CIOs Poised to Play Pivotal Role in Creating an ‘Innovator’s Advantage’

By Michael F. Yates,

Liz Padmore

and Rosemary O’Mahony

Few would dispute that information technology (IT) is an important facilitator of innovation which, in turn, produces solid business benefits. Yet, paradoxically, the IT department is the least likely part of a business to be a primary source of innovation. That finding from a new Accenture study highlights the need for CIOs, not only to run effective IT operations, but also to be active participants in the development of the overall business strategy.

Drawing on an independent global survey of nearly 600 senior executives, the study, “The Innovator’s Advantage: Using innovation and technology to improve business performance,” examines the relevance of innovation to global business and the relevance of IT to successful innovation. It revealed that companies reporting a strong record of innovation also report that nearly two-thirds (64 percent) of their recent IT investments were successful at meeting their strategic objectives. By contrast, less innovative companies reported only a 28 percent success rate for IT investments. Indeed, more innovative companies report getting more value for money from IT and are more likely to see IT as a source of competitive advantage.

The study also confirms that more innovative companies see IT as an integral part of business strategy; innovators are far more likely to consider IT to a great extent when they are developing new business strategies than less innovative companies. In doing so, innovators consider the business capability that IT can deliver not just the IT alone.

Given the crucial role of IT as both an operational and strategic asset, tactical management alone by the CIO leads to a misalignment between the company’s strategic needs and its IT and opportunities to generate value are lost. The CIO’s strategic input is vital. Yet the indications are that even among more innovative companies this particular aspect of the CIO’s role needs more emphasis.

This is reinforced by other Accenture work¹ that has shown that in some countries, most CIOs still report to other directors (usually the finance director) rather than to the CEO. This probably explains why responses to the survey also showed that, whereas CEOs concern themselves with corporate strategy, revenue growth and collaboration, CIOs typically concentrate on addressing operational issues, managing costs and increasing productivity. CEOs can gain best value from their IT investments by ensuring that the CIO is brought into strategic discussions.

Balancing the CIO’s Strategic and Operational Priorities

It is clearly the CIO’s responsibility to ensure the smooth and efficient day-to-day management of the IT department. Indeed, the Accenture study highlights the immediate priority that businesses worldwide put on cost-effectiveness.

Many organizations have found that the precipitate rush toward major IT investments in the 1990s, followed by the headlong flight away from it after the turn of the millennium, has left them with systems that are not integrated and are hard to maintain. Moreover, these systems often support customer-facing applications for which they were never intended. All too often they are surrounded by inefficient IT processes, over-specified services and a large number of difficult-to-manage suppliers. In these circumstances the CIO has a pivotal role to play.

By relentlessly pursuing opportunities to drive costs out of the existing technical infrastructure and improving the efficiency of systems maintenance, the CIO can maximize the proportion of resources available to invest in creating new business capabilities.

The Accenture study supports this, suggesting that one reason why the most innovative companies gain more strategic benefits from their investments in IT is because they spend proportionately less of that budget on day-to-day operations and more on new investments.

Balancing Operational Spend and Discretionary Investment

Of course the optimal split between operational spend and new investment varies according to industry and company circumstance. But, in most businesses, greater value is generated when a larger proportion is spent on discretionary investment. Spending less on operations and more on new systems is a clear priority of the majority of executives responding to the Accenture survey.

Consequently, CIOs must not only run an effective IT operation, but also be able to communicate the strategic benefits that IT-including newer forms of IT-can bring. Of course there is no single approach for CIOs to follow to help drive their own organization’s efficiency and effectiveness, but most IT departments can benefit from the following:

• A governance structure that reflects the overall culture of the company and allows business and IT executives to decide on strategic priorities for the company’s IT investments and share responsibility for implementing subsequent initiatives.
• Shared commitment to the business case and actions required to achieve the projected returns on investments.
• Joint accountability for returns on investment and measurement of actual versus projected returns.
• A constant focus on actions to drive costs out of existing infrastructure and maintenance activities.
• A blueprint for the overall architecture of the system that establishes the way in which technology infrastructure will be developed. This should ensure that the infrastructure is sufficiently modular for individual components to be upgraded or replaced with minimal disruption. It should also make it easier to enable different systems to work together cost-effectively and would improve overall security and reliability.
• Transparency and access to information to ensure that the extent of the company’s system and assets are known. This is not as easy as it might be imagined in today’s IT-intensive environment in which many IT investments may be made by individual business units outside the purview of the IT department. Companies need to be able to monitor their entire IT spend – not just IT budgets. This should enable them to manage IT assets and investments more effectively to exploit their relationships with IT vendors and to support more effective sourcing decisions.

Innovative Use of IT Raises Business Performance

If the IT department is to contribute to innovation across the business, then CIOs need to be proactive and take propositions to the business units about ways to us IT to create new, market differentiating business capabilities. One aspect of this is the increasingly important responsibility of the CIO to identify how existing and emerging technologies can generate business innovations.

Innovation and the imaginative use of IT can create significant wins for companies in many different contexts. But it is not a game of chance. In order to maximize the benefits from IT investments, the CIO has to be positioned as an equal partner with other business executives. Creating an effective partnership between the IT department and the other business units will dramatically improve the odds of using innovation and technology to improve business performance.

About the authors

Michael F.Yates, an associate partner in the Accenture Strategy & Business Architecture service line, has contributed extensively to technology thought leadership at Accenture. Mr. Yates is based in London and can be reached at michael.f.yates@accenture.com.

Liz Padmore, a partner in the Accenture Strategy & Business Architecture service line, is Global Director of Accenture Policy and Corporate Affairs. Ms. Padmore is based in London and can be reached at liz.padmore@accenture.com.

Rosemary O’Mahony is a leadership partner in Accenture’s Resources Operating Group, which is comprised of the chemicals, energy, natural resources and utilities industries. She leads the Resources’ Solutions Engineering group, which provides technology solutions to clients worldwide. Ms. O’Mahony is based in Paris and can be reached at rosemary.m.omahony@accenture.com.

¹ “Business Value Creation Though IT” by Bernard Hottschke and Andreas Pfeifer, Accenture 2002