy executives.

IT is not the high priest of technology anymore

As I’ve pointed out before, the role of the IT department is not carved in stone. The growth of empower consumers has also given rise to the empowered manager, a manager who understands technology, knows what they want, and (thanks to Software as a Service) has the ability to source it without the help of the IT department.

IT is a general business skill, and not the specialist skill it was in the past.

However, business, your business, still needs someone to play the role of intellectual bumblebee. Someone who can buzz between stakeholders and cross pollinate ideas, and someone who can ensure that the parts operate as a coherent whole.

The IT department can no longer monopolize IT knowledge. Nor can it expect to monopolize IT management. (Shared services have a patchy track record at best.) The lines of business have grabbed control of the technology they use, which is as it should be. It’s the lines of business that have the problems which need solving and – as was pointed out earlier – solving these problems will require knowledge of both business and technology. They’re also choosing to use service providers that operate outside the four walls of the traditional IT department.

A new relationship between IT and business

The IT department, however, is the group best positioned to work with the lines of business, working across the organization, and make sense of the chaos.

Business stakeholders need help stepping back and seeing the bigger picture, and to understand the broader implications, of the technology choices that they are making. It’s great to improve consumer engagement and shift more product, but this needs to be done in an environment where solutions deployed by the the various lines of business work together, and not at cross purposes, and in a way that allows the firm to meet its compliance and reporting obligations.

While the IT department needs to stop acting like an IT monopoly, the flip side is that managers in the line of business need to also take responsibility for the technology decisions they make.

How far along the journey is your organisation? Is technology still something only the CIO worries about about? Has your organisation started to try and transform into a digital business? Or are you already there, and technology is a general business skill?

It’s not often that a week goes past when I don’t hear a new story of a company being ripped apart as it struggles to deal ever more demanding and fickle consumers. Marketing and sales, it’s usually said, have gone rogue leaving finance and IT to pick up the pieces. It’s obviously important to keep selling (and to keep generating revenue), but it’s equally important to do so in a safe and compliant manner (so that you’re still in business next year).

This situation has become bad enough that the analysts are now suggesting that a shift in operating model will be required to solve the problem. That sounds about right, and it looks like the trigger for the shift will be external pressure from regulators.

The problem, then, is to form a sensible picture of how this to-be operating model will function.

Coming up with some general statements about that nature of this new model is fairly easy: it will be more collaborative, it will favor services over assets, innovation will be important, and so on.

What is more important, and much harder to do, is to develop a picture of how the shift to a new operating model will change the roles and responsibilities within a business. How will we heal the rift between the front office – sales and marketing – and the back office – finance and IT?

This is not a question of tweaking the role of the IT department, for example. The IT department’s role – as has been pointed out elsewhere in this publication – is already well defined. IT is the part of the company that is responsible for procuring and maintaining the IT assets a business requires. This isn’t changing. Many businesses need for this role is, however, diminishing.

Nor can the problem be fixed by creating new technology-based roles outside the IT department, such as the Chief Digital Officer or Chief Marketing Technology Officer. While these roles might help the lines of business use technology more effectively, and they may work closely with the CIO and the IT department, they don’t address the root cause of a disconnect forming between the front and back office.

The interesting question then, is “What’s the role of IT in business?” How can the entire business consume and manage IT in a safe and compliant way while still meeting the needs of today’s empower customers?

To answer this question we need insight into who will make the decisions on what IT will be used where and how it will be knitted together. We need some understanding of the drivers behind the current transition in how we consume IT in business.

5 drivers for change

The easiest way to identify these drivers is to consider the shifts we can already see in how we’re managing the technology we have today. We’re not interested in changes in the technologies themselves. Nor are we interested in how the business uses individual technologies. We’re interested in how technology is managed across the business: who gets to decide what and how are conflicts resolved.

First there’s the shift in where technology comes from, and who is responsible for the infrastructure it relies on.

IT has expanded beyond the IT department. The development of on-demand IT (such as Software as a Service, SaaS) and the consumerization of enterprise IT (the use of consumer technology in a business context) mean that businesses, and the lines of business, no longer require the deep IT infrastructure skills that they did in the past. Nor do they want IT to act as a gatekeeper, selecting and procuring the technology to be used by the business.

From this we can identify two obvious trends shaping enterprise IT:

• Driver 1: Enterprise IT is no longer an infrastructure problem, it’s not an asset we own
• Driver 2: Consumer trends drive enterprise IT, rather than enterprise IT driving consumer trends

Next, is the impact of these trends on how we manage technology within a business.

