IT leaders face a difficult challenge: How do you help your organisation innovate when most of your time and money is spent keeping the necessary IT systems running in your organisation?
Digital technology offers an unprecedented opportunity for CIOs to take leadership in helping their organisations innovate.
The convergence of four digital technologies – social media, mobile, analytics and cloud – is creating opportunities for organisations and disrupting established business models.
But the jury is still out whether it will be the CIO, the chief marketing officer or a new generation of chief digital officers who will take the lead in driving innovation.
CIOs from across the public and private sector met at a Digital Academy this month to consider how IT leaders can take the initiative.
Rob Lambert (pictured) is director of the IT leadership programme at Cranfield School of management.
It is clear is that technology has never had such a high priority among board level executives, he told the group.
Research by McKinsey shows executives want to be more involved in considering the impact of technology on the future of their industry.
And technology has moved from below the top five of the CEO's priorities to number one, according to research by IBM.
“Boards recognise they need to spend a lot more time looking at the impact of technology on their industry. They are more open to discussion and they are beginning to listen,” said Lambert.
The power of digital technology
Lessons for CIOs
Company boards recognise that digital technology is having a profound influence on the structure of organisations.
Advances in collaboration technology, video conferencing and bring your own device (BYOD) schemes mean companies no longer need to have their workforce in the office.
In the future, more companies will hire specialists and pay them by the hour for the work that they do, rather than employ people directly.
Manufacturing companies will use digital technology to move away from selling products to selling services.
One truck maker, for example, calculated that fuel accounts for nearly half the cost of ownership of each truck over its lifetime.
That knowledge has opened up a new business model - offering customers fleet management and training services to help them reduce their fuel consumption.
An aerospace manufacturer has introduced sophisticated sensors to monitor the performance of jet engines on commercial aircraft.
The technology predicts when the engines are likely to fail, allowing pre-emptive action which lets airlines keep their planes in the air for longer.
The technology has opened up the possibility for the company to change the way it sells jet engines – potentially moving away from selling units, to selling a service – charging airlines for each hour they keep a plane in the air.
Services to customers like this were unthinkable or uneconomic a few years ago, but are becoming possible through digital technology, says Lambert.
Take home shopping deliveries, for example. They were common in 1960s but the rise of big supermarkets offering discounted prices in the 1970s, brought that era to end.
Now, with internet shopping, the economics once again stack up and home deliveries have taken off again.
It is worth businesses looking again at their customers, and finding out what different customers want, said Lambert.
“Are there things that technology is allowing you to do that were not economically viable in the past?” he said.
The IT investment portfolio
How digital technology will change the role of IT leaders
For CIOs, finding money to drive this sort of innovation from an already stretched IT budget is far from easy.
A large chunk of IT spending is inevitably taken up on IT support services, such as finance and HR systems.
They are essential to keeping a business running, but do little to help it win competitive advantage.
The rest of the budget can be eaten up supporting operational processes such as e-commerce web sites, callcentres, claims processing and so on.
And that often leaves little in the pot for higher risk projects that could help drive the business forward.
“Historically it's really hard for the internal IT department to get to the high-potential projects. You want to get up there, but every time you try the phone rings, or there is a new deadline to meet,” he said.
Thinking in a different way
To overcome this problem, CIOs need to think about their IT budgets in a different way, said Lambert.
Rather than segmenting the IT budget into support, operations and capital investment, Lambert suggested CIOs take a holistic approach.
“You need to look at IT not from a budget point of view, but from an organisational point of view,” said Lambert. “If operations and support are good enough, leave it this year, and put the money into innovation.”
If there is not enough funding to do the work straight away, fund a pilot project, he suggested. But don’t use pilots to test technology improvements, pilot business improvements.
“If you don’t manage this process, you tend to drift down from the top strategic projects to the bottom operational and support programmes,” he said.
Innovation can't take place in silos
But CIOs cannot operate in isolation. Innovation in digital technology needs to be part of a much wider business innovation strategy
Product innovation, process innovation, and IT innovation should work together rather than in isolation, said Lambert.
“How do we bring business priorities and technology priorities together in a way that engages the whole business? It's about having technology discussions in business language. That is our space,” he said.
Lambert advised CIOs talk the language of business strategy, particularly when talking to board-level executives.
Many companies are turning to the big management consultancies for advice about digital technology, when their first port of call should be the IT department.
“We need to make sure we are positioned to offer advice on strategy,” said Lambert.
In fact, IT leaders are well-placed to assess how technologies such as the internet and social media will change businesses, and where they will take organisations in the future.
It takes a little creative thinking, and some persistence for CIOs to drive innovation in their organisations. But it can pay real dividends.
Back in the 1990s, the pioneering CEO of the Woolwich Building Society, John Stewart, came up with the idea of creating a bank for the future.
As a result of that vision, the building society set itself the target of becoming the first financial organisation to offer offset accounting.
By considering a customers’ mortgage, current account and savings account together, the Woolwich could charge a lower rate for mortgage repayments.
Download Rob Lambert’s presentation
The idea had been talked about a lot in banking, but the Woolwich ran a quick pilot with 100 people using, as Lambert put it, “lots of sellotape” to bring the data in.
The project worked and became hugely successful. Eventually the Woolwich attracted the interest of Barclays Bank which bought the building society, so that it could offer offset services to its customers.
Co-op car insurance
The Co-operative’s car insurance turned to digital technology during a project to develop insurance services for young drivers.
“Basically what they did was a mixture of business and IT. They brought together technical infrastructure and business goals, and hung a workshop around that,” said Lambert.
The result was the Co-op decided to offer a product to insure 17- to 22-year-olds, provided the drivers agreed to have a telematics device in their car.
That meant, the Co-op could monitor young drivers to ensure they drove carefully and drove within the speed limit, allowing it to keep insurance costs down for careful drivers.
The service was revolutionary for its time but, like many innovations, has been widely copied by others.
It is worth remembering that a company’s most strategic assets are not only the innovative products themselves but the knowledge of its staff and their relationship with customers, said Lambert.
HMRC may not have customers in a traditional sense of the word. However, like many businesses, it has been able to exploit digital technology to boost its revenues.
The government department set out to reduce the outstanding tax owed by taxpayers. Billions were at stake from people who were slow to pay or did not pay at all.
It used data analytics and behaviour insight to encourage tax payers who owed money to pay their tax bills.
It found that, if it added the line, “we need to collect taxes to pay for hospitals and schools” in letters to reluctant players, they were 20% more likely to pay up.
Bill Goodwin joined 15 CIOs as they took part in the Digital Academy, a programme for IT leaders who want to take ownership of digital technology to their organisations.
- Download Rob Lambert’s presentation: Managing the digital innovation process