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The CIO’s Choice: Adapt or Fail

March 31, 2014 By Pawel Lawecki , Andrew Arcuri , Stefan Deutscher , and Ralf Dreischmeier

For CIOs and other C-level executives focused on technology, the challenges continue to grow. Technology relentlessly demonstrates its potential to disrupt industries—yet it is hard to know in advance which specific technologies will be game changers. Compounding matters, the pace of technological change continues to accelerate; the means of accessing technologies continue to expand, bringing both greater choice and new risks; and, critically, companies’ expectations of what technology can and should do for the business continue to climb.

Against this backdrop, determining the right answers to the questions CIOs routinely face is becoming increasingly difficult. Which technologies and support capabilities does our company need today to execute its business plan—and which ones will it need in three or five years? What are (and will be) the most effective, efficient, and risk-controlled ways to meet those needs? Given finite resources, what should our top investment priorities be, and what should we be deemphasizing? More broadly, how can we ensure that the IT function maintains a sufficiently strong, flexible suite of capabilities, one that allows our company not just to survive but to thrive?

Through BCG’s work with the Innovation Value Institute (IVI)—a global consortium of leading organizations from industry, academia, and the public sector whose objective is to develop an industry standard for managing IT for business value—we have gained a bird’s-eye view of how CIOs’ thinking has evolved over the past several years and how CIOs are thinking about these challenges and questions today. We have also gained insights into what CIOs are likely to be thinking and doing tomorrow as they continue to wrestle with this rapidly evolving, increasingly high-stakes environment.

CIOs’ Recent and Current Priorities

The IVI’s IT Capability Maturity Framework (IT-CMF)1 has proved a critical tool for deepening our understanding of CIO thinking. For those unfamiliar with it, the IT-CMF is a state-of-the-art assessment framework designed to help companies optimize their IT capabilities and maximize IT’s contribution to business value. It takes a detailed look at the corporate IT function, dividing it into 32 critical capabilities, such as strategic planning, portfolio planning and prioritization, service provisioning, and research, development, and engineering. This fine parsing of IT lets companies gauge precisely where their IT capabilities stand versus where they need to be if the companies are to meet their strategic business objectives. The framework also allows companies to benchmark themselves against their industry peers and can help them map out a development path.

To help discern key trends in IT leaders’ thinking and actions, we recently aggregated and analyzed the results of more than 60 IT-CMF assessments that BCG has been directly involved in since the framework’s launch in 2010. The companies that participated in the assessments spanned a wide range of industries and regions. One of the most intriguing findings was where CIOs, collectively, focused their self-improvement efforts throughout the period. (See Exhibit 1.)

Notes:

1.
For more on the IT-CMF, see “<a href="https://www.bcgperspectives.com/content/articles/information_technology_information_technology_strategy_managing_it_for_business_value/">Managing IT for Business Value: The New Gold Standard</a>,” BCG article, September 2010.

We used “pain point” scores as a metric. We derived them for each capability by taking the difference between the capability’s current and targeted states of maturity and weighting it by the importance that CIOs assigned the capability. The capabilities with the highest pain-point scores were the following:

  • Capacity forecasting and planning
  • Total cost of ownership
  • Enterprise architecture management
  • Benefits assessment and realization
  • Innovation management

Why did these five top the list? Each capability has taken on ever-greater importance as technology’s rate of change and propensity to disrupt businesses have grown. Capacity forecasting and planning are vital for managing the availability and cost of key IT assets vis-à-vis greater volatility in business demand. Total cost of ownership has become an increasingly important capability as IT’s role in business value creation has grown—at a pace that exceeds the growth in IT budgets—in parallel with the accelerating digitization of today’s value chains. Enterprise architecture management is an essential capability for reducing the complexity of the technology platform and providing the higher degrees of agility that today’s business environment demands. Benefits assessment and realization are critical for ensuring that IT projects have a real impact on the business—at a time when IT is increasingly tasked not just with enhancing existing business models but also with creating new ones and growing additional revenue streams. The scope of innovation management has expanded far beyond the technology function itself and is now focused on maximizing technology’s ability to drive and support game-changing innovation, including innovation leading to the launch of new business models, products, and services.

While the breadth of these capabilities suggests that CIOs cast a very wide net throughout the period, two unifying themes are evident. One is the quest for a greater understanding and better management of costs, benefits, and capacity. The other is the desire to develop robust, flexible platforms that can support and drive innovation and business growth. In a nutshell, these five capabilities are at the foundation of cost-effective, value-creating innovation. Such innovation has become more and more critical to survival for companies across growing numbers of industries, given the speed with which new technologies are emerging and the potential depth and breadth of their impact.

At the other end of the spectrum—the capabilities that CIOs placed the least emphasis on from 2010 to today—were budget oversight and performance analysis; user-training management; sourcing; program and project management; funding and financing; and business planning. The relatively light focus on these capabilities reflects several factors. One is that most of these capabilities (excluding user-training management) have been the focus of much CIO attention over the past decade, and many companies have by now achieved their targeted maturity levels.

There are also a host of capability-specific reasons at play. Most CIOs have essentially mastered or, at a minimum, gained sufficient proficiency in budget oversight and performance analysis that it is no longer an active worry for them. The need to focus on user training has fallen in concert with rising technical proficiency among users. Sourcing capabilities have decreased in importance owing to the influence of the cloud, which has made standardized, cheap IT services ubiquitous and easily accessible. Program and project management skills are now widely available in the market and hence (rightly or wrongly) are no longer believed to provide competitive advantage. Funding and financing have, in effect, become easier for most CIOs as technology’s role has risen across virtually all business projects. Business planning has become less challenging as joint planning between IT and the business has become increasingly common.

