A tale of innovation and disruption

It was the best of times. And then, all of a sudden, it wasn't. "We had just gotten over Y2K. And the dotcom boom and bust. And then came...the disillusionment," recalls John Doucette, CIO of United Technologies. "It was a depressing couple of years to be in IT," says Doucette, who took over the high-tech and aerospace conglomerate's IT helm in 2000. "There wasn't that much innovation in software and hardware. Security wasn't there. People weren't focused on the business." And CIOs, who had surfed so high on the frothy Internet-driven economic waves of the late 1990s, had come crashing back to earth.

Hard.

In boardrooms across the country, the CIO's budget, technology investments and basic worth were being questioned. The value of IT had become a topic for debate. Every system, every application, every IT project once labeled mission-critical was put under the microscope and, in many cases, found wanting. And too expensive. Business's guiding principle-"We can't do anything without IT"-quickly became "How much can we do without IT?"

It was the end of 2001, and CIOs were facing a backlash.

"At times, it was a very frustrating job," admits Doucette, who this month was inducted into the CIO Hall of Fame. "You had to be good just to survive."

Many CIOs did not. The oft-cited (and now outdated) 18- to 24-month "average" tenure for CIOs gained currency during this period and was taken as gospel within the business ranks and in the halls of academia.

According to Laurie Orlov, a VP and principal analyst at Forrester Research who's followed the IT industry for decades, the deep and widespread dissatisfaction with enterprise IT in the early part of this century was the product of a perfect storm. Y2K turned out to be a nonevent; the dotcom bust and financial recession hit IT hard, and the emergence of outsourcing, and then offshoring, undercut IT's organisational ability to take advantage of new Web-enabled technologies because it had thinned out the ranks of its programming and application development staffs. If Doucette calls it a time of disillusionment, Orlov refers to it as the "disappointing era."

For those CIOs and companies who chased IT opportunities that had no clear relation to business value during the dotcom era of irrational IT optimism, says HP CIO Randy Mott, "there was credibility lost."

CIOs were down but not out. The survivors knew that IT's promise, the potential for delivering value using new technologies, Web-based applications and services, and faster and cheaper hardware, was not just wishful thinking and baseless enthusiasm. It could and eventually would be a reality.

It just was going to take a little more time to come to fruition. "The hype and expectations of 1999," Doucette concludes, "is reality today."

The long, hard road to value

Doucette is not alone in his enthusiasm for today's reality. Sure, CIOs suffered plenty of battle scars, but they've also accumulated a wealth of experience, discipline and the maturity that comes from living through times both good and bad. In a sense, IT has done a lot of growing up.

For Barbra Cooper, Toyota Motor Sales' Hall of Fame CIO, a dose of turn-of-the-century self-examination proved critical. Years of IT spending at Toyota that seemed to have no ceiling, enterprisewide projects that were out of control and a fractured relationship with the business forced Cooper to do what many CIOs historically have been unable to do. "I like to call it 'calling the police on yourself,'" she says.

Cooper not only solicited the uncensored opinions of her business colleagues but she actually listened and acted on their often negative perception of IT. She changed. And ultimately she was able to change IT into what it was always supposed to be: a trusted, responsive, fiscally smart and business-first department. "It was one of the more breakthrough things in my career," says Cooper.

The CIO story

Over the last 20 years, CIO magazine has been able to profile the journeys of executives such as Cooper and Doucette as they've traveled the long, hard road to delivering on IT's essential value. For Hall of Famer Mott, who has headed up IT at Wal-Mart and Dell, and now at HP, that journey has encompassed the evolution of the CIO role. "The CIO and IT organisation have become an integrated part of every process of every company and every industry," Mott says.

We've also reported the meteoric rise of Kevin Turner-from cashier at Wal-Mart to CIO, to CEO of Sam's Club and now COO of Microsoft-who embodies everything that being a strategic, business-driven executive has to offer. "I have always prided myself on being a business leader and customer advocate first, and being a technologist second," says Turner, who also this year joined the CIO Hall of Fame. But no matter the individual story of how they have risen to the challenges of being a CIO, what's noteworthy is that they all know there's much more work to be done because they now have the ability-the know-how, the resources, the credibility-to provide so much more.

"We're able to deliver applications and new tools at much lower cost," Doucette says. "Servers that are faster, better and cheaper. Storage-who would ever have thought that we would be able to store 20 gigabytes on a chip the size of a fingernail? We're able to show IT as a percent of revenue. We have the ability to drive revenue growth or productivity into the business.

"What better role to be in than the CIO?" Doucette asks rhetorically. "I'm the only one in the company that impacts all employee productivity."

The early daze

The lofty and all-inclusive role that Doucette describes traces an arc that could not have been imagined, given the CIO's humble beginnings as "the computer guy." "There's no comparison to the way technologies are used today: wikis and blogs and instant messaging and paying bills on a cell phone," says Forrester's Orlov. "There's just such a mind-boggling difference."

