Technology professionals may be dubious of a book called “The New Age of Innovation,” but inside it they’ll find a few chapters that deal with a very old problem: the disconnect between IT and the business.
Co-authored by C.K. Prahalad and M.S. Krishnan, the book explores the concept of N=1: how companies are moving to a model of providing value one customer experience at a time, in partnership with those customers. It also deals a lot with how business are moving towards finding resources from global sources, which they dub R=G.
ComputerWorld Canada editor Shane Schick recently spoke with Krishnan, a professor of business information and technology from the Ross School of Business at the University of Michigan, about whether CIOs could create a new age of innovation of their own.
To what extent do you think CIOs would be aware of N=1 and R=G, and to what extent is the book trying to teach these concepts?
M.K. Krishnan: This is education for them. It’s an opportunity for the CIOs to step up to the table. First they have to understand that the clarity around the business is so important for CIOs. A lot of time we find the CIOs have been groomed totally from the internal IT organization. That’s one of the main reasons companies get into this disconnect between line managers and CIOs. The CIO grows up without understanding how we’re competing as a business, and that limits their ability to contribute effectively. Once they understand the business model they are competing on, they can focus on the business processes that are enabling the business model. That’s when the tension between efficiency and innovation that we talk about in the book comes into play. The clarity of the articulation of the business model gives you an understanding of where do you need efficiency in the business process and where is the demand for flexibility?
You talk a lot about business councils. Do you see CIOs leading the councils?
MSK: Absolutely. The point we make in the book is that if you look at large organizations, business processes are left as orphans, in the sense that they have no owners. An interesting exercise we sometimes do in our executive workshops is to give them a blank piece of paper and to draw the steps in the order-to-cash process in their particular company. How does the business really happen between the order from the customer to collecting the cash? You would be amazed at the lack of end-to-end knowledge among the line managers. I think the best bet is actually the CIO, because the CIO and his team are the ones who enable these business processes and how it cuts across functions.
But do they have the leadership skills to bring the process forward?
MSK: Well, that’s exactly it. They have to be groomed.
You also talk in the book about the disconnect between the vendors and the CIOs. Why do you think vendors don’t treat customers with the name N=1 approach as they might a consumer customer?
MSK: If you think about traditionally how the vendors have come up, just like any other business they’ve been thinking like Ford with the Model T, in terms of treating all customers as the same. They’ve also been trapped in the same dominant logic that they can create a product for all the companies. If you are the SAP or the Oracle or one of the other 800-pound gorillas, you can get away with it. If the CIO of General Motors or Citibank picks up the phone, these vendors may respond fast, but that’s not the case with the thousands of other companies that aren’t in that range. As a CIO, you are struggling with changing your IT to meet the business requirements of N=1, but the vendors are still thinking in the old paradigm.
You gave a fairly specific example of a Bharti Telecom in India and IBM, where they work much more like real partners and measure their results on the level of “co-created” value. What has to happen for more of those contracts and relationships to develop?
MSK: For that to happen, first on the CIO’s side, they need to articulate their business requirements, and they have to know about the uncertainties that are coming in the future. They have to work their expenditures in such a way that it’s pay-as-you-go, because I don’t want to take an approach of risking $100 million in an SAP implementation and not even know what’s going to happen in the next five years. The vendors have to be incented by my growth as a CIO in terms of my customer case, the sales growth or whatever it is. They will map that to whatever demands are placed the IT infrastructure. And if you look at these concepts around cloud computing and software-as-a-service, they are taking us very much in that direction. More and more the fixed component of IT — investments in data centres, and so on — will increasingly become commodities and standardized and pushed to the cloud. But you will be left with the business processes and the analytics and that helps you enable the differentiation that you want in your business to offer an N=1 model. You’ve got to work out the contractual structures on a base payment for the vendor and then the incremental value that the CIOs get.
You give examples of companies who could either revamp systems or processes or just apply a Band-Aid solution. How can CIOs change the business culture to take that next step that you’re describing?
MSK: Companies have to look hard at the established beliefs to which they are chained. They have to ask themselves, “What do we reward here? What is the reward for risk-taking? What is the reward for failures?” You have to take an assessment of that. Not just the CIO but the senior management. You have to create a culture of experimentation. One reason managers in large firms behave that way of clinging to a legacy solution is it’s short term, it’s less capital-intensive. It is a risk profile and social culture that we set up in the company. It’s also a lack of appreciation of the criticality of IT to business. There is a new premium for talent that understands both IT and business processes well. More interestingly, the premium for this is higher than that for traditional management talent. If you’re a finance manager or a marketing manager, they are holding the hierarchical roles today, but the focus is shifting to those that understand how to solve the problem, how the business runs, where you have the flexibility and where you don’t. All this will require a new approach to talent management overall.