The new IS: Innovation strategy

How can ICT deliver competitive advantage and boost the bottom line? How do you stimulate great ideas, turn them into reality and deal with the occasional failure? We talk to seven business leaders who are dealing with these questions.

These days CIOs increasingly find themselves being the de facto chief innovation officers in their respective organisations. This development can be seen as recognition of the ICT division’s ability to see across the systems of the networked enterprise; or that technology, when harnessed well, can provide the prime competitive difference — be it in processes, operations, products and services — for the enterprise.

A number of CIOs have taken up the challenge, building flexible and agile systems in a cost effective manner.

With this in mind, innovation strategy was the theme of the recent CIO Leaders’ Luncheons held in Auckland, Wellington and Christchurch.

A group of ICT leaders gave some detail to the innovation strategy in their respective organisations:

  • Nigel Beach, research and development manager, Compac Sorting Equipment
  • Simon Gould-Thorpe, CIO, Honda New Zealand
  • Mike Harte, director, information technology services, University of Otago
  • Julian Lonsdale, chief technologist, IBM New Zealand
  • Owen McCall, CIO, The Warehouse Group
  • Julia Raue, CIO, Air New Zealand
  • Russell Turner, CIO, MetService

Innovative, no matter what the size

Traditional thinking implies innovation is fastest in smaller enterprises. But what happens when a company starts to grow exponentially on the back of their innovative strategies? How does one ensure innovation is untrammeled in an organisation?

It is a challenge Nigel Beach, research and development manager of Compac Sorting Equipment faces. Compac Sorting Equipment started off in Onehunga, Auckland, but now it’s selling to 28 countries around the world. It has factories in Italy, Korea and South America and the company’s systems are used to sort 40 per cent of the apples in the US.

This kind of growth takes a development team further from direct customer contact, Beach says, with the company having to “manage innovation”, while encouraging feedback from those working on the front line.

Compac equipment is designed to sort fruit, with innovative software embedded in the equipment taking 60 images of each piece of fruit to identify blemishes and test for ripeness. A single machine can process 10 million mandarins a day, so the software must be virtually error proof, Beach says, “because 1 per cent of 10 million mistakes are quite a lot. “I’m finding that as we grow, staying innovative takes work,” Beach admits. “When we were small the systems were easier. Your engineer who designed it went into the field and installed it. As we get bigger, we get a bigger chain in there and you don’t get the information through any more, and you need to work at that.

“I’m big on engineers spending time with customers,” he adds. “If your engineer is spending time with your customer, he can say well actually you could solve that problem with technology.”

Engineers are sent to service the machines of their larger offshore customers, and they can be away for up to a couple of years. “They get a great OE [then] come and work in our R&D teams and they’re full of ideas.” Beach says he holds conferences and travels between sites to assist collaboration within the company and with international users. Having the right mix of people across the enterprise is crucial.

“We try and make sure we have good cross-functional teams brainstorming and cross-functional people from different areas of the business. [They] try and brainstorm the innovation around the product we want to do. And we also do pure research, so that if we’re doing a team vision we will pick a direction to go in and we’ll make time to spend on it.”

For Beach, as with the other CIOs who spoke at the CIO Leaders’ Luncheon, tolerating and managing failed ideas is part of innovation. “We have a prioritisation process,” Beach says. “[Suggestions] get on a list and they get an initial score quickly. The ones that get a good score get investigated more and then we decide on a major project to undertake.

“As we get bigger we need to have a sort of balance portfolio for our innovation,” he states.

Compac’s software development uses extreme programming — fast turnaround of comparatively small pieces of code, with programmers working in pairs, one coding and one checking. “One key is test-driven development,” Beach says. “We write a lot of tests as we write the code. We run those tests all the time.”

Unit tests are run by programmers to make sure their code works as they think it should; customers then test that the software does the right job from their point of view.

A working version is built as soon as possible and further “evolved” incrementally, so the current version is always workable. There also has to be a “framework” to provide for possible future functionality. There is a trade-off, Beach says, between sensible future-proofing and what may be wasted effort.

This contrasts with the conventional strategy of writing a new major release whenever the old code “gets crusty” and efficiency drops. Evolution implies constant refactoring to keep the running code efficient.

“To be agile in business, you need to get the financial requirements up front, how this software works and what it does for the customer.”

Get out of the box

Simon Gould-Thorpe, CIO, Honda New Zealand, comes from the perspective that there are no ICT projects, there are only business projects.

