IT chiefs will need to start thinking like venture capitalists if they are going to help their organisations innovate.
Technology is moving at such a rapid pace that CIO’s traditional risk-adverse approach to project management will no longer cut it, a study by Deloitte claims.
‘Disruptive forces’ such as crowdsourcing, mobile, big data and cyber security will make the success of IT projects harder to predict in the future, says the consulting group.
CIOs will need to take more risks and will need to plan for more of their projects to fail, said Mark White, Deloitte’s global Chief Technology Officer (CTO).
“The modus operandi of the CIO has been risk avoidance. We would suggest that risk intelligence is a much more appropriate stance,” he told Computer Weekly.
Top CIOs will increasingly behave like venture capitalists, managing a portfolio of potentially risky projects, knowing that some will fail, Deloitte’s Tech Trends 2014 report predicts.
The role of the CIO will be to ensure that the portfolio contains the right mix of projects and to be prepared to allow unsuccessful project to fail quickly.
How to think like a venture capitalist
- Take an inventory of your technology portfolio: What technologies do you use, what projects are underway, what suppliers do you use, where are they based?
- Evaluate the portfolio: Define the risk value and importance of each project. Where do costs outweigh value, where are the strategic gaps ? Strive for balance between innovation and extending legacy systems.
- Double down on winners: Encourage intelligent risk taking. Failure due to poor execution is unacceptable, but setbacks from exploring innovative ideas are inevitable. Be conservative in initial funding to inspire creativity.
- Direct your line of sight to the revenue: Develop approaches to better identify winners and losers. Share your accomplishments and goals using language the business understands. The first few wins can help you drive change.
At the same time, CIOs will need to be able to talk about their strategy, investments and risks in business language the CEO and Chief Finance Officer will understand.
One CIO in a public sector organisation in the USA, for example, set up an internal investment fund, to pay for cutting edge IT projects.
“They are making small, half a million dollar bets, and placing those in areas where they have a high speed of change and return,” said White.
Some of the most attractive digital technologies, such as mobile and data analysis apps, are ideally suited to this approach, he said.
The language of business risk
A VC approach to project management represents a big cultural change for most IT departments, but introducing formal project portfolio management methods is a good place to start.
“Have a look at where you are spending money, your resources and where your pain is coming from. Look at the risks, the size, line of business, and categorise each project,” he said.
CIOs can build trust with the rest of the business by investing in quick win projects, for example by using data analytics to help a company support its pricing strategy.
White advises CIOs to learn more about the venture capital approach by reading books, attending courses, and most importantly talking to venture capitalists.
“There are many venture capitalists interested in speaking to the CIO. They are interested in learning from the real life experience of CIOs. So striking up those conversations is not hard,” he said.
Reducing Technology Debt
At the same time top CIOs will increasingly focus on taking the risk out of their existing IT infrastructure, the study predicts.
IT systems accumulated errors over the years, as they are modified and patched. This can leave organisations with error-prone, inefficient IT infrastructure, which is expensive to maintain and run.
This "technical debt" typically costs organisations over $3 per line of code, equivalent to more than $1m for an average IT system, researchers claim.
The Royal Bank of Scotland, for example, blamed a major system crash this year which left customers unable to withdraw funds from ATMs, on decades of failing to invest in its IT systems.
The most effective CIOS are devoting part of their IT resources to maintaining and simplifying their existing systems Deloitte claims.
“The key is to make sure you have the base discipline. Is it 1% of the effort or 20% of the effort. It depends on your business. Is it zero? No. Is it a spikey thing when I only go and look at it, if there is a problem? It shouldn’t be,” said White.
He advises CIOs to look at the overall health of their systems, and to triage those that need urgent attention.
“Some will need immediate surgery, some will need band aids and aspirin. Once you have been through the triage and surgery, you move on to physiotherapy and a lifestyle change to prevent future problems,” he said.
Integrating the development and operations functions of the IT department more tightly (DevOps), can help organisations keep their technical debut under control.
This approach helps organisations to streamline their change management, configuration management and release management processes, said White.
Some very big IT departments have moved to DevOps in the last six to 12 months and are expecting big reductions in systems outages, and shorter development cycles.
It is still too early to quote numbers but the returns will be disproportionately higher than the cost, said White.