Inside the data: IT’s role in supporting innovation

 

In October, 2015, InsightaaS worked with global research experts Techaisle to conduct a survey of 402 IT leaders, representing Canadian businesses of all sizes. The survey explored “CIA-Plus” – cloud, IoT, and analytics, plus the infrastructure and service delivery capabilities needed to support these areas.

The survey included the question, “What is your position on the relationship between IT infrastructure management and IT-enabled business innovation management?” Respondents were asked to choose one of six responses, which are found in the following Figure. Three of these responses agreed on the idea that IT is effectively managing infrastructure but not innovation. As the left hand side of the Figure shows, more than half of large enterprises and nearly three-quarters of mid-market enterprises see themselves in this description. The right hand side of the Figure, which separates results by internal IT sophistication, shows that the disconnect between infrastructure and innovation management extends from the most basic to the most advanced IT shops. The least sophisticated operations believe that innovation management will involve through collaboration between IT and business leadership, while more advanced IT units view IT-enabled innovation management as an internal IT task, but in all cases, 56%-64% of respondents believe that their innovation management capacity lags behind their infrastructure management capabilities.

The relationship between IT infrastructure management and IT-enabled business innovation management

Relationship between inf and innov management

This type of quantitative analysis provides Canadian IT and business leaders with a benchmark that can be used to evaluate the position of a particular firm against its peers, but it provides little of the guidance needed to improve an organization’s ability to understand innovation challenges and options. To drill down to this next level, InsightaaS spoke with Shawn Rosemarin, Chief-of Staff, Americas Systems Engineering for VMware, about the connection between IT management and innovation.

Rosemarin began the discussion by observing that “innovation is everybody’s job. Without innovation, any existing business will perish.” He cited banking, insurance and telecom as three sectors which were well protected from innovative upstarts by traditional “barriers to entry” until fairly recently – but went on to highlight the impact of Blockchain on banking, IoT in insurance, and NFV (Network Function Virtualization) in telecom as developments forcing incumbents to innovate in order to maintain their customers and industry positions. Beyond these foundational shifts, there are also hordes of new entrants swarming to deliver new approaches to traditional services. Rosemarin offered an example drawn from a banking website, overlaid with 17 different providers looking to establish positions by targeting specific aspects of a bank’s overall service portfolio.

Illustration of the competition landscape in Financial Services

 

Bank competitors

The discussion of financial services provided a backdrop for Rosemarin’s analysis of the findings from the survey. More than half of Canadian IT departments “are not currently focused on innovation.” Why, he asked, is this the case?

There are, Rosemarin believes, several reasons for this. One is the fundamental mismatch between traditional IT success metrics and innovation. IT is typically measured in terms of budget, adherence to SLAs and delivery of specific projects requested by the business. “None of those three,” Rosemarin asserts, is aligned with innovation. “Cost most definitely doesn’t hit on innovation – in fact, it flies in the face of innovation. SLAs discourage innovation – why would I introduce any degree of risk into an environment if I’m paid to make sure it never goes down?” Projects, too, introduce risk – if measurement is tied to delivery, a standard upgrade that can be completed quickly will more appealing than “something completely innovative that may or may not work in the timeline that’s expected.” This disconnect between traditional IT metrics and the behaviours needed to support innovation “begs the question...can we really have a dual-headed CIO that’s focused both on innovation and IT operations?” – a theme that Rosemarin has explored with InsightaaS in the past.

Rosemarin sees five items on the ‘to do’ lists of most of today’s CIOs:

  1. Don’t exceed my CAPEX/OPEX Targets
  2. Drive business functions to mobile devices
  3. Develop and deploy an operationally-feasible network and security model
  4. Manage the risk associated with a potential disaster
  5. Accelerate innovation

Rosemarin points out that the first four “are all about risk and cost containment. Number five is accelerate innovation. It’s no surprise why innovation is taking a back burner. It is a priority, but…it’s not necessarily the priority that is the focus of reporting every day.”

Shawn Rosemarin, Chief-of Staff, Americas Systems Engineering, VMware
Shawn Rosemarin, Chief-of Staff, Americas Systems Engineering, VMware

Returning to the data, Rosemarin asked a question that strikes at the core of the innovation question: What does it mean to effectively manage IT-enabled innovation? He expanded by explaining that when a business unit comes to IT asking for a new system, IT responds with a ‘yes’ (we can do that) or ‘no’ (we can’t add that to our project queue). Rosemarin challenges CIOs on this point: “My question to you is, are you actually writing down why you said no? Are you looking at the number of times you said no, and the reasons behind those no’s, and prioritizing the couple of things that you could do to turn most of those no’s into yesses? If your mandate was to say ‘yes’ to as many projects as possible, you would start to look at things differently” – you would have an IT department designed to support innovation.