Many business stakeholders today feel empowered to make their own decisions on what technology to use where, a result (for many) of a childhood steeped in technology. They’re using new technology in new ways to solve new problems, creating new business opportunities in the process. They don’t want the IT department mediating access to the technology they need, and slowing everything down. Many IT departments are finding themselves on the back foot, unable (or unwilling) to support the business as technology moves out of an automation and cost focused role.

This gives us another two trends:

• Driver 3: The old core IT skills are not as valuable as they used to be
• Driver 4: How we define the value of IT has expanded (it’s a lot more than ROI now)

While the previous four trends show us the how IT governance might flex and adapt to changing needs in the business, it is the external constraints that will determine the final role of IT in business.

So what external governance requirements are going to shape how IT fits into a business?

Audit is an obvious candidate. With marketing departments going rogue, often there’s only a tenuous link between what’s happening at the coalface that the company’s chart of accounts. In some instances the only link between sales and the general ledger is a spreadsheet containing the P&L for the new initiatives that is manually uploaded once a month. One day the auditors are going to come in and they will want to see a clear trail of evidence from sales by the new division through to the general ledger.

Another example is anti money-laundering and counter terrorism financing, which is receiving more attention from government as complementary currencies – such as Bitcoin and the “points” used to purchase virtual assets and services in games and social services and which are sold for cash – grow in popularity and attract organized crime. As businesses, even privately held businesses, integrate themselves into new commercial environment they find themselves increasingly subject to AML and CTF regulation.

Consequently our final trend is:

• Driver 5: External obligations – such as financial reporting, anti money-laundering and counter terrorism financing – will trigger the transition to new operating models

The future role of IT

The future role of IT, as well as the role of the IT department, is not carved in stone. Both are likely to change as businesses find new ways to use IT to create value for them and their customers. The challenge is to understand what is driving this change and which, consequentially, will shape the role of IT, and the role of the IT department, in the future.

What trend do you think will shape the future role of IT and of the IT department in business? What are the drivers that we should be paying attention to?

I’ve been watching with some interest the discussion around who will “own” information technology within the emerging digital businesses: those new businesses created in response to ubiquitous IT, communication networks and social media. Many of these arguments have a strong feeling of a turf war, positioning different areas of the business as the most obvious group to own and manage IT across the business or advocating the creation of a collection of new technology-based C-suite roles to paper over perceived limitations in the skill set of established IT departments and CIOs.

Both of these arguments, however, seem to be only addressing the symptoms and not the cause of the problem.

The role information technology plays in business has changed. In the past IT was a tool to reduce costs and help a business grow. These new digital businesses use technology to create value, to engage customers and partners and to work in new ways. Information technology has become a capability that is woven into the fabric of a business, rather than an asset we deploy to achieve scale. We’re not moving around responsibility for IT: we’re building new business models that use IT in new ways.

Instead of focusing on who the new owner of IT might be, the question we should be asking ourselves is “How does a digital business consume (govern) information technology?” This is an important question, and one that we need to delve into more deeply. (Indeed, I like to keep posts fairly compact but this one post was roughly 2,000 words by the time I was happy that I’ve had covered the issue.)

The major point that the debate has been neglecting is that, in the long run, governance and not perceived importance nor the size of an existing group’s budget IT, will determine how information technology will fit into a digital business.

Government regulation for financial, anti money-laundering (AML) and counter terrorism-financing (CTF) reporting will drive both public and private business to create governance models that will enable them to show auditors that they can trust the transactions that flow through the heart of their digital businesses. It is these governance models that will determine the future role of IT in business.

The end of the IT department?

Ubiquitous consumer computing and communications technologies – such as the smartphone you probably have in your hand – are changing what it means to be a well-managed business. The best way to think about this change is to consider it as an expansion in value space for IT.

We used to define the value of IT in terms of cost savings, net present value (NPV) and time to payback. This is the world that established IT departments have developed deep expertise in: IT as a tool to drive scale and reduce costs by automating data collection and processing.

New technologies, however, are more focused on enabling companies to engage with customers, employees and partners in new ways. This might be the table touch-application that consumers use as a second screen while watching a sports event, or it might be the smartphone application that blurs the line between the online retail and in-store experience. It might also be tight integration into Facebook or other third-party systems, or even the development of a public API, to allow customers to interact with the company across a range of platforms, many of which the company does not own nor control.

These new technologies don’t provide cost savings, nor can the benefits that they bring can’t be captured by a NPV calculation. They’re best thought of as creating new sources of business value.

