How regulation may redefine the role of technology in business
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?
6 key elements in effective innovation governance
By Ross DawsonEarlier this week I ran a two-day workshop in Bali for the Malaysian Directors Academy on The Innovation Zone: Unleashing The Mindset.
I ran the same program in Phuket last October for another group of directors of large Malaysian companies, with the feedback from that session prompting the Malaysian Directors Academy to ask me to run the workshop again.
The topic of “innovation mindset” is an excellent one for company directors, as that must be the starting place for successful innovation initiatives.
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Design Anthropology and the IT Leader
By Alistair LloydLeveraging the synthesis of design practice and the study of human culture and behavior
Who is responsible for design in your IT department? If your answer is your Architecture or Business Analyst teams then you may be missing a vital factor. Take a moment to reflect on what design really means and who utilizes the outcome.
Design is led by the individuals and groups that populate your organization’s ecosystem; in internal departments, trading partners, service providers and customers. They grapple daily with sets of increasingly complex information. Where they may have once begrudgingly accepted what was offered, modern consumers will not sit idly by if presented with systems and processes that are increasingly misaligned to their needs.
This shift in behavior means how you manage design (in particular, your service design) must change. Now is the time for the CIO of the Future to consider design anthropology – a powerful, emerging practice that blends the study of humankind with design thinking.
Why the old ways aren’t working
Business problems are often resolved with the materials and capabilities that are on hand. This makes sense if operating in a steady state. Leveraging existing assets means that organizations can make the most of what they have already invested in.
The problem is that an organization does not operate in isolation. Their operating environment is influenced by changes in the competitive landscape, the emergence of new technology and shifts in social behavior.
These changes are not under your control. As a leader you will find yourself increasingly unable to respond to such chaotic and fluid influences with binary and linear solutions. A direct technology or process response will be insufficient. Relying on history (doing the same things you’ve always done) or adopting best practice (copying what others have done) will burn a lot of energy and resources with an ineffective result.
The “I” in CIO is not solely about the provision of information. It is about how it is gathered, shared and applied for the best outcome.
Consider the following trends:
These trends create a major challenge for the traditional practice of design. An isolated, once-off exercise undertaken at the beginning of a project will not produce a sustainable and effective result. This is where design anthropology comes in.
Introducing design anthropology
Systems analysis and design is generally recognized as a defined set of processes followed by individuals or small groups who work in relative isolation from consumers. They produce a concept or specification that is then handed off to engineers to be built. This rigid, closed-door approach results in design outcomes that are no longer meeting consumer needs.
In contrast, design anthropology brings together the dynamic study of people and their behavior with the practice of design. According to Design Anthropologist Julie Cook, key aspects of this practice are that it is:
Supporting this approach, Cook says, is the application of the social science of ethnography – the “collection of data about people through direct observation and interaction”. This change of focus – from what people say they do to what they actually do – is the ignition point for true innovation. Without this, leaders will be faced with a growing gap between what the consumer desires and the solutions being offered to them.
Expanding the concept of the “consumer” to include the wider workforce of an organization results in a shift in thinking. Team members are no longer seen solely in their role as a “utility” where the most productivity can be yielded, but as consumers of the data, tools and processes that they work with. This is increasingly the case in service-based organizations where people, to put it bluntly, are an organization’s raw materials and processing machines rolled into one.
If the creativity and curiosity of employees is constrained by traditional management methods in the workplace, then it will find ways of manifesting elsewhere. Ideally you want that energy to be directed inwards, to your organization.
Applying the principles
It takes a fundamental shift in how you lead your team to introduce and support the principles of design anthropology. There is no fixed recipe, however Cook provides some essential guidance:
Leaders in design anthropology practice include the Mayo Clinic, Xerox, IBM and Intel, in particular through the work of Genevieve Bell.
How would you go about applying the principles of design anthropology to your organization? Have you seen examples of where it has produced surprising results?
Social Business Needs Social IT
By Rick MansUsing 4 Social Business principles enables you to create a more flexible and responsible IT department
Social Business is not just changing what the marketing department worries about. It’s changing how we run our businesses, and changing what we consider to be a well-managed business. Social Business can make your business more flexible, more agile, more open, and more future proof for the next revolution in technology. This is a revolution that is already taking place.