Rosemarin went on to explain that structurally, most IT departments are set up to deliver infrastructure rather than innovation. IT generally works from a fixed budget which is meant to cover multi-year build-outs for a fixed number of defined projects – generally, a number that is far below the potential demand across the business. Innovators, Rosemarin says, use a Lean IT approach to project funding, where IT engages with new system requests by using a response along the lines of “that’s a cool idea – I’ll give you 90 days of budget. You have 90 days to spend building a minimally-viable product (MVP). Don’t worry about enterprise security, or enterprise redundancy, or scalabiity, or interfacing with all of our complex systems…build an MVP,” stand it up, and demonstrate the business value of the solution. With this approach, Rosemarin believes, “the company becomes its own VC,” able to make many seed investments in new IT projects and to allocate follow-on funding tranches to initiatives that demonstrate their worth.

While this is not a traditional approach to IT organizational structure and management – it raises questions or issues that can be difficult to address through a traditional IT lens, such as ‘where should IT architects ‘live’ within the enterprise – as part of a corporate IT function, or within business units?’ – it is the focus of much discussion in the IT industry today. Gartner Group has weighed in with its “bi-modal IT” construct, which urges businesses (in Rosemarin’s view) to “give all of your existing legacy applications to your traditional IT team, and assign all of your innovation agenda to your ‘vanguard architects’.” Rosemarin has seen some issues arise with this model where traditional IT refuses to engage with innovative projects, while the innovation team says, “we get to build new, cool stuff. We don’t even want to touch any of that old legacy stuff unless we can rebuild it.”  The resulting challenge, Rosemarin stated, is that in a big enterprise, “the real secret sauce to bringing innovative solutions to market is to connect new applications offering ’an incredibly sexy front end’ (systems of engagement) with applications that handle the traditional, underlying business functions (systems of record).” An IT leader, Rosemarin believes, will say, “I need those two teams to work in unison, or I can’t bring a service to market, because a service extends across both Mode 1 and Mode 2.”

The essential first step, Rosemarin said, is to define IT innovation in terms that can be applied within the organization. Rosemarin nominated several questions that should be raised within this “innovation scorecard,” including:

  • How many projects can the IT organization fulfil in a year? What is the capacity to “say ‘yes’?”
  • Can the IT organization deliver resources that are consumed on demand and billed on consumption?
  • Is the remuneration and evaluation of the core IT team tied (at least in part) to delivery of innovative projects?
  • Is there a clear measurement of top-line impact for each project?
  • Does IT report to the CEO? Is the CIO able to intersect with strategy and ideas, rather than defined projects?
roman_mcgrath
Ronan McGrath

An InsightaaS discussion with Ronan McGrath, former CIO of CN and Rogers, adds colour to Rosemarin’s observations. McGrath, who chairs the selection committee for ITAC’s innovation awards, warns against stranded “segments of process” that can result if IT innovation isn’t mirrored in a firm’s business operations. The ROI delivered through IT innovation often results from a system’s ability to enable new ways of delivering services within the enterprise or to customers or suppliers. If the platform’s capabilities aren’t used to reduce cycle time or otherwise improve operations – if managers are determined to continue with current practices rather than evolving to new processes – the IT solution will not deliver innovation (or payback) to the business.

McGrath was also firm on the notion that the CIO’s reporting structure is a critical element in IT’s ability to support innovation. If the CIO has “proximity to the idea” that is prompting change – if the CIO is able to be part of shaping an initiative that has “recognizably shared risk” involving business and IT leadership – then expectations can be aligned with delivery, and the organization can capitalize on the MVP, DevOps-driven approach that facilitates rapid delivery of new IT-enabled capabilities. If, however, the CIO is exposed to new ideas only when they have been formalized as an initiative, the IT response to any new project will likely be something along the lines of ‘that will take us three months, plus some additional budget’ – which will in turn result in the CEO and business unit leaders identifying IT as a source of delay hindering business innovation and competitiveness.

This theme of agility as a key to success was central to both discussions of innovation. McGrath pointed to IT-enabled time to market as a key factor in Rogers’ success with its iPhone introduction, while Rosemarin used Netflix as an example. Rosemarin’s view is that in today’s world “the pressure is greater than ever – I can bring stuff to market faster, it costs me less, and I have a much tighter window to launch and attract before I’m copied.” Netflix has great market penetration because it was able to launch quickly. Because it was in front of the market, Netflix gained “billions in market capitalization. If they launched today, with Shomi and Crave and Amazon Prime and Hulu and everyone else, they’d just be another player.”

Clearly, there is a role for technology in the kinds of transitions that Rosemarin and McGrath describe. It’s interesting to note, though, that neither discussed any specific product or service in the discussion of IT-enabled innovation – each focused instead on the requirement for IT vision within the context of business strategy. In today’s world, maintaining infrastructure is necessary but not nearly sufficient to delivery of IT support for the business. An IT department that is effective at managing infrastructure but not innovation is failing its internal clients and external stakeholders in the most important way: execution of required technical tasks does not address the real, greater business needs for IT service delivery.

Note: InsightaaS is exploring development of an IT Innovation scorecard that businesses can use to calibrate their success in meeting the “real, greater business needs for IT service delivery” highlighted in this Industry Brief. If you or your organization are interested in participating in this project, please contact us at research@insightaas.com.

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