Gartner keynote emphasizes the "economics of connections"
Gartner keynote emphasizes the "economics of connections"

Yesterday I posted an article from the first day of the Gartner Symposium being held in Orlando.  In it I asked if CIO was on the list of what the keynote presenter called, “jobs with an expiry date.” Today’s post, from day two of the conference looks at a more optimistic view for those who are willing to embrace what might seem counter-intuitive – giving up control to gain influence.

“Technology leadership has shifted. Talent has shifted. These are both out of your control – but that doesn’t have to be bad news.”

That was the message to the assembled CIOs from Peter Sondergaard, senior vice president and global head of research for Gartner Inc.

According to Sondergaard, it’s just accepting reality. Today, “CIOs can have great influence, but no longer can they have great control.” Every CIO knows this. If you say no – the business will just go around you and purchase whatever they want from their neighbourhood cloud vendor.

Why is this good news? Again, according to Sondergaard, “Control is limited. But influence scales.”

Next, he turned his sites on big data – an enormous investment from most CIOs. “Big Data is not where the value is. By itself, data is not transformation.”

In two minutes, Sondergaard had pulled the rug out from under every CIO in the audience. Technology – the area we supposedly lead is hopelessly out of our control.  Big data – the largest investment in many of our IT budgets “has no value.”

Where is the real value?  According to  Sondergaard it’s found in algorithms.

“Algorithms are the real source of value,” he told the huge crowd watching live and remotely in three huge ballrooms. “They define action. Amazon’s algorithm (the suggestion engine) keeps you buying. Netflix (a crowdsourced algorithm) keeps you watching. And newer algorithmic applications like Waze (the traffic analyzer) keep you moving.”

According to Sonergaard, “algorithms define business.” They encode the rules, the behaviours and the decision-making abilities into software.

The value of intelligent agents, acting in real time, with the speed and computational power of software are proliferating.  As one analyst pointed out in a later talk, “I now have so many smart devices, that the only thing is not smart, is me.”

But according to Sondergaard, all of these new tools are not the end state. They are only the beginning.

Siri, Amazon’s suggestion engine, Google search, advertising and even driverless cars are only early prototypes of what we will experience in what Sondergaard calls the “post-app era.”

The post-app era

Algorithms will usher in a new era of digital business – an era where the decisions for consumers and businesses alike are encoded into software agents. These agents will govern almost all aspects of our business and even personal lives. Their impact will be enormous.

For example, algorithms will make autonomous (driverless) vehicles possible. Even in their current state of development, algorithms that guide vehicles have a much higher accuracy and safety level than humans. As Sondergaard pointed out, over 50 per cent of aircraft landings are done exclusively by computer algorithms. In his presentation, he joked about how you can you tell the difference between a computer landing and one done by a human pilot.

According to the Sondergaard, “if the landing is rough, it was done by a human. If it was smooth, most likely it was done by a computer algorithm.”

As algorithms can really take the place of humans, it will have an enormous impact. Driverless cars, already legal in two US states will soon be regarded not as novelties, but as the way to make driving safer. When that happens, they will scale quickly to be the dominant vehicles on the road. When they go mainstream, it will force major changes not only for consumers, but in the commercial ecosystem of the auto industry.

We would live in a world where our children may never need a drivers license. That would do more than put driving instructors on the list of “jobs with an expiry date.” We might also need a lot fewer body shops.  In fact, with the right algorithms dispensing vehicles, we might need fewer cars. The whole idea of car ownership could go out the window.

This is the power of algorithms, according to Sondergaard. Now, imagine this applied to all aspects of our consumer and corporate interactions. No longer governed by the speed or the unpredictability of human behaviour, the new corporate and consumer marketplaces would be totally transformed.

CIOs and IT leadership that understand this potential for change can leverage algorithms. There are some immediate areas where algorithms have compelling use cases.  In security for example,  60 per cent of CIOs feel their security efforts are falling behind. Gartner predicts that this will cause a huge shift in the security budgets of corporations.

Where currently 10 per cent of the security budget is allocated to risk, security and compliance, Gartner expects that to triple by 2017 to take up 30 per cent of the security budget. Salaries for security staff are rising so costs are inevitably going higher. But even if you have the budget, good people are more and more difficult to find. The introduction of automated algorithms could allow CIOs to manage this exponential growth before it swamps the resources that most companies can devote to security.

