CIO input typically comes too late in the corporate decision process. It's up to you to build your understanding of corporate strategy—and make sure your voice is heard.

By Peter Skarzynski and Lloyd Switzer
As seen in Optimize Magazine

The next several years will challenge IT leaders to become partners with their internal customers, sharing in setting corporate direction and seizing growth opportunities. They'll have to broaden their vision and shift their priority from saving money for the company to creating value for customers. Although excessive costs, process inefficiencies, legacy systems, software bugs, and laggard implementations will remain big concerns, IT's greatest impact will continue to be in finding innovative business uses for technology.

It bears repeating, with the accent on innovative business uses. Cutting-edge technology, bigger and faster networks, and more "enabling" devices may or may not be relevant. After three years of cutbacks, what counts is for the IT organization to foster its innovative capability to exploit changing conditions, then to imagine how the business and IT strategies interweave to create value. Examples are support of customer-centric strategies at retailers such as Best Buy, Home Depot, and Walgreens. In a previous issue of Optimize, we outlined the basic skills, tools, processes, and platforms needed to build innovation capabilities. All we'll add for the moment is that staff issues are paramount.

Most top executives already grasp this new reality. They see that the path to greater customer value and competitive differentiation is paved with real-time data and lit by customer insights derived from that data. The trouble is, what executives think in their armchairs and what their companies do in conference rooms are often utterly different. And while there are exceptions, the gap still shows few signs of shrinking.

CIOs must work even harder to escape the organizational status quo and venture out of their technologist comfort zone to put the plan into action. As we've known for some time, CIOs must keep enhancing their influence by making sure they and their teams understand the strategies of their internal customers and finding people who can help them. As better information inevitably shifts market power toward customers, the innovative use of this information will be at the heart of differentiation (see chart below). And as the shift takes hold, what better top manager to offer ideas than the CIO?

Cost savings and productivity gains alone no longer give companies a strategic advantage; generating revenue and offering innovative business solutions do. Spectacular exceptions like Dell and Wal-Mart only prove the rule; they've inspired innumerable flattering but failed imitations. CIOs who await marching orders from the business units will find themselves with smaller budgets and less room to maneuver. Instead of remaining a cost center—and ultimately a liability—IT must think about remaking itself as a revenue generator by proactively identifying and acting on opportunities to accelerate business strategy.

We'll list the CIO's most common challenges, talk about how to confront them, and offer an example of one CIO who identified innovative business implications for IT and how his company, Markem Corp., addressed the opportunities.

Tear down the barriers

Despite much discussion and pockets of progress, typical barriers to change still exist at most IT departments. These include:

• No time to think. Business units are continually throwing unplanned, unbudgeted project initiatives over the transom. IT people are so stretched that they unconsciously fall back defensively on old knowledge and behavior patterns. That very human response pulls their standing in the company below the level their talents merit.
• No way to grasp all the technological possibilities. In this high-speed, high-tech world, there will always be a better package we haven't seen or a smarter configuration we haven't thought of. Make the best decision you can and move on.
• IT's menial standing. Our staff is highly trained, yet we're not widely viewed as relevant to the core business. This has always been a problem, and now, with the spotlight on IT's value, it's even more pressing that the company think of us more like engineers and less like plumbers. That's the only way to get the time, budget, and organizational backing to run potentially groundbreaking experiments with the mainstream businesses.
• The change-resistant organization around us. From the inside, we look a lot like a government bureaucracy. Specialist silos, turf protection, ingrained attitudes, incomprehensible jargon, and plain risk aversion preserve the status quo. Even the CEO's efforts are generally thwarted. It's wise to figure that any idea grounded in crash-prone IT will be doubly suspect.

Barriers like these are formidable, but the rewards are too high to permit despair, for either the company or IT. Here are four basic ways to start your move up the line:

1. Tighten alignment with business strategy. Ask yourself, "How well do I understand the business?" Chances are, discussing the business side makes you uncomfortable, and your reports even more so. It's fine to be modest, but you needn't feel inferior. The dirty little secret is that many general managers don't grasp the corporate big picture either. Sure, they know the profit and growth goals, but surprisingly few really understand what drives their business.

That means it's up to you to demonstrate how IT can help. British grocery giant Tesco Plc provides an outstanding example of an IT strategy that's inseparable from an innovative business-differentiation strategy. In the late 1990s, Tesco grew to be the largest and most profitable grocer in the United Kingdom, thanks in large part to its pioneering efforts in CRM. This included enticing the 14 million members of its frequent-shopper program to purchase more items weekly and integrating a sleek revenue-maximization system that offered carefully tailored discounts to increase the company's margin on every sale. As a result, Tesco's profits rose, even when the company faced a quarterly decline in sales in 2001. Even better, 2002 results show both revenue and profit growth, in part enabled by IT innovation.

Tellingly, Tesco in 2001 purchased a 53% stake in Dunnhumby, the database-marketing company that masterminded the program. That fact speaks volumes about the value of strategic IT thinking. It may also suggest that Tesco's IT department could have done more earlier.