CIOs now boast about finally having the proverbial "seat at the table." But back in the 1970s and into the '80s, most were lucky to even get a glimpse of the "table" from their backroom fiefdoms. Data processing was the moniker for early IT shops, and their task and main value to the organisation was their ability to automate transactions. "The smart companies that were successful understood that information about transactions would be as valuable as the physical good itself," Orlov says. Big Iron and IBM ruled the day.

Data processing soon evolved to MIS, as companies realized that someone actually needed to manage their burgeoning computerized underbellies. And with that came the command-and-control mind-set that still lingers today. "That generation of MIS was oriented around control," recalls Cooper, who, interestingly, didn't get her start inside data processing or MIS but on the business side of Miller & Paine, a department store chain. Because of that, she was an early devotee of best-of-breed solutions.

"I didn't grow up with the mainframe and IBM as the only provider. I often picked the most competitive technology that fit the purpose for the time, and that was often not IBM," says Cooper, who eventually landed at American Express. "I didn't really know anything about the unwritten rule: To maintain career, you do IBM. It didn't make sense to me."

Cooper's naïveté, as she terms it, seems prescient today. But to shake the damaging "cost center" label in the early 1990s, CIOs would have to start innovating while keeping the lights on. There seemed to be no shortage of commentary or advice directed at the nascent CIO function, including from business executives who knew just enough about IT to be dangerous. IT consultants and new business mantras (re-engineering and Six Sigma) were ever-present.

MIS eventually shrunk to just IS (although the dual meaning-information services and information systems-remained). Big believers in technology-companies that didn't mind a little risk-began opening their coffers for their IS functions.

Wal-Mart was one such company. The retailer realized early on that, correctly harnessed and deployed, technology could be a competitive differentiator and advantage. "Even 20 years ago at Wal-Mart, that message was very clear at the executive management and board level. There was no confusion," says Mott. "IT was something you changed the game with-not something you just reduced cost with."

Expectations for IT rocketed in the mid- to late 1990s as large enterprises opened the vaults to spend millions on massive ERP implementations. "The expectations were that IT investments in large amounts could provide competitive advantage," Orlov says. "That's not right, though. They could provide the foundational work that allowed you to grow your company. ERP systems were not about competitive advantage but competitive similarity.

"It was an era where the expectations of IT began to separate from the benefits of IT," she says.

But that perception was not widespread, and it didn't slow anything or anyone down. Suddenly, CIOs were being quoted on Page 1 of The Wall Street Journal. The explosion, success and popularity of the Internet had changed everything. "It goes back to the adage: There are times when we think we create technology, but technology really creates us," says Turner.

And then the tide that had raised all boats rushed back out, and CIOs were left to struggle against the suck of the undertow.

Does IT matter?

After the bust, after 9/11, after the recession, after everything had turned the CIO's world upside down, an article appeared in the May 2003 Harvard Business Review titled "IT Doesn't Matter". The article, written by Nicholas Carr, caused a stir among CIOs and IT vendors, but that was nothing compared to the storm that broke when Carr's book Does IT Matter? came out the following year. The book built on themes from the article-that while companies were spending more than US$2 trillion on IT every year, "IT's strategic importance is not growing, as many have claimed or assumed, but diminishing.... Information technology has increasingly become, in other words, a simple factor of production-a commodity input that is necessary for competitiveness but insufficient for advantage," Carr wrote.

As an author trying to sell books, his timing was perfect. It was a brutal period for CIOs-cost-cutting, disappointment and lots of CEOs wondering where all that money they'd spent had gone. To many, the book was another indictment, in a long line of indictments, that harked back to when IT was nothing more than a transaction-processing cost center.

"I was conscious I was saying controversial things," Carr recalls, "but I had no idea it was going to explode into this debate."

He says there was a fair amount of hostility from CIOs, but "mainly it was from the IT industry." Reviews included "Hogwash!" from Microsoft CEO Steve Ballmer, and "Dead wrong," from then-HP CEO Carly Fiorina. Obviously, the book had touched a nerve.

"Even if they disagreed with me, I provided a context and language where IT could be discussed in strategic terms," Carr says. "I provided a way for companies to have important and often instructive conversations about the role of IT, where it was just a cost and where it might have some force as a differentiating asset."

To this day, many CIOs, such as Mott, take passionate exception to the premise of Carr's book. "All the examples Nick used in the article and subsequent discussion were really about the playing field being leveled in infrastructure," Mott says. "What he totally missed was the competitive advantage in the development of applications. It's really about what applications you develop to beat all comers in your industry."

Asked if he still believes that IT doesn't matter, Carr responds, "Is IT going to give a company a competitive advantage? In most cases, no, though I would admit that there are exceptions."