Traditional IT budgets are in decline, driven down by the migration to cloud and other on-demand solutions. Most IT departments also have little experience in the new digital business technologies and struggle to fit them into their existing software development and service management processes. At the same time the marketing and sales teams, the parts of organizations that interact directly with customers, are rapidly ramping up their IT spend, leaving the IT department behind as they experiment with these new technologies.

This raises the obvious question in many peoples’ minds. Will the role of the IT department expand to include these new technologies (technologies which many IT departments clearly struggle with)? Or will the ownership of IT in business shift to a new group in the business (either the marketing department, who are on track to overtake IT as the largest spender on IT in the business, or will a new department be created, one that subsumes the existing IT department?).

The future role of IT

As Andy Mulholland pointed out in a previous post on CIO of the Future:

The fundamental question we need to ask ourselves is not “What is the role of the CIO and the IT department?” This is something that is already well defined and understood. The question we need to ask ourselves is “What role should technology be playing in the business?” 

The traditional role of IT is in decline. The IT department was created to procure and maintain the expensive IT assets that many businesses needed to grow into the global corporations that we know today. Now these assets are being swapped for on demand services, services that many lines of business feel comfortable procuring on their own. At the same time new technologies are being used in new ways to create value, rather than to simply reduce costs.

The challenge facing most IT departments is what to do about this decline.

The challenge for all businesses is to understand what the change means for the business as a whole.

IT is no longer a monolithic asset that will be managed by a single entity in a business, so it’s silly to wonder who will be the “owner of IT”, who will make all decisions on how IT is procured and used across the business. The value space has expanded, and we’re using IT for a lot more than simply reducing costs. Different lines of business use technology in different ways, requiring different skills and different techniques to define and measure value.

The question we need to understand is: How will the management of IT fit into future governance structures across the business?

The failure of (many) Chief Innovation Officers

It’s often thought that seats at the C-level are created for those things that a business deems most important. Finance is obviously important, especially for a public company, hence the CFO. If information technology is important then, by extension, a company will have a CIO, and so on.

While this trend might be true in the short term, in the longer run being seen as important is not enough.

There have been many roles created at the C-level, such as the Chief Innovation Officer, which have come and gone in many companies. They failed to find something to anchor themselves in the organization, something to provide these roles with the authority they need to last beyond the preferences of a single CEO or the latest trend in business management practices.

The thing that anchors a senior role in an organization for the long run is governance, having decision rights over and being accountable for a resource or asset essential to the operation of the business. The CFO is the most obvious example, with the regulatory requirement for a published and externally audited set of accounts forcing the vast majority of public businesses to hire a CFO.

The failure of many Chief Innovation Officer roles can be attributed to a lack of decision rights: they didn’t fit into the governance model for the organization. Other members of the C-level simply worked around them, as the Chief Innovation Officer didn’t control any the resources or assets the other members of the C-level needed to be successful.

What will determine the role of IT in business?

So what governance requirements are going to shape how IT fits into a business? What forces will determine if IT will have one owner or many, and who this owner might be?

Two examples spring to mind:

• Existing regulations for public companies to publish externally audited financial reports
• Emerging regulations for public and private companies to support government and international AML and CTF programmes 

External Audit

External audit is an obvious candidate. With marketing departments going rogue often there’s only a tenuous link between what’s happening at the coalface and a company’s chart of accounts. One day the auditors will come knocking, and they will want to be able to trace a transaction all the way from the point of purchase (which well may be for a non-standard product procured via a widget in a social media platform) through to the company’s general ledger.

One great example of this challenge is from a large fast food chain in Europe.

The chain found itself confronted with increasing customer disloyalty and declining revenue. The firm’s old business model wasn’t working anymore as consumer behavior had changed. Rather than its brand being a beacon used to consumers to plan their day – “hey, let’s grab a quick snack there before hitting the clubs” – it had come to represent a predictable and consequentially uninteresting experience. Consumers were turning to recommendation services, accessed via their smartphones, to find somewhere more interesting to meet for their pre-club snack.

The firm’s response was to renovate its restaurant to create a more pleasant café-like atmosphere and to introduce a sandwich of the month to make the menu more dynamic. Consumers would find the new ambiance more to their liking and desire to try the latest sandwich would draw them in.

This is a situation that would make any CIO sit back for a moment. Every month there would be a new product on the menu for customers to try. This implies changes in everything from the till back through the supply chain to the new collection of suppliers required to support the new offering. This sort of constant business process churn will put a spanner into the works of many core systems, causing the CIO to push back.