If the future of business is social, then the future of the IT department is social too.
Social Business
We need to stop thinking about the technology – the social tools – being something that we implement for others. The change that is currently happening in the marketing departments is working its way through business, and will hit the IT department eventually. It is the choice of the IT department to be part of this change, or to be outpaced by somebody who serves the business better. Price is not the competition, it is about value delivered.
Shift from thinking about Social Business as a new communication channel to implement, to seeing social as the starting point for that will lead to a big change in how you design and manage your operations, and it will lead to big benefits.
The future of business – and of the IT department – is more flexible, responsive, and more open. It is not about being more social, whatever that might imply; we never worried about being more SOA or more ITIL . Social is a design principle that leads you to these goals. It is not the goal itself, nor was SOA or ITIL.
Design Principles
The concept of Social Business, associated as it is with Social Media, is often treated as something isolated from other activities within organizations. It’s confused with channels – email, instant messaging, phone… – since it’s the channels that are the most obvious aspect of social, with their manifestation in the form of Facebook and Twitter.
Social Business, however, is changing how we manage and run our businesses. If you want to get the full benefits from Social Business you should not see it as a collection of tools or as something that is only concerned with customer service. Getting the most from Social Business goes beyond ‘being great’ on Facebook, Twitter and LinkedIn. It is a fundamental change in how businesses are being run, organized around how businesses and their stakeholders interact and think.
Social Business is a design principle. It is a logical design principle if you compare it to other design principles we use, such as open architectures, service orientation, and cloud. While Twitter and others might be the most obvious manifestations of social, they are only channels. Though these channels are not Social Business, they are designed with the design principles of Social Business.
What are the top four aspects of the social design principle?
Social IT
We all like change when change is something we do to others. However, if IT wants a role in the new social businesses then IT needs to apply the social design principles to itself.
1. Privacy and trust
With the rise of a PRISM society who can you trust? Is the CIO reading my email? To design for Social IT you have to ensure that there is complete trust between all stakeholders inside and outside. This means that office politics have no place in social environments, and openness, connectedness and delivered value are valued over utilization and old boy’s networks. Participation is something that is valued, not something that is held against somebody.
2. Simple flexible tools
Open architectures, service orientation, and cloud are things you keep in mind while designing your processes and your applications. However Social Business is most often forgotten, it is added afterwards or it is introduced as a separate silo next to existing solutions.
3. Flexible policies over detailed processes and rules
IT cannot control every bit of IT a Social Business uses. It needs to move from detailed rule-based policies built on the assumption that IT owns the technology, and focus on flex policies that provide the business with the flexibility it needs to get things done.
Who knows what’s best for everybody? Most likely everybody knows what is best for everybody and with consumerization being a standard phenomenon in the enterprise you cannot enforce rigid policies anymore, since the ROI of enforcing would be so little compared to the ROI of letting go. People are not stupid by default, they don’t need lengthy rule books, they need guidance in the right direction.
4. Data driven ROI
What is the ROI of measuring ROI? What is the ROI of not changing? The beauty of social design is that it creates so many more data points that it is easier than ever to optimize ways of workings than it was before. Optimizing doesn’t mean making it more efficient, it is making it more value-adding for the company.
The assembly line is completely optimized, however what is the retention level of the people working on that line, what do they think, what is the cost per new hire?
Efficiency is a model that works in scarcity, not in the abundance driven world we experience in the 21st century. Information and knowledge workers aren’t scarce anymore, they don’t need to be utilized more as the precious steam engines in the 19th century did. They need to mobilized better so they can, will, and want to deliver a better ROI, an ROI that can be measured in absolute detail since every action they take is willingly and intentionally shared with everybody.
Conclusion
Thinking of Social Business beyond the implementation of a channel and treating it as a design principle will help you in designing different kind of solutions. This provides the advantage that the social transformation is coming from the start of the design, instead of after the introduction. This helps you and your organization to move the traditional enterprise to a more social business.
If you start designing your processes and applications as social by default, you’ll see that solutions are likely to become more flexible and connected. It will create more value than in the traditional silo approach and it will help to connect the dots between people, processes and systems. This is because social is not only about human interaction but also about the interaction between humans and systems and even between systems themselves.
