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The IT Organization of the Future

Driving Business Change
by Jeanne W. Ross, Stephanie L. Woerner, Stuart Scantlebury, and Cynthia Beath
This article is an expanded version of a research brieng pub-
lished in December 2009 by the MIT Sloan School of Manage-
ments Center for Information Systems Research (MIT CISR).
Here we focus more deeply on IT organizations that help drive
business change, the shiing role requirements in such organ-
izations, and the management practices that develop the
needed competencies to exercise these new roles eectively.
A
s companies build digitized process plat-
forms to replace large portfolios of isolated,
and oen redundant, systems and process-
es, they are fundamentally transforming
the business.
1
But business transforma-
tion demands leadership. Where does that leadership
come from?
MIT CISR and The Boston Consulting Group recently
surveyed the CIOs of 104 companies on the changing IT
organizationand this question featured prominently.
One of the surveys key ndings was that CIOs believe
that business leaders are not positioned to lead IT-
enabled business transformations. In fact, only 33 percent
of the CIOs surveyed consider their companys senior
executives eective at driving business value with IT. And
only 40 percent consider their senior executives eective
at prioritizing IT investments.
If, despite the emergence of a digital or information econ-
omy, business leaders are not able to drive the digitization
of business processes, the need for IT to do so becomes
acute. And the rewards for IT organizations that capably
ll this role, as well as the benets to their companies, are
sizable. Indeed, CIOs of companies that are building and
leveraging digitized process platforms are much more
likely to describe the IT units role as business change
driver rather than order taker.
2
What characterizes
these IT organizationsthe ones that are not just sup-
porting transformation but driving it? And what benets
have they realized? We summarize our ndings below.
Why Should the IT Unit Drive Business
Change?
MIT CISR has written about CEOs who led a technology
vision in their companies,
3
but these instances are the
exception. More oen, the CIOin partnership, to be
sure, with his or her counterparts on the business side
provides pivotal leadership both in developing a vision
for and in implementing a digitized process platform.
4
The benets to companies in which the IT unit acts as a
change driver are substantial. According to our survey,
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1. We define a digitized process platform as a coherent set of busi-
ness processes, along with supporting technology, applications, and
data.
2. We relied on respondents descriptions of their architecture ma-
turity to assess whether IT was building a digitized platform. For
more information, see Jeanne W. Ross, Maturity Matters: How
Firms Generate Value from Enterprise Architecture, MIT Sloan
CISR Research Briefing, Vol. IV, No. 2B ( July 2004, revised February
2006). MIT Sloan CISR working papers and research briefings are
available for download at http://cisr.mit.edu.
3. See, for example, K. Nagayama and P. Weill, 7-Eleven Japan Co.,
Ltd.: Reinventing the Retail Business Model, MIT Sloan CISR
Working Paper No. 338 ( January 2004); and C. Gibson, Turnaround
at Aetna: The IT Factor, MIT Sloan CISR Working Paper No. 362
(August 2006).
4. See, for example, J. Ross and C. Beath, Campbell Soup Company:
Harmonizing Processes and Empowering Workers, MIT Sloan
CISR Working Paper No. 374 ( June 2008), Building Business Agil-
ity at Southwest Airlines, MIT Sloan CISR Working Paper No.369
(May 2007), and Information and Transformation at Swiss Re:
Maximizing Economic Value, MIT Sloan CISR Working Paper No.
373 (December 2007); and J. Ross et al., United Parcel Service:
Business Transformation Through Information Technology, MIT
Sloan CISR Working Paper No. 331 (September 2002).
IT AbvAu1AGL
such companies spend a smaller percentage of their IT
budget runningas opposed to buildingsystems. The
45 IT units described as order takers spent, on average,
almost 70 percent of their IT budgets on running their
systems, compared with only 62 percent for IT units that
lled the role of business change driver. The spending ra-
tio is important because we found that companies that
apportion more of their IT spending to new initiatives,
rather than to sustaining initiatives, had a signicantly
higher overall return on assets and higher net margins
relative to their competitors.
In addition, IT units that act as change drivers enjoy fast-
er realization of the business benets from new systems.
On average, business change drivers reported an interval
of nine months between the projects start date and the
delivery of business value. This is 33 percent faster than
in companies where ITs role is that of an order taker.
Finally, scores on IT employee-satisfaction surveys are
higher in business-change-driving IT units. The enhanced
satisfaction translates into recruitment advantages. In-
deed, CIOs in IT units that drive business change report-
ed signicantly greater eectiveness in recruiting the
talent they need.