2. Increase the IT group's business savvy. Business-conversant CIOs need to be supported by people who can feed them information garnished with the right kind of insights. That was the thinking at The Guardian Life Insurance Co. of America when it restructured its IT department and named a CFO of IT. How well do you understand the benefits your company offers customers?

Here are three ways to raise your staff's business acumen:

• Do it yourself first. Take a page out of the playbook of one CEO we know. This leader records the Internet broadcasts of competitor CEOs and listens to them again and again, to better understand their thinking. When was the last time you listened to your company's quarterly call with financial analysts? What might you learn by listening to your CEO's speeches and those of your competitors?
• Send forth your people. Assign your canniest people to cross-functional teams working on projects for customers—both external customers and IT's internal customers, such as the market-research folks. Make them available to customers as free resources. And make sure that, as good ambassadors, they report back to you and your staff what they learn about the customer's business.
• Bring in others. Import business experts to speak about the business of your largest customers—not about their IT concerns, but about their strategy and operations.

To create the conditions for his chief technology officers to think this way, Bank One CIO Austin Adams surrendered considerable control. He established a matrix structure and joint hiring process, so that each CTO reports to a business-unit head as well as to him. These CTOs peg three-fourths of their time to business-unit challenges (See sidebar: "A CIO Who Gets The Business").

3. Partner and integrate. Get close to your CFO. We can hear you thinking, "Bah, humbug! CFOs are power-hungry budget grabbers, control freaks who waste our time with scorecard measures phrased in their terms, not ours." Try some (polite) jujitsu on them. Develop a yardstick that you think is fairer and offer to administer it jointly. Use the findings and the relationship to build rapport and shared understanding of IT's significance to the business. Show your version of the report card around the company as a way to initiate conversation. Invite the CFO to act as your translator and help you uncover opportunities. Start small. Work together on how IT can enact a solution that dovetails with the strategic intent. Or, as Guardian did, create a CFO position within your IT team to show that you're serious about business and financial input.

If you really can't stand your CFO, find another partner. Apply the same principles to another high-impact executive who reports to your CEO. Just don't go it alone.

The formula is much like my colleague Gary Hamel's three-part prescription in Leading the Revolution (Harvard Business School Press, 2000): Isolate the opportunity to innovate a customer process. Infiltrate the customer. Integrate your people, systems, and goals with those of your customers in pursuit of the common good.

4. Develop an innovation agenda. Learn the three rules of "Strategy 101":

• Strategy has to be different. Copycat strategy is an oxymoron. True strategy is an original. Where Nintendo saw video games as toys, XBox made them an art form.
• The difference has to have value. Cell phones for eskimos, yes. Refrigerators for eskimos, no.
• The value has to be competitively advantageous. That's why Wal-Mart continually deploys technology to strengthen its supply-chain capabilities, but moved relatively slowly to invest in online shopping.

At Markem, a traditional manufacturer with annual sales of about $300 million, life began nearly 100 years ago in New Hampshire. The company first started making indelible inks for leather shoes. Since then, it's branched out considerably. It supplies inks, equipment, and services from offices in 17 countries. Continuing in this expansionary vein, Markem recently scanned its horizon for trends and discontinuities that might translate into market threats and opportunities for itself and its customers. The company's IT director, Gary Marshall, was asked to join the executive team conducting the strategy re-examination.

Marshall recognized this as a rare opportunity to elevate his contribution significantly. On the other hand, he knew two factors were working against him. He was new to the company, and he had no particular expertise in the areas Markem traditionally thought of as its core competencies: ink chemistry and hardware engineering; he came from that back-office cost center, IT.

On the other hand, in his favor were enthusiasm, energy, a wide-open mind, and his knowledge and understanding of how IT could impact everyday processes. He prepared with a little research into the company's products. He considered the uses to which customers put Markem products. Each of those bar codes and time stamps—in fact, much of what's routinely recorded in the guts of Markem printers—is information. Aggregated and organized, squeezed down and analyzed, it could be valuable to corporate customers.

Indeed, Marshall speculated, it might surprise the company to learn just how valuable that information could be if presented right. If you think about supply chains, their physical aspects—planes, trains, and loading docks—are virtually commoditized. But the knowledge aspects are exploding, thanks to open networks and standards-based software. Getting the right kind of information to the right managers in the right form at the right time is a chain that has value.

When Marshall talked to a key food-processing customer, he discovered that the company's spending on promotion and decoration of its high-volume bags was 54 times more than what it spent to comply with federal regulations on freshness-date labeling. He wondered what Markem's buyers would be willing to pay to receive an added bit of genuine management value embedded in the labeling process. If it helped them better manage product flows, tighten assembly-line efficiencies, or synchronize distribution, Markem's offering could conceivably go as high as É well, you get the picture.