You unleash the power of outside by thinking outside-in. However keep an eye on privacy, trust and mobilizing the social network around you, since those are important elements to create tangible value for your organization and for your customers. Social by design is two-way street, a street owned by your customer.
Is your IT department edging toward becoming more social? Are you experimenting with Social Business design principles to help integrate your capabilities into the business? Or is it challenging enough just dealing with business as usual?
Do you have the passion of the explorer? If you do, what kind of employer could attract you away from entrepreneurship?
By Ross DawsonToday the ever-inspiring John Hagel spoke in Sydney today about passion at work as part of AMP’s Amplify series, organized by Annalie Killian.
The story in summary, told at more length in the Unlock the passion of the Explorer report, is that:
* Technological change is creating ever-increasing pressures and challenges for institutions and individuals;
* In this world the rationale for large organizations to exist is no longer scalable efficiency, but scalable learning;
* The Center for the Edge looked to find examples of “sustained, extreme performance improvement” that reflects this scalable learning;
* What they found in common was deep passion, but a particular type of passion that they dubbed the passion of the “Explorer”
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How to Surf Across a Burning Platform
By Colin Hope Colin Hope-MurraySucceeding in a world of impermanence, ubiquity, transparency, and competitiveness
While most of the planet is welcoming the advantages of a fully digital age, the seismic changes to our everyday lives, communities and organizations are generating a series of tsunamis that threaten to engulf those who are unwilling or too slow to adapt to change. It was just over 15 years ago that the first significant wave of internet technologies and services hit the marketplace. At the time industry resounded to cries of “burning platform”. Old school approaches to adaptation and improvement were ineffective in the face of a faster and more agile competition.
Despite (or because of) the warnings, the casualties were smaller as most established businesses adapted, albeit slightly slower than their marketing advocates would have preferred. The waves were also considerably small and less frequent then than the ones we see today, and minuscule compared to the ones on the horizon, each a tsunami in its own right, swelling the surface of the internet ocean. Cloud Services, Social, Mobile, and Big Data are all transforming the business landscape. Unlike the 90s, time is now compressed and survival less certain if the cautious or risk averse path is taken.
Business, but not as we know it
The signs are clear and there is no reason to doubt that the business world is in the midst of more than just a major disruption. Like King Canute, we will be unable to withstand the onslaught of the digital tides that will engulf the slower, more conservative enterprises and endeavors.
Enterprises are becoming leaner and more dependent on external resources and actions in their quest for agility. We – as CIOs of the Future – need to adapt our skill sets and intelligence to exploit the opportunities and build the foundations of sustainable growth.
Before we can agree on the necessary configurations and vital components of the new industrial environment, it is important to lay down some projections on the nature of this developing marketplace.
Four characteristics will predominate.
Impermanence
Enterprises are moving away from pyramid-like hierarchies to become slender columns of business development. Middle management, also known as the go-betweens, will all but disappear and most management functions will become temporary and fulfilled by external resources.
Permanent employment by a single large company will become rare. Executives will be retained for as long as they remain effective and current with new technologies, business models and, most important of all, fully aware of global market competition.
C-level salaries will be contractually determined and measured against specific deliverables, probably resulting in a re-adjustment of salaries to pre-internet boom levels. Executive expertise will become as itinerant as designers, scripters, and testers.
Ubiquity
The work force will be globally diverse and distributed, available at any time of the day from any location that is connected to the internet. In other words almost anywhere.
Virtual teams will span geographies and cultures and may be the result of several layers of subcontracting. Even the traditional body shops will focus more on rapid resource identification and validation (skills, achievements and certifications) than building an army of contractors.
Expect gaming-type honor systems to emerge as the means of distinguishing skill sets and achievements.
Transparency
Private storage of data will be minimized as more and more information will be stored and shared in network clouds.
Our most pertinent data will be strongly secured. However, the information needed to exercise enterprise vision and operation will be increasingly public or semi-public to allow external resources ready and rapid access to comprehend and deliver on contracted tasks.
Volume and velocity of data will continue to grow exponentially and new services will evolve to identify and predict meaningful volatility. As one wit observed the needles are much smaller and the haystacks immeasurably larger.