The response from the fast food chain’s marketing department was to go rogue. All the technology required to support the changing menu was implemented and maintained by marketing, away from the IT department. The only integration between marketing and core IT systems would be a spreadsheet capturing marketing’s monthly profit and loss that would be manually uploaded to the general ledger.

Many firms are finding themselves in similar situations: their marketing department is responding to (what it sees as) unstoppable market forces by implementing significant IT solutions away from the IT department.

At some stage the external auditors are going to come knocking. They’ll want a complete picture of how transactions for these new offerings are generated and managed across the entire business. The business will not be able to provide the auditors with information they demand.

Anti Money-Laundering & Counter Terrorism-Financing

Another, less obvious, candidate is anti-money laundering and counter terrorism financing regulation.

Recently there has been an explosion in the number of privately managed complementary currencies. Some of these currencies are used within social networks and games to purchase services and virtual products. Others, such as Bitcoin and similar “cryptocurrencies”, are designed to supplement or even replace sovereign currencies.

As these currencies have matured they have begun to attract organized crime. Korean police, for example, captured the leaders of a money-laundering group for a Chinese gold farming ring targeting Korean online games. The foreign affairs bureau of the Seoul Metropolitan Police Agency said in their press release: “We arrested two individuals; including the ringleader who is a 37-year-old man named “Jeong”. Jeong’s ring purchased in-game money in China … and then cashed the money through domestic game item brokerages. They then illegally wired a combined 38 million dollars from Korea to China.” Jeong and his ring reportedly sold the game money illegally produced in China using cheap labor and virus programs.

The anonymous, peer-to-peer nature of Bitcoin is also attractive to criminal groups. The FBI stated that “Bitcoins will likely continue to attract cyber-criminals who view it as a means to move or steal funds” while the Washington Post labeled it “the currency of choice for seedy online activities”. Services are also emerging which facilitate illicit activities, such as Bitcoin “mixers” (such as like Bit Laundry) where Bitcoins and cash are exchanged for “clean” ones, typically for a a 1% transaction fee.

As businesses, even privately held businesses, integrate themselves into this new commercial environment they find themselves increasingly subject to AML and CTF regulation.

Create a complementary currency for exclusive use by your customers (even a currency that is simply “points” that can be traded for “services”, or possibly even something as seemingly innocent as pre-paid mobile minutes) and you will need to prove that your business and your currency is not being used to launder money or finance terrorism. Integrate your business with a complementary currency provided by a third party and the same regulation may apply. Even simply accepting Bitcoins as payment (which necessitates integrating your business with the Bitcoin network) might subject you to these regulations.

The future shape of IT in business

While the final shape of IT in business might be up for debate, we can see that governance will have a large influence on what this future shape might be.

Regardless of how IT assets and services are purchased and managed, we can see that regulation is a strong driver to create a single C-level role which is responsible for ensuring that all technology across the business is used in a way that supports the firm’s regulatory needs. This is a role similar in nature to that of the CFO, though the domain of expertise will differ significantly.

All CFOs are accountable for a firm’s financial reporting, while good CFOs will also work across the business to ensure that all lines of business are extracting as much value as possible from the financial reporting and financial assets that own.

All members of this new C-level IT role will be accountable for the firm’s transaction reporting, while the good ones work across the business to ensure that all lines of business are extracting as much value as possible from the IT assets and services that they own. This is a different skill set to those required by the current CIO (IT asset management), CDO (web and mobile) or CTO (technology development).

Most businesses allow the lines of business to manage their own budgets, though the head of the line of business is expected to have the skills and expertise do this and they do it within a governance and reporting framework managed by the finance department.

A similar arrangement might emerge for governing IT. This suggests that the head of each line of business will need to acquire the skills and expertise they need to manage the IT that their department needs. It is unlikely that we will need to create a new set of C-level roles to manage different areas of IT.

How is your business coping with the transformation required to become digital business? Do you have a new IT governance framework in place? Or are you experimenting with different options, such as creating a CDO?

It looks like cloud computing is taking over. So if cloud is the future, then what might our future technology landscape look like?

The two largest centers of gravity in most IT departments are their back-end ERP and front-end CRM platforms. It’s clear that both of these platforms are migrating from the datacenter to the cloud. Organisations moving to using CRM and social-enabled front-end cloud platforms to engage with our customers. There’s a similar story with our HR and EPR backends that manage our firm’s transactions and help ensure compliance.