“Look at it as a venture capitalist,” he says. (Read about his views on the CIO as corporate entrepreneur in “Taking care of business” on page 24). “You are actually looking at a way of maximising the bang for the buck and how you can get and maximise those benefits out of it and the profits.”

Support from top management is critical, he adds. “Our managing director stands behind us as well, which always helps.

“We don’t actually spend a lot of time making decisions. We walk up to someone and ask for a decision there and then and we tend to run with that.”

Gould-Thorpe applied this thinking with the deployment of their online sales model for car parts. With this, Honda basically removed the “middle man” and became its own sales agent for its car parts.

“We actually supply all our parts to all our outlets around the country and we maintain that warehouse, we maintain the stock levels, the price. We sell it directly to the customer and the outlet there just gets a handling fee. Then we sell that on the internet at a much reduced cost and increased margins.”

But this model was taken a step further. “We’ve now invited other car companies to follow our model and we’re willing to share the code, anything it takes to get them on board because it will improve the whole structure within New Zealand of the way that market exists.”

Innovation academy

“Working for a university we are required to be innovative, but we are innovative in many, many different ways,” says Mike Harte, director, information technology services, University of Otago.

But, he says, working in an environment with a range of users has its share of nuances. The university has 3500 full-time staff, but has more than 10,000 names on the payroll. It is the fourth largest IT operation in the country, with 180 ITS staff.

Then, there are the 18,000 students and 81 per cent of them have their own laptops. “They soak up bandwidth like you wouldn’t believe,” says Harte.

Being reactionary in this type of environment will not work. “The idea is to try and get ahead of the game on these ones or have them working with you,” says Harte. “We had to develop a platform in which this kind of innovation will flourish in a controlled way.”

They addressed this through putting a new structure in place, with the senior management embarking on a leadership development programme and holding regular meetings with the other managers to talk about strategies and operations. They also had a good look at the recruitment, remuneration and retention for ICT staff, which goes hand in hand with a customer strategy project. The customer strategy project focuses on both the internal and external customers of the ITS team.

Harte explains the customer focus is critical because ITS is a full-cost recovery unit. “Everything we do gets charged for, so we have to be a trusted adviser because otherwise these academics and other service divisions through the organisation are just going to go elsewhere and nobody stops them doing that either. There are no rules when it comes to that.”

In this situation, security “has to be very, very good.” Harte says an information security office, which reports to him, is charged with enterprise-wide education on security across the organisation. They run courses and make sure all the IT professionals across the organisation know what the standards are and conform to those.

He cites two recent projects that were borne out of the university’s collaborative environment. The first one is iTunes U, which allows users to see or listen to video and audio podcasts, including lectures, in the same format and manner as a traditional iTunes item. All the content resides on the university services. It is just using the iTunes interface in the United States to provide the front shop window to the content.

Another innovative project launched by the university is Otago Choice, which allows students to find out about the more than 100 undergraduate subjects. The student answers some questions, like what are they good at and what they would like to do. The software then provides a list of subjects that the students might want to consider.

This eases the dilemma, for instance, of students who reach Years 2 and 3 and wished they had done something different, and would have wanted to know that the courses they were interested in actually existed.

This innovation, however, was done by an economist, not an IT person, he says. “But that’s an example of innovation working very, very well.” The engine that is being used for Otago Choice was developed by Dr Paul Hansen, who owns a company called 1000Minds that was spawned out of the university.

Flying right

Through cross-functional groups and teams, and combining people with a shared mindset and habits and structure, you can produce a culture conducive to continuing innovation, says Julia Raue, CIO, Air New Zealand.

Raue is speaking from her experience at Air New Zealand, where she is also in charge of innovation and ventures.

“We assist all our employees to contribute,” she says, but concedes this is not easy. “You can’t command and control your customers or your staff, and so you have to empower people to inspire others to create dreams and believe it will work.”

Raue says that there are so many avenues for promoting genuine innovation or ideas at Air New Zealand that “our challenge is probably more keeping people back to their day jobs”.

These range from the program called Test Flight where people pitch ideas to the executive team. If the idea is picked, the person suggesting the idea can get to work on the project itself and get a share of the profits, to an intranet where people can get ideas to consider, and workshops. “We’ve definitely found the benefit in pure innovation and ideas and testing inside and outside.

“We genuinely do believe that Air New Zealand has a strong culture of innovation right across the organisation. We recognise that one of the strongest assets we have are our people, their knowledge, and their attitude which are definitely important.”