Characteristics of IT Units That Drive
Business Change
The dierences between business change drivers and
order takers are quite stark. They are particularly evi-
dent along a number of dimensions, including the fol-
lowing:
Shiing Role Requirements. In general, CIOs told us that
internal IT sta roles are shiing away from applica-
tion development and toward process analysis and
engineering, business relationship management, proj-
ect management, and architecture design and imple-
mentation. Future role requirements are perceived by
both order takers and change drivers to be largely the
same, apart from the role of business relationship
management. Order takers place greater importance
on this role than do business change drivers, perhaps
because business change drivers have, in many cases,
incorporated the responsibility for business relation-
ship management into multiple roles. But business
change drivers report signicantly higher formaliza-
tion and maturity of these roles, suggesting that they
will be better able to deliver these important capabili-
ties. (See Exhibit 1.)
More
formalization
Less
formalization
5
4
3
2
1
Enterprise
architect
1
Business
relationship
manager
1
Project
manager
1
Business
analyst
1
Program
manager
Business
process
engineer
1
Vendor
relationship
manager
1
Product
manager,
IT services
1
Data
manager
1
Business
application
developer
Technology
fellow
Business change drivers Order takers
Very
important
Less
important
5
4
3
2
1
Exhibit 1. Formalization of 11 IT Roles
Source: BCG and MIT CISR survey, December 2009.
Note: The bars represent the perceived importance of each role across both samples; the lines represent the extent to which role expectations are
formally defined in the two samples.
1
There was a statistically significant difference between the two samples.
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High rm
investment
Low rm
investment
5
4
3
2
1
Comprehensive,
multiyear
strategic IT
workforce
plan
Dened
career paths
for IT general
managers
leading to CIO
Dened
career path
for technical
experts
Resource
pools, like
centers of
excellence,
rather than hard
assignments
Rotations
from IT into
business
functions
Internally
provided
training and
education
programs for
IT sta
Rotations
from
business
functions
into IT
External
training
and education
for IT sta
Business change drivers Order takers
Exhibit 2. Companies Investment in IT Professional Development Practices
Source: BCG and MIT CISR survey, December 2009.
Note: Differences are statistically significant for all but external training and education for IT staff.
Focus on IT Sta Development. Business change drivers
tend to invest more heavily in their people than do
order takers. They develop workforce plans and mul-
tiple dened career paths, provide internal and exter-
nal training programs, and oer rotations between
business and IT roles. (See Exhibit 2.)
Centralization. The trend toward centralization is some-
what more pronounced in IT units that drive change
(83 percent of business change drivers reported a cen-
tralized structure versus 78 percent of order takers). In
their centralized IT units, business change drivers hold
tighter reins on ITreporting 26 percent lower levels
of unauthorized shadow IT.
Shared Services Model. Business change drivers deliver,
on average, 60 percent of their IT services as shared
services and place more emphasis on alternative ser-
vice levels, related prices, and clarifying service units
than do order takers. In addition, business change
drivers have more responsibility for other services,
such as facilities management, supply chain, human
resources, and nance. And internal company surveys
suggest that, in comparison with users of IT services
at order takers, internal users at business change driv-
ers are generally more satised with the services they
receive.
Outsourcing. As IT units increase their emphasis on
driving business change, they increase their outsourc-
ing of not only application development and mainte-
nance but also operations. The causal relationship is
not clearit is possible that IT units increase their
emphasis on driving business change as they out-
source more.
Eective IT Governance. Relative to order takers, busi-
ness change drivers report signicantly higher eec-
tiveness of governance mechanisms, such as standard-
ized project methodologies, post-implementation
reviews, and service level agreements. In companies
where IT is a business change driver, nearly 60 per-
cent of the senior business partners can describe the
organizations IT governance. In companies where the
IT unit is an order taker, that proportion falls to 46
percent.
IT AbvAu1AGL
Adopting the Mindset of a Business
Change Driver
The ndings from this and previous MIT CISR research
suggest that, as part of a companys transition to greater
digitization, IT sta must shed an order-taking mentality
and work to identify ways in which they can contribute to
business success. One CIO we interviewed
is pushing this shi by reminding both the
business and IT people that they wear the
same company badge and thus have shared
goals. IT and business leaders can drive
business value by focusing on those goals.