Each of these major cloud platforms swaps modules-that-we-customize for apps-that-we-download. The shift to apps allows business units to configure cloud platforms to their liking without much (if any) help from the IT department. Bought a CRM and need it configured to support a sales methodology? Just turn on Holden or Miller-Heiman, for a small additional fee. Want advanced analytics on that HR database? There’s an app for that.

Where we can’t find an app we can pick and choose from the growing number of cloud-delivered point solutions that solve all manner of problems. These solutions might be focused on our vertical, or they might represent general cross-industry capabilities. Need workforce management to support you consulting team? Or scheduling, supply chain planning and asset management to manage logistics? Or inventory management and planning for retail? There’s (probably) a cheap and cheery solution out there just waiting for you and your credit card.

Solutions are also morphing into services. Rather than buying a project and portfolio management solution we’ll buy Project Management Office (PMO) as a Service. We’ll get the tools we need, the methodology and training we need to get the most from the tools, and admin support to help us manage the tool and ensure compliance, all under a single fee structure.

Integration between these cloud-platforms will be treated as a feature to turn on (or as an “integration app” to buy) rather than as a major integration project. The application installation and customization work that used to be the bread and butter of many IT organizations will dry up.

There will, however, continue to be some custom build that we either do ourselves or with a partner. We’re not at the stage where there’s a solution to every problem we have. Nor would we want to push everything out to an external cloud provider, as there are some solutions that are central to the products and services our business provides.

The future IT landscape will be much simpler that those that we’ve struggled with over the last couple of decades. The complexity that used to consume so much of the CIO’s (or CTO’s) time is being hidden inside cloud platforms and app market places, a problem for the vendor to manage, not the CIO. However, as I’ve pointed out before, the CIO will still be accountable if these services are not working. When email stops working it will be the CIO, and not a cloud vendor’s service desk, that the CEO turns to.

But if the shift to the cloud means leaving behind many of the engineering-based skills and competencies that we worked so hard to develop, then why would we do it? Because, as Zach Hicks (Toyota’s CIO in North America) said:

“if I’m screwing around worrying about what version of mail I’m on, it’s wasted effort. It’s a lost opportunity … to do something more meaningful for our customers or our business,”

What do you think? Is moving everything to the cloud a bridge too far? Or do you relish the day when you can roll up your sleeves, get out of the back room, and get involved at the coal face of the business?

A recent survey of IT budgets shows that the focus for many IT departments has moved beyond virtualization and consolidation. They’re working to hard to realize the flexibility and agility that cloud promises to bring to their organizations.

The report found that:

• The worldwide cloud computing market is predicted to grow strongly with a 36% compound annual growth rate (CAGR) through 2016.
• Spend is flowing away from the virtualization and consolidation that has been the focus in many IT departments for the last few years.

Image source: Forbes.com

It’s not surprising that a shift to private cloud is at the top of the list. CIOs are, by nature, risk adverse as the role still carries operational responsibilities. The current boom in private clouds probably represents a try before you buy mentality. CIOs are using private clouds as a tool to understand the operational impact of moving to the cloud.

The fact that cloud provider assessments slot in at the second position, closely followed by Infrastructure as a Service (IaaS) and Software as a Service (SaaS), shows that the private cloud boom might be a short one. CIOs are already using what they have learnt from private clouds to evaluate cloud providers and then invest in their services.

The report also found that the biggest roadblocks are organizational or – that old bug bear – security challenges, and not the technology itself.

Image source: Forbes.com

Cloud radically changes the dynamics of our IT departments. The shift to cloud means that we’ll spend less time managing IT assets, and more time managing external service providers and knitting together end-to-end processes. This change takes time as teams and individuals must adapt to new roles and responsibilities, and new ways of working.

Where are you on the cloud-adoption journey? Have you experimented with private cloud? Or have you leapt into a public cloud? And what challenges did you need to overcome on the journey?

Money is tight and many industries are feeling the squeeze. Budgets are being trimmed – if not outright slashed – and we need to do more with less.

We’ve done the obvious things. We’ve eliminated waste by disposing of unused licenses and assets. We’re moving fixed costs to variable costs so that services will flex with the business.

All of these tactics are backwards-looking though. They’re one-time savings resulting from trimming the fat and tightening our belts.

The challenge is not just making our existing IT solutions a little more efficient. We need to find ways to create the new solutions that the business needs without breaking the bank. We need to find a low-cost approach to enterprise IT.

IT is no longer an engineering profession

The success of many business used to rest on the on the quality of its tools. If the tools – a business’s IT systems and processes – broke then the business would fail. We spent our time engineering capital intensive, complex IT solutions that would withstand whatever the we threw at them.