Competitiveness
Innovation life-cycles will continue to shrink. The lifetime of new output will be measured in days and weeks rather than months and years.
We will move from a disposable culture to a constantly transient one.
Dealing with redundancy will become a major issue for governments and industry. However opportunities to compete will grow exponentially as entry barriers to any and every market will continue to be lowered.
Creativity, critical thinking, communication, and collaboration may be key
While all of these characteristics may not play out exactly as defined, they are most surely harbingers of monumental change. Change at a rate that is unprecedented in human history.
This means that for every enterprise, every organization, and every individual the critical challenge is to thrive in an environment of continual change. This is the ability to transition from where they are today to where they need to be tomorrow, and begin the next day with the transition from where they have just arrived.
The Partnership for 21st Century Skills (P21) is a US organization that advocates the need to move beyond the 3 R’s (reading, writing and arithmetic) of our established education in an effort to evolve towards a better equipped and contributing citizenry. They have identified 4 “C” skills that are essential for growth and survival in the coming decades: Creativity, Critical thinking, Communication, and Collaboration.
Image Source: P21 Framework for 21st Century Learning
The burning platforms, casualties of the burgeoning internet, and forecasts by pundits in the mid-nineties are a reality. It’s just that the first decade was more of a smouldering than a conflagration. By the end of this decade the fire will be all consuming, we need to adjust our thinking, our behaviors and the skills to use the much smaller platforms or surfboards that will enable us to ride the tides change.
Do we know how to recognize and develop these skills?
Share your thoughts and comments below on how they may be used to address the challenges of the digital global environment, or identify other skills that will be needed to succeed.
In the Asian century, Australia is becoming Asian too
By Ross DawsonEarlier this week I gave the opening keynote at the Institute of Chartered Accountants/ Centre for Accounting, Governance and Sustainability Thought Leadership Forum in Adelaide.
The day’s theme was The Australian Accounting Profession and Asia, with a strong emphasis on education given the participation of most of the heads of accounting departments of Australian universities. As such in opening the event I was asked to speak on the broader theme of “Australia’s Engagement with Asia”.
In my keynote I started from the broader context of the ancient and modern history of Asia and Australia, looked at current trends including demographic shifts that are shaping our relationship, the most important intersections between our economies and cultures, and finally the leadership required for Australia and Asia to engage more deeply into the future.
In the course of my research for the keynote I looked at changes in Australia’s population, and generated the following very interesting chart:
Source: Australian Bureau of Statistics
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Availability in Europe in March and Latin America in April
By Ross DawsonI have a very busy travel itinerary coming up, with keynotes scheduled on 5 continents in the next 4 months.
While I often travel for a single engagement, I look where possible to fit in other client work when I am travelling.
I currently have availability in Europe the week of March 10 before the Congres Intranet in Utrecht, Netherlands, which is apparently the largest intranet conference in the world, where I am running a pre-conference workshop on Tapping the Power of Internal Crowdsourcing and doing a keynote on The Future of Work and Organisations.
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New Business Models Need New Approaches to IT
By Peter Evans GreenwoodHow regulation may redefine the role of technology in business
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 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:
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?
Keynote for Optus Business – Five driving forces of connected business
By Ross DawsonI recently completed delivering keynotes in six cities as part of a national roadshow for Optus Business. Optus’ annual client event was a morning event for its clients and prospects in Sydney, Melbourne, Brisbane, Perth, Adelaide and Canberra. The sessions began with my keynote on Surviving and Thriving in a Connected World, followed by Optus executives presenting insight and client case studies on mobility and IP convergence. Each event included an exhibition featuring Alphawest, the ITC services firm Optus acquired a few years ago, and a broad array of Optus Business delivery partner organizations.
Below is the key content from just one of the five sections of my presentation, on the Driving Forces that are transforming a connected world. The rest of the keynote describes in detail what connected business looks like, winning strategies for organizations in a connected economy, and finally the actions that needs to be taken to succeed.
