Introduction
Because technology is the negation of any definitive truth—and to dominate the transformation of things it must be this negation—the destiny of the West is radical anxiety.
—Emanuele Severino, The Essence of Nihilism
Nothing is more damaging to a new truth than an old error.
—Goethe, Maxims
Today, across industries and geographies, executives of large enterprises are struggling to transform their organizations. They have a sincere desire to “become digital” but are getting stuck along the way. They know that their enterprises are special—they have a history of brilliant innovation, a market leadership position, a mission they’re passionate about. They look at companies like Amazon and Apple, innovating at high speed, getting products to market in nanoseconds, and creating new types of business value that no one has ever before conceived. They wonder, why can’t their enterprise do the same?
It’s easy to blame cultural patterns, organizational issues, rigid processes, risk aversion, and implacable bureaucracy for their inertia. But the real obstacle is something different and harder to see. It’s the relationship between IT—the company’s organ of technical expertise—and the rest of the enterprise. The digital age demands leadership from those responsible for digital technology. But the conventional ways in which the “business” part of the enterprise and the IT part work together make that impossible.
What do enterprises want from IT? They want business outcomes. They want IT to help improve the company’s competitive positioning. They want IT to drive technology-inspired innovation. They want IT to deepen relationships with customers and promote repeat business. To streamline operations and help make better use of their employees’ time and mental capacity. To manage risk—particularly in information security. As the business world becomes digital, technology becomes central not just to the mechanics of running a company, but to the company’s ability to compete and survive.
What do enterprises actually ask and incentivize IT to do? To deliver projects on time and according to plan. To reduce IT costs. To provide good customer service to the company’s own employees. To take in requirements from the business units and deliver IT capabilities to fulfill them precisely as stated. To control risk by not allowing scope to creep and managing to deadlines.
What we ask of IT isn’t what we want of IT; it’s at best dimly related.
As the cliché has it, the pace of change is accelerating. That’s nothing new to technologists—for decades, changes in technology have come faster and faster as startlingly inventive people join the technology world; as software, hardware, and IT service providers pour resources into growing their markets; and as demand for features, scale, security, and resilience drive innovation. A software developer, for example, must constantly learn about and experiment with new programming languages, new practices, and new mental models for architecting and designing IT systems.
The increased pace now applies to business and product strategy as well, largely because technology is so much at the center of everything an enterprise does. Why are executives on email twenty-four hours a day? It’s not just because email is available; it’s because they actually feel a need to make decisions while eating pasta, watching reality TV, and emerging from REM sleep. We feel that urgency in our stress levels. Lowered barriers to entry let disruptive companies transform industries in the flick of an eyelid. The cloud, the pliability of well-written software, the unmediated access to customers globally over the internet, the availability of venture capital, an incoming workforce that has an intuitive understanding of younger markets—all of these raise the risk that a company that was once comfortable will wake up one day to find itself dead or delisted, or at least no longer welcome on the S&P 500 index.
It’s not just startups that threaten established enterprises. Other traditional enterprises have found ways to draw on the magic of today’s technology to pull new products out of a proverbial hat, to make costs disappear, or to transform red financials to black. According to a Boston Consulting Group (BCG) study, companies are dropping from top-three positions in their industries faster than ever before, and once they do, are also likely to drop from the top ten rankings within five years.1
There is simply no way an enterprise can feel comfortable with its status quo, or move slowly and tentatively toward a vaguely glimpsed future; urgency and clarity are the demands of the day. Forty-seven percent of CEOs report feeling pressure from their boards to digitally transform2—whatever they might mean by that—and sixty-two percent already have some such transformation underway.*3 Companies that move too slowly are destroying business value every nanosecond.
In their book Accelerate: The Science of Lean Software and DevOps: Building and Scaling High Performing Technology Organizations, authors Nicole Forsgren, Jez Humble, and Gene Kim identify four areas where organizations must accelerate:
To accelerate, enterprises must find a way to bring technology to the heart of their work, for just as technology is causing this disruption, it is technology that provides the solution. It’s the internet that lets them quickly reach customers across the world, it’s the cloud that lets them instantly acquire the infrastructure they need, and it’s the changeability of software that lets them continuously innovate and transform to meet emerging demands.
Ironically, enterprises often consider IT to be a hindrance—a frictional force that slows them down as they grind forward to deliver value for their customers. But it’s IT departments, which have lived with change and uncertainty for their entire existence, that have developed ways of coping with the constant pressure to adapt. The IT folks have quietly been streamlining their processes and finding ways to figure skate delicately at high velocity; what remains is for enterprises to put on their skates and get comfortable gliding on the digital world’s slippery surfaces.