Today, though, reliable solutions can be purchased as-a-service.

The success of many businesses now rests on their ability to respond to changing market conditions. Our challenge is to furnish the business with a set of tools that it can use to quickly adapt to the ever changing market.

The old capital intensive, complex, IT solutions are the legacy that is dragging many IT departments down. Legacy thinking is our albatross.

What are the new guiding principles?

But if enterprise IT is no longer an engineering challenge, then what sort of challenge is it? What are the guiding principles we should use as we craft solutions to the problems that our business has?

We don’t need to look any further than the low cost consumer industries for our inspiration.

1. Keep the core solution simple
2. Provide sensible options
3. Only pay for what you use

Rule 1: Keep the core solution simple

Reduce the complexity – and thereby the cost – of the technology you use. All those fancy options take effort to implement, and this effort must be paid for. If you can keep your core requirements simple then you can use a cheaper solution, and you can (largely) avoid the expense of customization.

Most solutions on the market today are more than capable enough for many organizations. We don’t need to spend our time trying to find the “best of breed”, knowing that the best might only just be good enough.

Apple stripped back the smartphone, simplifying how we interact with it, and created a more satisfying experience in the process. Zara develop a constant stream of fashionable but simply constructed clothes and revolutionized the fashion industry.

Basecamp, from 37signals, did something similar for project management. They realized that most projects don’t need the complexity typical project management tools brought with them.

This trend toward simplification has grown beyond small teamware tools to include tools to support managing small organization. The trend is moving upstream to larger and – traditionally – more complex solutions. First project management. Next email and desktop automation. Today CRM & ERP from SaaS vendors such as Salesforce and Workday.

It might be wise to consider which solutions deliver the outcomes that your organization needs, and then change how your organization works to match the tool. Rather than trying to (re)configure the tool to support unique processes.

Rule 2: Provide sensible options

Provide a small but logical set of options so that teams can tailor solutions to their needs by selecting the options that they find the most suitable.

Avoid the “one size fits all” problem where all stakeholders are forced to use the one, monolithic, expensive solution that tries to cater for every eventuality. This results in you needing to either overcharge the smaller users – often discouraging them from using the solution in the first place – or let them ride on the coattails of the larger users.

Building one large, complex solution was right approach when creating an enterprise application was akin to launching a rocket to the moon. You only get one chance and you need to make it all the way to your destination so you better pack everything you’ll need for the journey. Saber – one of the first, if not the first, airline reservations systems – is a case in point, with the final solution including everything from back-end mainframes and applications through networks to the terminals the staff would use to access the solution.

Unbundle your products and services – just as the low-cost airlines have – and provide a small but logical set of options that the business can use to construct their own end-to-end solutions. They might have bought the flight, but do they need the meal?

These days there’s an app for that. If we need something small to add onto our CRM or ERP then we can often buy an app or module from the marketplace provided by our platform.

You’ll need to work with your customers to understand what options they need.These options will also change over time as the business and the market around it evolves.

Rule 3: Only pay for what you use

The last and possibly the most important point as it ties the other two together. You might have provided simple base solutions with a reasonable set of options, but if the price is not connected to the choices the business makes then it’s all for naught.

Encourage consumption-based models using sensible business drivers – per seat, per … – so you only pay for what you use. This is the key to the low-cost model.

Three rules to bind them

The persistently tight margins we seem to be experiencing mean that it’s time to move beyond belt tightening.

Luckily we don’t need to look far for inspiration. The low cost consumer industries can point us to three key principles that we can use to help the business optimize.

1. Keep the core solution simple
2. Provide sensible options
3. Only pay for what you use/li>

If the base solution is simple then you get a  low starting price. Providing a sensible set of options allows the business to adapt the solution to meet their changing requirements. A consumption-based model can help you ensure that you’re never paying for anything that you’re not using.

What do you think? Is the current belt tightening a passing fad? Or do we need to find new and smarter ways to procure the technology that allows the business to do more with less?

The first law of being a CIO might well be “You don’t get to talk about strategy if your IT is broken”. Moving your enterprise applications to the cloud doesn’t change this.

Once an application has been transitioned to the cloud you will no longer be responsible for the day-to-day management of a solution. You are, however, still accountable when these solutions fail. If CRM is broken then the CEO will be calling you, their CIO, and not someone at the Software as a Service (SaaS) CRM provider.

Moving applications from your own data centre to the cloud can provide tangible benefits. But you need to be prepared.