To which Mott retorts, "And it's those exceptions that are the ones that take market share and win."

As for those companies that think IT still doesn't matter, Mott says, "Those are the guys that lose."

The business of IT is business

In the last couple of years, a new CIO prototype has emerged-a stronger, more versatile, innovative and business-focused IT leader who delivers what CEOs have been yearning for from their IT function: proven value. To many CIOs and industry watchers, it's about time. "Now there are methodologies and standards, and it's possible to run IT as a business," Orlov says. "Obviously, there ought to be financial metrics [to measure IT's success]. It ought to be a given that CIOs can deliver a 100 percent stable infrastructure. Change ought to be managed; benefits need to be quantifiable."

Fiscal discipline has become an imperative for CIOs. But that doesn't mean simply slashing costs at budget time. It means demonstrating how IT affects revenues, profits, costs, customer service, sales, manufacturing and everything else under the business's umbrella. "You're talking about IT entirely in business terms, which was not the way it was discussed 20 years ago," Orlov says.

According to a recently completed five-year study of Global 2000 companies by the nonprofit think tank BTM Institute, companies that have what the institute calls "converged business technology management" have markedly increased financial performance and exhibit superior revenue growth and net margins than others in their respective industries.

"This is not about a project or ROI, but it's about the overall performance of the company," says Faisal Hoque, founder and chair of the BTM Institute. For example, those companies with converged business technology management had 12 percent average annual revenue growth, compared with 4 percent for their industry groups. They also achieved 36 percent average annual earnings per share growth versus 7 percent for the industry groups. In addition, the converged business technology companies grew at a faster pace and had greater returns than did their peers. "If you cannot link the things you are doing back to the overall corporate performance," Hoque says, "then what's the point of having not only the CIO role, but even the function itself?"

Doucette, who's been able to demonstrate what IT costs as a percentage of UTC's overall revenues and how IT propels revenue growth, concurs. "If you can't show what you're driving for the business," he says, "then what good are you doing?"

In 2005, CIO profiled Cooper's courageous and ambitious turnaround of Toyota Motor Sales' IT department that, among other strategies, employed four key IT metrics: for new investments, operational performance, financial performance and workforce management. She called her mission a "value quest" for IT. But, she realized after starting, "you can't do that until you rise to the notion of the economics of IT."

Eventually, she tied each of those metrics to the processes of the business units IT worked with and continually interpreted them to her colleagues in business terms, not IT terms. Cooper was also able to show her business peers a metric they could relate to easily: how much IT cost per vehicle. "It always struck me that we, as managers, were never really good at getting [the financial value of IT]. We always worked off one dimension-the annual budget plan," Cooper says. "But that's just a tool. You had to get beyond that to drive transparency."

She says it was a combination of her years of experience and elements of Toyota's culture (cost-consciousness and persistence) that allowed her to change the value of IT. "No detail is too small, and no aspect is overlooked in how you look at cost per vehicle," she says.

Cooper pulled it off-without layoffs. Toyota's market dominance speaks, in part, to the success of her turnaround.

Becoming leaders

While it's now widely accepted that IT does matter (a lot), IT and the CIO role have lots of room to grow. "This is a very young profession," says Forrester's Orlov. "It's not as evolved as finance, marketing or sales."

Even with their comeback from the era of disappointment established (a CIO's average tenure has grown from four and a half years in 2004 to five years in 2007, according to CIO's State of the CIO survey), CIOs are now preparing for their next challenge: an ever-changing, partner- and consumer-driven Web 2.0 world of web-based applications, converged mediums, telecommuters and security vulnerabilities, all at their digital doorstep. Which means CIOs must adapt-again.

A recent IBM survey of 170 global CIOs found that "their business leadership is calling upon them not simply to be efficient, but to help their companies change the entire game." Research from IBM's Institute for Business Value found that 80 percent of CEOs believe very strongly that the integration between business and IT will be a critical enabler of running businesses. "But only 45 percent thought that integration was taking place at an acceptable level in that business today," says George Pohle, VP and global leader of the institute. If, in some companies, the CIO role isn't as defined as it should be, Pohle says that CIOs need to assert themselves. "This isn't about waiting for the business to ask you what role to play," he says. "You should be telling the business the role that you should be playing."

CIOs interviewed for this article all stress the importance of developing the next generation of CIOs, who will need to possess the skills not just to keep pace with the business and its technology desires but also to drive the business forward. "The game is going to be very different over the next 10 to 20 years," Cooper says, and the next generation of CIOs have to think beyond a partnership role with the business to a leadership role.

Turner sees it as an ability to anticipate challenges and "embrace disruption."

"CIOs need to think of their role as change agents in the rest of the company-for process improvement, to find excess labor and inefficiencies, for identifying technologies that make employees more productive, or technologies that can change the rules of the game," Orlov says.

No one should expect CIOs to shy away from these challenges. They never have.

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