Marshall's partners came to respect the quality of his thinking and consequently arrived at many of the same conclusions. They trusted his legwork, and when he floated an idea, he listened for validation or disagreement. He gave credit where due.

None of this is rocket science. It's more like hard work, clear thinking, and everyday teamwork. Modest contributions, modest goals. Marshall didn't set out to transform the company. He set out to inform it.

Will Markem give a new twist to its strategic intent, as the strategy team is suggesting? At the moment, that decision remains in the hands of the company's board. But the strategic architecture the team is designing rests on two new foundations, in addition to Markem's bread-and-butter manufacturing: leveraging its unique position by helping customers adapt and integrate technologies in a way that adds value to their brands, and building a competence in interpreting data for customers' management purposes.

The case isn't unique. Don't most executives—certainly most IT executives—still believe the information revolution is real and that smart investments in IT systems will pay off? Don't you believe the payoff will come primarily from innovative information solutions to customers' problems?

Peter Skarzynski is a founder and CEO and Lloyd Switzer is a director of Strategos, a strategy and innovation-services firm.

Sidebar: <A CIO Who Gets The Business>

Bank One shows what a CIO can accomplish by contributing to corporate strategy and working closely with the CEO.

Bank One, which was built by acquisitions, is run by Jamie Dimon, former president of Citigroup and regarded as one of the smartest bankers in the industry. He selected Austin Adams to become the bank's information czar in 2001. Adams already had experience integrating disparate systems resulting from multiple acquisitions, having run IT for CEO Edward Crutchfield at First Union.

In his 15 years at First Union's helm, Crutchfield grew the North Carolina bank's assets from $7 billion in 1984 to more than $250 billion in 2000 by snapping up scores of smaller banks in the Southeast.

Through much of the 1980s and '90s, First Union and Bank One managed, on balance, to create more shareholder value through their acquisitions than they destroyed. More recently, their luck ran out. They finally bit off more than they could chew. By the time Dimon took over, Bank One was operating seven different deposit systems, three check-clearing networks, and five wire-transfer platforms. Adams had to fix the mess.

Dimon and Adams speak the same language. They think in terms of the business, not the technology. Adams isn't interested in the latest technologies per se. He dragged his feet on Internet banking sites and smart cards.

But on a business level he moves early. He's taken several billion dollars worth of systems outsourcing work back from AT&T Solutions, IBM Global Services, and others, replacing them with nearly 1,000 new IT workers in the belief that IT "is a strategic, important part of our company that should be owned by the company."

Bank One is now closing in on its strategic goal of a single, enterprisewide common platform for all its transaction-related systems that it expects will deliver annual savings of $200 million. More important, Dimon is said to be seeking acquisitions again—thanks to a CIO who operates on the top steps of the corporate decision staircase.—Peter Skarzynski

Sidebar: <The 90-Day Plan>

Whether the economy roars back or heads south again, now's the time to start plotting an IT strategy for 2004. Follow this plan for the next 90 days and see if your prospects—and those of your company—don't seem a little brighter.

First Month: Optimize the present

• Make sure that you and your savviest IT people understand the business strategy you're serving and have a vision for its future. Send them into your business community to build understanding, a wider constituency for your perspectives, and a model of the current business.
• Review the IT portfolio. Examine whether it directly serves the core value proposition and recent changes in business direction. You will find systems capabilities and IT projects that have lost their way. Identify those that are draining resources, still moving under their own momentum, or propped up by powerful backers.
• Realign the portfolio. Kill anything that doesn't pass through the strategy filter. Be direct and forceful, and then be draconian. Free up space in IT to foster innovation and strategic thinking.
• Define an IT strategy for 2004. State it in business terms. Try it out on others. Adjust and refine.

Second month: Develop Leaders

• Assess your organization's skills, capabilities, and assets. Figure out what combination of these drove past successes. Note who was involved and what values and skills they brought to the table. Review any special circumstances that affected the outcome.
• Select a core group of current and future leaders. Your picks should be passionate, curious, and competent. Be sure it's a diverse group; include people of established credibility and new employees with fresh perspectives who can carry innovative ideas and actions outward to the larger organization.
• Give your action troops an on-the-job MBA. Hold a boot camp with live ammo: Let them take aim at the business' core value proposition, value chain, and business model. Offer apprenticeships in customer service, sales, marketing, and R&D. Let them experience firsthand the pain points of your customers and suppliers.

Third Month: Build innovation into IT strategy

• Develop a radar on emerging technologies. Challenge your technologists to periodically propose a set of technologies with potential to help drive your business strategy.
• Help your crew engage the business staff in conversations about the potential of strategic technologies. Give these conversations a context and structure that help uncover unmet needs and provide solutions.
• Build an innovation agenda and a rich set of experimental projects that work on it.
• Review and revise your strategy against emergent business needs and technology innovations.

Copyright© 2003 by CMP Media LLC, 600 Community Drive, Manhasset, NY 11030, USA.
Reprinted from OPTIMIZE MAGAZINE with permission.