At the same time, Air New Zealand also looks outside its own industry for ideas. “We don’t just look at other airlines, at airports. We look at shopping centres, we look at universities, we look pretty much anywhere to get ideas that we could potentially use at Air New Zealand.

“We recognise we have to think differently,” she says. “You have to ask questions. You have to challenge the traditional mindset and that legacy of knowledge and practices.”

Air New Zealand, she says, has had some great examples where innovation is used to drive competitive advantage, and several of these were designed, developed and supported by its own IT team.

“Before we built our own booking engine we worked with offshore providers,” says Raue. “On a daily basis the airline’s Grab a Seat is driving huge volumes of customers to the site seeking low airfares.”

The ‘How Far Can I Go’ feature in the airline website, on the other hand, “provides the user with a really clever interface to answer what is traditionally a very complex travel request”.

“Change for its own sake is good and keeps you on your toes,” she concludes. “If you don’t act as a catalyst for change internally, someone else will do it on your behalf.”

A magnet to attract the best staff

The international market for MetService’s software products, from mathematical modeling to graphical display tools, testifies to its innovative environment.

What many people often don’t realise, is that many industries within New Zealand and overseas are weather dependent, says Russell Turner, CIO, MetService. “There’s a public good aspect to what we do, preservation of life and property, and there’s a network of radar and satellite and weather stations scattered around the country, which goes to support that. And that provides the basic New Zealand general and severe weather forecasting that goes on. It’s actually quite a unique organisation, we do many things with many diverse technologies.”

Turner sees this opportunity to work on a range of projects and on new technologies, as a way to attract the best staff. For, as he puts it, coming up with world-class products means employing skilled people with the right attitude.

“MetService tries to seek within each person what they can do and [match it with] the things our organisation does,” he says, rather than matching a candidate to a fixed job requirement. One person is likely to work in different areas and won’t lack for variety of experience, explains Turner.

“We can get quite a strong amount of innovation occurring just by allowing people to work across different groups internally,” Turner says. “It’s important to allow that to occur, which comes back to the point about not specifying a job and having people stick to that.”

Information crossover

Rethinking your business model and sharing information are crucial to business innovation, says IBM chief technologist Julian Lonsdale.

He says the results of IBM’s most recent Global Innovation Outlook CEO survey points out innovation is the imperative to survive, and is the way to outsmart competitors.

He says IBM believes the changing nature of innovation is simplified into moving from what people innovate, such as products and services, as to how they innovate.

“Instead of having research and development at the core of your innovation framework, you need to consider a horizontal, integrated innovation framework and having an innovation agenda. It’s about collaboration and partnering, rather than putting your money into a silo of research and development.”

He looks to the future of the virtualised enterprise.

“The power of networks is increasing. Trade Me is a good example of a trust network, where you can trust someone to do business with them.”

And New Zealand, he adds, could benefit from the virtual enterprise says Lonsdale.

“The Global Innovation Outlook research indicates that the companies who will be the kings of these virtual enterprises, are going to be the small and highly specialised businesses. The majority of us are involved in small businesses, so it is a real opportunity.”

The right people are important for virtual enterprises as well, and leaders need to start considering people with out-of-the-box skill sets.

He says New Zealand is well positioned to be part of the new global enterprise. This country has a small business focus, and the challenge is to get visibility within the larger global marketplace. Social and technology networks are the key. “When you’ve invested in networks, don’t let the short-term agenda items rule and make sure people are thinking about out-of-the box solutions.”

He says developing new business models will allow Kiwis to work in the “new enterprise” from this country, helping to keep talent here on local shores. “We could be the place to come in the future for opportunity.”

The fitness test

Owen McCall, CIO, The Warehouse, says any talk of innovation requires that the organisation’s ICT is “fighting fit”. This means it has fulfilled its mission of providing critical services.

“Until such time that you have proven your own level of professional competence by being able to run a decent IT organisation, you really don’t deserve to be invited into a conversation with the business,” says McCall.

He says this has always been a focus of his team at the Warehouse and he believes they have made substantial progress in achieving this. “For us the innovation is really about making sure we understand the business, make sure we understand it well and that we work in partnership to try and drive that forward.

“We do it off a solid base of an IT system going forward. This is how we look at driving ourselves and getting ourselves ready to be innovative.”

IBM New Zealand sponsored the CIO Leaders’ Luncheon on “The New IS: Innovation Strategy” in Auckland, Wellington and Christchurch as part of IBM Forum 2008.