Chris Perretta, CIO of State Street Corpora-
tion, told us, I think the real challenge is
whether the job Im doing is relevant to the things that
the CEO really cares about. For instance, I know that our
CEO wants to extend lean, which is business process de-
sign, throughout the whole organization. If I incorporate
business process design into the IT function, then I posi-
tion the IT organization in a leadership role. If I retreat,
then I am simply a service provider, and we waste a lot of
knowledge capital.
Frank Luijckx, The Dow Chemical Companys director of
business services and environment, health, and safety for
India, the Middle East, and Africa, told us that the CIOs
in his company have been very active in shaping the
companys future. He noted, The CIOs have been very
close to the transformation of the companythey have
enabled it, probably because they have the most struc-
tured approach to it. I think leadership in information
systems is increasingly important. The technology is
decreasingly important. He also said that the company
does not do IT projects anymore; rather, it does projects
for the company. In a supply chain project, for example,
the people who are skilled at doing the IT part and the
people who do major product and facilities engineering
all work together in one big project organization. Accord-
ing to Luijckx, Our project support center is no longer
called the IT Project Support Center. Its broader and we
continue to pull more and more functions into it.
Luijckx believes that the business leaders may have for-
gotten what it takes to run a business, because so much
is automated in the background. He told us, We increas-
ingly nd that we need to reeducate the business leaders
about the engine on which they rely on a daily basis.
A CIO for a manufacturing company told us, I think the
boundaries of IT are expanding. What we have done well
up till now, which is all of the basic plumbingoperations,
security, controls, disaster recovery, continuity, and so
forthdoesnt stop being important. As a matter of fact,
as you do those things better, you can move up the value
pyramid in IT. We started with standardizing and deliver-
ing infrastructure and operations services.
Then we moved to shared applications and
we helped the business get the most value
from them. Now its really about expand-
ing into process leadership. We went from
being a service provider and a process
participant to being a process leader, mainly
because business processes are increasingly
built into the applications. Everything is in-
tegrated, so IT has a greater impact on the dening and
transforming of processes through the use of technology.
Recently, this CIO said that his IT organization estab-
lished the role of chief business process o cer, responsi-
ble for optimizing business processesboth general proc-
esses, such as an internally developed proprietary process
that is similar to Lean Six Sigma, and specic end-to-end
processes, such as hire to retire, bench to plan, order to
cash, make to ship, and account to report. The people in
his area now have a much higher level of business
acumen than was previously typical in the companys
IT unit.
Developing the Capabilities Necessary
to Drive Business Change
Ensuring the right talent to realize the IT organizations
ambitions is a critical challenge, many CIOs told us. In
fact, only 7 percent of the CIOs we surveyed said that
their IT organizations current skills are an excellent
match to their needsand almost 60 percent reported
signicant skill gaps. Looking out three years at their pro-
jected skill requirements, only 38 percent of CIOs were
fairly condent about being able to meet them.
Many CIOs also told us that, in particular, they are cur-
rently struggling to hire or develop strong IT architects,
business process engineers, and business-relationship
managers. Part of the problem is a market shortage of
such talent. However, a number of CIOs noted that do-
main knowledge and existing relationships with the busi-
ness areas that IT serves were extremely valuable for
Almost 60 percent
of the CIOs reported
significant skill gaps in
their organizations.
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such roles, and these CIOs felt that it makes far more
sense to try to develop those talents internally than to try
to nd them in the marketplace.
But developing such talent isnt easy. A number of CIOs
said that they had tried to transform good developers
into IT architects, only to nd that the talents intrinsic
to good developers do not necessarily
make for good architects. One CIO said
that she could identify developers who
would make good architects by the con-
sistency with which they asked questions
about how their projects linked to other
projects.
One popular development technique,
according to our survey, is to recruit people into the IT
organization from the business functionsespecially
people with project or program management or technol-
ogy management expertise. Said Luijckx of Dow Chem-
ical, I think IT professionals are going to have to be
more rounded individuals. They probably will come out
of the business and go back to the business, and come
out of the [IT] function and go back to the [IT] func-
tion. Almost 78 percent of the CIOs who described their
IT organizations as business change drivers said that
their organization used this approach.