You need to do your due diligence so that you’re fully aware of the benefits and limitations. You need to integrate the solutions into enterprise wide support and business continuity processes. And you need to manage cloud providers like any other vendor: monitoring their performance and weeding the under-performers from your vendor portfolio.

It’s important that you know what you’re buying

All cloud solutions come with some sort of service level commitments. It’s important to understand what these commitments mean.

SaaS solutions will provide some commitment on availability and data durability (i.e. how much data might be lost during a failure). Often the level of these commitment will depend on the package that you purchase. Getting by on a cheap-and-cheery freemium package might seem like a smart move at the time. That is until the service fails, taking all your data with it, and you realize that the freemium service levels provide poor availability and put you at the back of the queue for data recovery.

Service levels provided by Infrastructure as a Service (IaaS) platform vendors – such as Amazon Web Services (AWS) – are more nuanced. They will provide service levels for each of the distinct platform services they offer: virtual machines, data storage, and so on. It’s up to you to weave these services together in a way that provides the end-to-end service level you require.

You’ll notice that whenever there is a highly publicized AWS outage that the Amazon.com store is rarely affected. The failure of third-party applications hosted by AWS is not Amazon’s fault. These applications either deemed the failure an acceptable risk or didn’t design for Amazon’s cloud computing model.

IaaS provides you with a toolbox. It’s up to you to use the toolbox effectively.

You can’t avoid integration

No application is an island, and it must be integrated into your IT estate if you want to realize it’s full potential. This might be as simple as plugging it into your identity management solution so that employees can use their usual username and password. It might be more complicated, integrating it into end-to-end business processes.

Cloud solutions also need to be integrated into your business continuity plans and processes. What will you do if the solution should be unavailable for some reason? How will you manage to keep the business running without it? How long can you keep the business running without it? What will you do if the cloud solution becomes permanently unavailable?

In many cases including a cloud solution in business continuity is as simple as periodically extracting a spreadsheet containing all the data the application contains.

Your support desk also needs to be aware of the cloud solution, and ready to support users who have problems. Users will call the same number regardless of who the solution is provided by (just as the CEO will always call you, the CIO, when a solution fails).

Finally, you need to plug the cloud solution into your operational monitoring. You want to be the first of the management team to know that the solution is down. That call from the CEO should be along the lines of “We already know about it, and this is what we’re doing to solve the problem…”

Prepare for life as a small fish in a big pond

Many of the benefits of the cloud – scaleability, low cost, etc. – come from the huge scale that cloud and SaaS providers can achieve. The downside of this huge scale is that you’ll most likely find that you’re a small fish in a very big pond.

Operating your own data centre allows you to be your own lord and master, controlling every aspect of the data centre’s operation. With the cloud solution, however, you’re just one voice among many. Your requirements will often become just one of the thousand conflicting demands that the cloud provider is attempting to balance.

You need to consider cloud and SaaS solutions as tools that your business simply uses as is, rather than solutions that you try and adapt to your unique needs. Typically it’s the commodity business activities that you want to throw out to the cloud or SaaS. There’s no benefit from foisting you peculiar approach to order management onto the SaaS solution. You might have pages of requirements, but a smarter approach is to find a solution that you consider capable and cost effective and them simply adopt whatever standard business processes it provides.

This is somewhere the CIO can help the business

Moving applications to the cloud can deliver tangible business benefits. There are, however, pitfalls that need to be avoided.

As IT spend migrates out of the IT department and into the lines of business more and more CxOs will find themselves in the unenviable position of being the proud user an IT solution that isn’t currently working. The first person they’ll turn to will be the CIO.

This is something that an astute CIO can help with.

• Work with the other departments to ensure that the right options are purchased, covering both functional and non-functional requirements.
• Deal with the integration challenges so that the cloud solution does not become an isolated island.
• Weave the cloud solution into enterprise-wise business continuity and support processes.
• Ensure that you have monitoring in place so that you get the bad news first

Cloud solution work, but you need to be smart about how you use them if you don’t want to be caught out.

Have you moved applications from the data centre to the cloud? What problems did you encounter? And how did you overcome them?

Traditional IT departments are being dismantled piece-by-piece. Cloud services, Bring Your Own Device (BYOD), and even the drive for tighter integration with our partners, are poking holes in our IT organizations. More and more of the technology that our businesses use is purchased and controlled by someone other than the IT department.

But is this such a bad thing? As IT leaders, do we want to continue to be chief infrastructure owners and order takers?

The traditional CIO role is fading into the sunset. The businesses we work for are moving from needing to own technology to focusing on using what they can find around them.