Leaders of digital transformations often look around their organizations and see heads nodding. Everyone seems to agree that change is needed to survive in the digital age. Everyone understands that it’s urgent and that there is a risk of being disrupted if the company doesn’t transform quickly enough. Capital markets are demanding growth and innovation, while the board wants management to invest in becoming future-ready. Executives are aware that competitors are learning how to build closer digital relationships with customers. Frankly, it’s rare to so easily arrive at consensus.
But nothing seems to be happening. Heads are bobbling yes-yes-yes, plans are being discussed, priorities are being set . . . but the digital prince remains an analog frog. It’s easy to blame the lack of progress on corporate culture, a lack of up-to-date skills among employees, rigid bureaucratic processes, lack of cohesion across business silos, heavy compliance requirements, accounting rules, or inflexible auditors. For any large enterprise, those are indeed important factors. But many of them are within the company’s control and others, as I’ll show later, are outputs of successful transformation—not prerequisites.
If you want to unlock your enterprise’s digital transformation, you must change not only its relationship with technology, but its relationship with its technologists. Conventional wisdom has settled on a way of integrating IT into the enterprise that hasn’t been very effective up to now and remains much less likely to be effective in the digital future. IT and the business face each other across a daunting chasm of stereotypes and perceived risk like rows of bobblehead dolls, bobbling and smiling at each other with goodwill and mutual respect, coupled with a formality that precludes intimacy. The key to digital transformation is to change the way IT and the business interact.
Over the decades that IT has been part of the corporate landscape, it’s been regarded as a sort of arms-length contractor serving the rest of the business. A business unit decides what IT capabilities it needs, writes a requirements document, negotiates an understanding with IT about scheduling and costs, then tosses its requirements over the wall for delivery. IT is then responsible for fulfillment, delivering what was requested on the schedule it agreed to. We speak of “IT and the business” as if we’re referring to two different things, and we encourage IT to treat the business as its customer. It’s as though IT were an outside service provider full of people who just happen to be employees of the same company.
Digital transformation, on the contrary, means making technology central to the way an enterprise defines itself, rather than a utility or support function that can just as easily be outsourced. But this can only happen if the technologists are as much a part of the business as employees in marketing, finance, and operations.
Changing this relationship can be uncomfortable for both sides. On one hand, business employees have gotten used to being treated as IT’s customers, whether the customer service they received was tip-worthy or not. This contractor-like model has given the illusion of control to the business—the feeling that even when they don’t understand the technological details, they can at least hold IT accountable to some performance standard. They can feel like they’ve shifted the burden of technical uncertainty, complexity, and change onto the IT folks, and thereby gained predictability and simplicity for themselves. As long as IT said a project would be completed by a certain date, uncertainty had been managed away, or at least could be overseen by way of conventional risk management practices.
On the other hand, IT departments have never had to take responsibility for business outcomes. Someone else always decides which technology capabilities will create business value; someone else works to harvest the business value from the products IT delivers. IT has been able to say, “We can’t do anything until we get your requirements,” while enforcing policies and standards that might constrain business operations. By pushing the burden of value determination to the business, IT can feel like it’s free of the biggest uncertainties and complexities in its activities.
As we move into today’s digital world, uncertainties and complexities are becoming an everyday matter for everyone—IT and non-IT alike. We can no longer separate technology risk from business risk, or technology opportunity from business opportunity. The business must accept the risk and uncertainty that comes with technology, while IT must accept the risk and uncertainty that comes with business.
It’s not just IT that finds itself distanced from the core strategic activity of the enterprise—there is a deeper and more general issue at play. As business and technical functions became more complex and specialized, organizations came to structure themselves into functional silos. Finance was expected to focus on finance, marketing on marketing, and IT on IT. Each area was assigned goals specific to its functions, which were then further subdivided and passed down to subspecialty areas. In this way, the reasoning went, each functional area could be held more accountable for things that no one outside completely understood anymore. But organizations are now paying the price for this fracturing as they try to develop a coherent strategic approach to the digital world.