The five driving forces of Connected Business are:
1. Connectivity
Increasing connectivity is an overwhelming force, shaping society and business. We have come a long way since the first mobile phones that weighed no less than a brick in the early 1990s and the birth of the graphic web browser in 1993. As we shift to pervasive connectivity, giving us access to all the people and information resources of humanity wherever we go, entirely new possibilities are emerging on who we are and how we live our lives. As messages flow rapidly between us, the people on the planet are becoming connected as tightly as the neurons in our brains, giving rise to an extraordinary global brain in which we are all participating.
2. Speed
We can think of it as the acceleration of everything. Our expectations for the time it takes people to respond to messages has shrunk from weeks to days to hours. The value of our knowledge is depreciating at an increasing rate. By every measure, from the number of science and engineering graduates globally, to the amount of information produced, and on to the number of patents filed, the pace of knowledge creation is increasing. Now the extraordinary visibility of innovation and new ideas is further accelerating the pace of change. In the video above XXX shows his idea for using anamorphic representation to create an “iHologram”. He doesn’t know how to do it, just what it will look like. However from the hundreds of thousands of people who saw the video, some will take the idea and do something with it. Ideas proliferate and spark new concepts and actions at an ever-increasing pace.
3. Fluidity
We are shifting to a fluid global economy, based on the ready flow of information and ideas across borders. Amazon’s Mechanical Turk enables companies to engage people across the world to perform simple tasks that can be done better by people than by machines. Business processes are being broken down into elements that are performed partly by computers, partly by people. Web services technologies continue to allow business processes to be broken down into smaller and smaller modules, each of which can be performed anywhere on the planet and then readily integrated. As business processes are distributed across the boundaries of IT systems, organizations, and countries, we are shift to a fluid economy that organizations must embrace if they wish to participate in the vast growth ahead.
4. Participation
Perhaps the biggest social shift in recent years is towards participation. I think it is an intriguing question whether the rise of enabling web technologies over the last years has shaped our social attitudes, or whether a transformation in social views has resulted in us developing the technologies to support these. Probably both are true, but either way there has been an extraordinary rise in participation, as illustrated in the diagram above (taken from our Future of Media Report 2008), accompanied by increasing expectations of openness and transparency. This massive trend changes not just how companies must engage with their customers, but also how they must organize to tap the degree of participation that their younger (and older!) staff expect.
5. Carbon
We are changing the climate of the planet. No-one knows quite what the impact will be in coming decades, however today’s social and political attitudes mean that every organization must focus on reducing their carbon impact. Not only will many customers make buying decisions based on their perception of how environmentally-friendly companies are, but there will soon be direct costs for carbon emissions. As improved communication technologies can increasingly replace not just many air flights but also legions of car commuters, carbon impact will accelerate the shift to connected business, driving video-conferencing, virtual worlds, work gaming environments, and richer forms of tele-commuting.
Scenario Planning – Strategy for the future of global financial services
By Ross DawsonFor my keynote at the Vision 2020 Financial Services conference last month in Mumbai I prepared some ‘quick and dirty’ scenarios for the global financial services industry landscape in 2020 from a technology perspective. Below is an overview of the content I used in my presentation. The complete slide deck from my keynote is also available, though it needs the explanation as below.
Scenario planning
Scenario planning recognizes that beyond a certain degree of uncertainty forecasting is of limited value (or can even be detrimental to good decisions). The process of creating a set of relevant, plausible, and complementary scenarios (more than the scenarios themselves) can be invaluable in creating and implementing effective, responsive strategies.
The heart of the scenario planning process is distinguishing between Driving Forces (consistent long-term trends) and Critical Uncertainties (unpredictable elements). Once these are identified, they are brought together to create a set of scenarios that reflect both what you know and what you don’t know about how the environment will change.
The image below shows a sanitized version of the process for a scenario planning project I ran for a major financial institution. This was quite a streamlined process relative to a comprehensive scenario planning project, however was designed to bring the insights directly into the existing group and divisional strategy process.
Below are the scenarios in detail:
DRIVING FORCES: GLOBAL FINANCIAL SERVICES
1. Economic shift
Economic power is shifting to the major developing countries. The BRIC countries (Brazil, Russia, India, China) together host close to half the world’s population, and their pace of economic development means that before long there will be multiple economic superpowers. In addition, global economic growth is shifting to the virtual, and developing countries will gradually wean themselves from primary and secondary industries to be significantly based on knowledge-based services.
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