Risk – algorithmic errors

While the benefits are compelling, there are also risk when we allow algorithms to run key business functions. Recently in the UK  a major pricing algorithm malfunctioned. These algorithms allow companies to automatically follow competitors pricing on the web and adjust pricing in real time so that they vendor is always competitive. They are necessary to the survival of many online businesses. Recently, one of these algorithms malfunctioned. The matching led to a price war, fueled by algorithms and proceeding at breakneck speed. Before it was detected, some vendors had lost thousands of dollars. Fortunately, the vendors noticed a huge spike in traffic as consumers attempted to buy large screen TVs worth thousands – for mere pennies.

Algorithms do not detect context – the introduction of situations not fully comprehended by those who created them. Mistakes are rare, but can have devastating consequences. This, says Sondergaard, introduces a new level of risk and the requirement for a new corporate discipline to deal with it. By 2020, Gartner expects that 50 per cent of organizations will have a digital risk officer to manage these new risks. Like the airline pilots that no longer land the planes, the digital risk officer will be there to monitor and watch for algorithms that malfunction or encounter new contexts they cannot interpret.

Do you need a digital risk officer?

The introduction of the digital risk officer will be essential if we are to maintain the critical element of trust. As another Gartner analyst, Frank Buytendijk, pointed out in his presentation entitled “The Economics of Connections” there are three inhibitors to the proliferation of algorithms – inertia, control, and distrust. Inertia and the need for control cannot stem the tide if the perceived benefits outweigh the perceived risks. As CIOs we’ve seen this recently with mobility and cloud. If the benefit is there, users will bypass us to bring in new tools. To be successful, trust has to be managed  carefully as the inevitable issues arise to ensure that the benefits outweigh the risks by a large margin.

And with algorithms the benefits are enormous. That is why, despite the risks, algorithms will drive more and more businesses – particularly digital businesses. The brutal reality of today’s businesses is that digital businesses simply do not exist in their sophisticated incarnations without algorithms. While UK retailers may watch their pricing algorithms more closely, no-one is proposing that they return to manual pricing even if they could. But trust will still be essential to fully exploit the value of algorithms. As Buytendijk pointed out “value is only fully realized when connections proliferate” and that takes trust.

According to Buytendijk, this creates a huge opportunity for the CIO well beyond harnessing algorithms to cope with their own IT issues. Those who can think strategically will recognize that businesses are being transformed by digital forces. They will see that organizations of all industries and sizes need to “invest in algorithms.”

They will also realize that CIOs are uniquely positioned to guide organizations through the creation and management of this algorithmic future.

Don’t be the ‘go to’ person for the A-Team

As algorithms are just sophisticated code, the easy option for many CIOs would be to develop these internally. It’s certainly one option, but it’s not the only one. Buytendijk cautions CIOs who want to become the “algorithm factory” – to avoid what many have done with big data, “being the ‘go to’ person for the real A-Team.” CIOs who do this may enjoy a “transactional” relationship.  Some might be seen as “good partners.” But according to Buytendjik, that’s not the end goal for the CIO.

The real goal for the CIO who sees this new future is to become a true trusted ally of the CEO and the board. That’s why a wise CIO will think beyond the internal factory or contracted outsourcing. New CIOs will exploit their knowledge of technology to scout the market and help the company find and even acquire the expertise of new companies. This is not a future scenario. It’s been around so long there is even a term for it: Techquisition.

It’s a major shift. It leverages existing skills but requires a major shift in mindset. It moves the CIO role from the control oriented – custodian and capable manager to influencer – as tech entrepreneur and even venture capitalist.

CIOs uniquely poised for the new world of algorithmic management?

Giving up control and embracing influence is a nice catch phrase, but are CIOs up for this?  As it turns out, CIOs may actually be uniquely poised for this role. Not only do they understand the world of programming – and algorithms  are simply advanced computer programs.   But as the third keynote presenter Mary Messaglio revealed, they think differently than many other executives.  A recent study of how CIOs think found that three out of four CIOs were “intuitive thinkers” – capable of solving complex problems in new ways and acting in times of real uncertainty.

It’s an incredible future vision, one with unlimited potential for those who can embrace the loss of control and even learn to intentionally divest. It’s counter-intuitive thinking for many CIOs but it may be necessary.   Certainly the status quo is not sustainable and for many, far from desirable.   As Messaglio noted, “you are not the only option – you may not even be the best option.”   With that sober reality, maybe it is worth the risk of moving out of our comfort zone and learning to accept the loss of control.   As Sondergaard pointed out, control inevitably breaks – but “influence scales”.

Join me over the next few days as I’ll be posting updates each day from the Gartner conference in www.itworldcanada.com and www.itbusiness.ca   Check out our feature section on Gartner that has a range of interviews and information from Gartner analysts at www.itworldcanada.com/Gartner



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