Tomorrow’s Priorities?

So we know what has kept CIOs awake at night and where they have concentrated their emphasis from 2010 to the present. But where are they likely to focus over the next several years? To get at the answer, we looked at the importance that CIOs assign individual capabilities today vis-à-vis their change in prioritization over the past several years. (See Exhibit 2.) Three buckets of capabilities emerged2: “future focus” capabilities, which have grown in priority and are now considered by CIOs to be much more important than the others; “table stakes” capabilities, which remain important but whose prioritization has changed little; and “deprioritized” capabilities, which have faded in importance and are now at the bottom of CIOs’ priority list.

Notes:

2.
Note that these are relative rankings: fully 80 percent of capabilities are considered more important now than they were in 2010.

Future-focus capabilities—which we expect to see receiving continued robust attention and investment—include the following:

  • Business process management
  • IT leadership and governance
  • Strategic planning
  • Portfolio planning and prioritization
  • Demand and supply management
  • Capacity forecasting and planning
  • Risk management

A combination of factors accounts for the rising emphasis on this group. Business process management, with its focus on using technology to advance business and IT processes, is becoming an increasingly important lever for boosting the agility and efficiency of business operations. IT leadership and governance and strategic planning are becoming more critical as technology’s role in supporting the business, and the resulting need for closer alignment between the business and IT, continue to rise. Portfolio planning and prioritization is becoming a must-have capability for meeting companies’ increasing demand for speedy innovation and agility. The importance of demand and supply management and capacity forecasting and planning (interestingly, the latter was the lone capability found among both CIOs’ recent and current areas of focus) is being driven higher by many of the same forces—and by a change in supply patterns, including more sophisticated sourcing practices and expanded use of cloud tasking. Risk management is gaining significance owing to the mounting business importance of IT. It is also becoming more important because of rising concerns among regulators about the resilience of IT delivery in many industries, especially those deemed to be of critical national importance (such as infrastructure and financial services).

The table-stakes bucket includes a wide range of capabilities, from solutions delivery to relationship asset management. While the positioning of these capabilities on CIOs’ prioritization lists has essentially held steady, as noted, it is important to keep in mind that many of them are far from simple commodities that can be taken for granted. Indeed, quite the opposite is often the case, as is evident from the fact that four of these capabilities were at the top of the pain-point list. They require attention and will continue to do so.

We would make a similar point with regard to the “deprioritized” capabilities. We recognize that, given limited resources, CIOs must set priorities. But we would advise CIOs not to let these capabilities slide completely off their radar screens. User experience design, for example, can be a critical capability for designing intuitive interfaces that can lead to competitive advantage. User training management can be essential when dealing with the advanced analytics that so many companies are increasingly deploying.

Takeaways for CIOs

What should a busy CIO take away from the above discussion? We can distill it into six ideas:

  • Walk before you run. Before looking at future-focus capabilities, look at the table-stakes capabilities and determine where your company stands on each. If you identify gaps in maturity, make narrowing them an immediate priority in your battle plan.
  • Note, specifically, that innovation management is now a table-stakes capability. This speaks volumes about the changing role of IT within the company and what CIOs are expected to deliver—and deliver today, not in some distant future.
  • Note, too, that a well-developed people asset management capability is also now considered table stakes, reflecting recognition that having the right people onboard, managing them well, and providing them with an environment that supports their personal growth are critical to the success of any aspiration the IT function has. The war for talent is not coming; it is already here and raging, and you are competing with lots of other cool companies for the same individuals.
  • Continue to maintain, but do not invest too heavily in, “deprioritized” capabilities.
  • Finally, recognize that a number of your peers are actively pushing the envelope in developing future-focus capabilities, positioning their companies for greater competitive success and themselves for more strategic roles within those companies—or, very possibly, within yours.
  • Finally, if you have not yet conducted an IT-CMF assessment, do so. The yield on the investment of time can be considerable. (See “Things to Do on Monday Morning,” below.)

THINGS TO DO ON MONDAY MORNING

We encourage CIOs and IT organizations that have not yet had their technology capabilities assessed by means of the IT-CMF to do so. Among its other benefits, the exercise will provide a quick reality check. It will also give the CIO a platform for fruitful discussions with business executives about IT’s place in the company.

For those intrigued by the idea, we suggest the following:

  • Conduct an executive IT-CMF assessment. It will help you better understand where you are in relation to your industry. It will establish a baseline for discussions with your business peers. And it might identify specific capabilities that could benefit from a focused, more detailed assessment.
  • Have a discussion with your company’s CEO about how he or she envisions the roles of IT and the CIO within the company in the near to medium term (say, over the next three years).
  • Define a development roadmap for your technology-management capabilities.
  • Get the business and IT organizations to agree on a set of outcome-oriented metrics, and track and report on the progress of benefits realization as the improvement effort unfolds.
  • Scope out initiatives for immediate next steps, obtain the necessary budget, and begin to implement the roadmap.
  • Commit to repeating the executive assessment every year to track progress.

In this rapidly changing environment, CIOs must constantly scan the terrain and make strategic bets. All capabilities are important—but some will prove more important than others. Making the right moves can mean the difference between a thriving, technology-driven business, propelled by an optimized and empowered IT function, and a company that founders—and is looking for a new CIO.

The CIO’s Choice: Adapt or Fail
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