We have an opportunity to carve out a new role for ourselves. A role where we bring together the technologies and skills our business needs to drive itself forward. The technology our business needs if it is to avoid problems and pounce on opportunities.

CIOs have the opportunity to make themselves as invaluable to their businesses as the CFO. The CIO as the in-depth professional who ensures that technology is an opportunity to exploited, rather than an albatross that drags the business down.

The demise of the Chief Infrastructure Officer

Our IT departments were built around the need for centralized control of expensive IT assets. Aside from brief episodes, such as the birth of spreadsheets and the desktop PC, most IT departments have kept a tight rein on where and how technology is used.

The success of our business depended on the quality of the tools it uses – the business processes and systems we rely on to keep the organization humming – as the business will fail if its tools fail. It’s not hard to find a business that will be significantly out of pocket if a core system fails at an inopportune moment, taking a day’s orders with it.

However, the environment our IT departments operate in has changed. We’ve used technology to solve the vast majority of the internal problems that business has, from maintaining finances through to managing supply chains and customer records.

The problems that our legacy solutions solve are now well enough understood for the solutions to be delivered as a service. Many of us are in the process of swapping our expensive on-premises solutions for more adaptable cloud-based services. This shift to cloud-based services is removing many of the traditional responsibilities of a CIO.

Technology is now central to how our organizations engage their market

The focus for enterprise technology has shifted from internal to external problems.

How do we integrate the heterogeneous and global supplier networks we need to operate in today’s global economy?

How do we support a workforce where many of the people working for our business are not employed by it? Our workforce is mobile, knitted together from baby boomers through Gen X to Gen Y, staff from suppliers and partners, through to free agents and even our customers.

How do we make sense of the many weak and confusing signals from the market, using social media as something more than a dog whistle? And how do we unlock the value in the disparate databases, spreadsheets and documents spread around our enterprise?

Which CxO will “own” technology?

We can see the shift in technology from an internal to an external focus is the tension between the CMO and CIO.

Many CMOs are on a similar journey to that which the supply chain team went through in the 80s and 90s. They’re experimenting with technology as they work to solve a poorly-defined and unstructured problem.

Our supply chain toolkit was built on the inventory management solutions installed at factories and warehouses, creating event management and planning solutions to help manage the flow of goods. Finally sales and operations planning was used to tie the end-to-end supply chain together.

Supply chain matured from a craft into a science as we broke apart the problem and then built out the toolkit needed to run an efficient supply chain.

CMOs are investing in new technology and new solutions. They’re building social media war rooms. They’re experimenting as they work to develop the toolkit they need to run an efficient and effective marketing operation. A marketing operation that must live in a world dominated by social media and omni-channel.

Best practice is currently based on disconnected solutions and tribal knowledge. Best practice, however, will mature rapidly, just as it did in supply chain.

The CMO is discovering what signals from the market to pay attention to (and which to ignore), what technology works (and what doesn’t) and how to structure their team to enable it to scale.

IT leaders have a lot to offer the CMO, just as we do to other business leaders.

CIO: Chief Inspiration / Innovation / Integration Officer

The IT department can help pollinate ideas and technology across the business, and across partners and industry. IT can make connections between needs and (potential) solutions.

We can help the business procure and manage their technology, ensuring that it is secure and reliable. And we can help them make the most of their technology purchases by integrating them into the business.

HR departments have renewed themselves by helping the business get the most from its knowledge workers; creative, problem solving people within the business. IT leadership can renew itself by helping the business get the most from its technology.

In an age when technology is woven into the very fabric of the business, companies depend on it not just to save money through automation but to also create opportunities.

Few companies would consider doing without a CFO and finance department, as finance is central to resource management. Few companies will be able to do without a CIO and IT department, as IT is central to a company’s ability to engage the market and create new opportunities.

Our business now lives or dies in its skill in using technology

Businesses used to live or die on the quality of their tools: the business processes and solutions that they invested so heavily in. Today businesses live or die on their ability to adapt: their ability to use the tools around them to solve the problem (or capitalize on the opportunity) in front of them.

The CIO is the in-depth professional who can bring together the technologies and skills that the business needs to drive itself forward, to enable it to avoid problems, and to pounce on opportunities and adapt.

IT is no longer just a cost of doing business. IT has become one of our major tools to engage customers and go to market. IT is now firmly at the centre of business, and our business will fail if we fail to use IT effectively.

What is your experience with the changing role of the CIO? Will IT spend migrate out of the IT department leaving an empty husk behind? Or can we reinvent the CIO role? And if so, what does the future CIO role look like?