The CIO of a manufacturing company, for example, told
us, Our head of sales systems for North America is some-
one who had been an outstanding technical program
manager and happened to be part of the sales force. We
recruited him into the IT organization and he brought his
business experience and acumen, along with his techni-
cal project leadership. Weve done the same thing in
some of our supply-chain areas, where weve taken folks
out of the supply chain who were strong project and pro-
gram managers and made them heads of these applica-
tion areas in the IT organization. Though there are some
IT people who have been around the block enough to
know the business, and who make the leap quite well,
largely were looking for people who have lived in the
business function world.
Another method used by business-change-driving IT
organizations to develop necessary capabilities is formal-
ized talent management. Almost 90 percent of these or-
ganizations, according to our survey, have dened multi-
ple career paths, such as general management, technology
expert, and project management. And more than 95 per-
cent of these organizations have some type of multiyear
IT workforce-development plan. Further, almost all of
these organizations use resource pools, centers of excel-
lence, and competency centers to some extent. Several
CIOs said that their organizations have instituted care-
fully developed job families and career ladders, specifying
the skills and learning required for each
employee to advance along a path that ap-
peals to the individual and that addresses
the companys emerging IT-sta needs.
One of the keys to developing an IT work-
force plan and ensuring the right capabili-
ties is to dene the competencies needed
and assess how well the IT organization is
positioned with respect to the number of people who
possess those competencies. There are several ways to do
this. The CIO of a manufacturer, for example, told us that
his organization had developed what he calls an IT
compass. He elaborated, The compass highlights 20
competencies that we expect IT people to have. These
competencies include the ability to drive value realiza-
tion, understand the business environment, drive innova-
tion, develop and integrate applications, and manage a
range of elements and functions, including enterprise
architecture, service delivery, risk, projects, processes, IT
assets, relationships, and talent.
This CIO said that by using the 20 competencies, the
organization has developed a series of role proles. For
example, in security service delivery, there are role pro-
les for analyst, senior analyst, specialist, senior special-
ist, and manager. According to the CIO, For every one of
those roles, we go across the 20 competencies and ask
what level is required. So, for example, for a business IT
director, you need mastery across all the business acu-
men skills: driving value realization, understanding the
business environment, aligning with other functions, and
managing relationships. You probably need some pro-
ciency and mastery throughout the functional areas. You
need mastery in functional leadership. And you need pro-
ciency in some of the global capabilities.
Engaging Business Leaders
Finally, our survey found that business executives oen
rely on IT for leadership in digitization eorts. Thus, IT
leaders need to be prepared to step up to the task. But a
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More than 95 percent
of change drivers have
a multiyear workforce-
development plan.
IT AbvAu1AGL ,
litany of failed ERP, CRM, and other technology-inspired
initiatives bear witness to the limitations of IT leadership.
If business leaders do not share ownership of both the
implementation process and the outcomes, the IT unit
cannot bring about a transformation.
Given that they cannot go it alone, IT leaders are work-
ing to engage business leaders in the types of visioning
exercises, governance processes, and business change ef-
forts needed for eective digitization. Our interviews indi-
cated that CIOs are encouraging engagement by delivering
IT services e ciently and eectively. These eorts build
credibility and trust. IT organizations that are not provid-
ing excellent traditional-IT services (such as infrastructure,
applications, and help desk services) are rarely asked to
expand their service oerings into business process design,
product design, business-transformation program leader-
ship, business strategy, and other activities that business-
change-driving IT organizations oen take on.
Beyond building credibility, CIOs in companies where IT
drives change spend a great deal of time talking with
their colleagues on the business side about business op-
portunities that might involve IT. These discussions aord
CIOs some insight into how IT can make a dierence.
If a CIO cannot generate widespread agreement among
business executives on the desirability of a vision and the
IT-enabled business changes it requires, any eorts to
increase business process digitization will constitute a
lonely, and ultimately disastrous, journey. But CIOs who
create demand for increased business process digitization
are likely to create critical leadership roles for them-
selvesand potentially a powerful competitive advan-
tage for their companies.
Jeanne W. Ross is the director and principal research scientist of the
MIT Sloan Center for Information Systems Research. You may contact
her by e-mail at jross@mit.edu.
Stephanie L. Woerner is a research scientist at the MIT Sloan Center
for Information Systems Research. You may contact her by e-mail at
woerner@mit.edu.
Stuart Scantlebury is a senior advisor of The Boston Consulting Group.
You may contact him by e-mail at extscantlebury.stuart@bcg.com.
Cynthia Beath is a professor emerita at the University of Texas,
Austin. You may contact her by e-mail at cbeath@mail.utexas.edu.