The chief financial officer (CFO), for example, has often wound up focused on cost reduction and the operational efforts of seeing that the books get closed on time. According to a McKinsey study, two-thirds of CFOs think they should spend less time on traditional finance activities and more on strategic leadership.5 About 30% of the finance department’s effort is invested just in the mechanics of assembling data and resolving inconsistencies.6
The digital world, however, demands that the CFO play more of the role of strategic business advisor—the custodian of shareholder value or mission delivery.7 In a digital organization the CFO drives competitive advantage by applying capital to opportunities as they arise, turning data into actionable business insights, and managing risk strategically. In place of cost reduction, the digital CFO focuses on making processes leaner, thereby removing waste and increasing the enterprise’s velocity.
Among chief marketing officers (CMOs), the story is similar: 74% say their role doesn’t allow them to have the impact on the business that they should.8 Today, marketing must handle more countries, more customer segments, more media, more distribution channels, and more price points than ever before—as many as twenty million price points per year for a consumer products company, according to a McKinsey study.9 But despite the complexity, what the CMO really wants is to deepen relationships with customers, develop the company’s brands, and work with colleagues in other functional areas to grow the business.
Boards of directors now find they must take a more proactive approach to ensuring that their companies survive digital disruption—particularly by overseeing decisions that balance risk and opportunity. They need to make sure the company is building a sustainable position, which, as I’ll show, largely depends on building agility and nimbleness into assets and processes. Given the increased pace of competition, they need to find leading or current indicators they can use to assess their company’s performance in place of the trailing metrics of traditional financial reporting. Audit committees must ensure that controls are effective despite the increased pace of change, the new risks of the digital world, and the increasing stringency of compliance frameworks.10
The pattern is that each of these specialist executives must participate outside of their area of specialization by working with colleagues on strategic issues that cut across the enterprise as a whole. The CFO is not just in charge of finance and the CMO is not just in charge of marketing—both are responsible for bringing their functional expertise to bear on all of the company’s activities and working across silos to accomplish business outcomes. So too for the CIO, who can no longer be responsible solely for running the technology function, but must bring technology expertise to bear on companywide strategy.
The task is harder for CIOs than for the rest of the executive suite, as I’ll show in the next chapter. IT was suddenly injected into the enterprise landscape only five or six decades ago and has yet to find its place. As McKinsey reports, “There is little awareness of or agreement on how IT can meaningfully shape a business’s future.”11 But, the report continues:
. . . the results suggest one clear element of high-performing IT organizations: active CIO involvement in the business. Where respondents say their CIOs are very or extremely involved in shaping enterprise-wide strategy, they report much higher IT effectiveness than their peers whose CIOs are less involved.12
As we move into the digital era, it’s IT that can help the CFO, CMO, and the board realize their objectives, supporting them as they move to the strategic role they were meant to play—and indeed must play for the digital enterprise to succeed. IT can make the other CXOs superheroes.
As a former CIO, I can tell you that IT needs to be held to higher—but different—standards, and that it will be pleased to step up to them. Engineers are builders—the joy in being a technologist is the joy of creation and of making a difference.
Here’s one lesson I learned when I was CIO at Intrax Cultural Exchange. Intrax runs international cultural and educational programs such as work and travel, internships, high school exchange, English schools, and au pair placement. My first large initiative as its CIO was a very successful project to bring our au pair business online. The second project was to do something similar with our high school exchange program; it was a resounding disaster. For that one, IT had received a set of business unit requirements that seemed misguided and contradictory. We were convinced they made little sense from a business perspective. But the business unit was in charge, so in the end we gave in.
We were right, dammit—it was a mess. Employees who had to use it found that it slowed them down. Scrambling to fix it, we made it more like what IT had initially visualized. The CEO called me in and essentially said, “You screwed up.” I protested that we had faithfully implemented the requirements and that it wasn’t our fault that those requirements were wrong. To this he replied, “You’re missing the point. I trusted you with spending our IT budget and getting good returns. That’s not what I got.”
He was absolutely right. A CIO is responsible for investing in technology to achieve business outcomes. It was my failure.
I could have argued that he hadn’t set a context in which it was OK for me to disagree with the business unit and reject their requirements. As we saw it then, IT’s job was to provide good “customer service.” Taking orders and executing them was what the business unit leader expected. But now as a senior executive, I’ve come to believe that a CIO has to fight battles when necessary, to use influence and leverage to make sure that the right outcomes are achieved.
Enterprises face pressure to find new ways to grow. Since existing business lines are in danger of being disrupted or lost to competition, companies need to stimulate innovation to protect their markets and forge deeper relationships with customers, finding new opportunities to serve them. KPMG’s study of CEO priorities found that the majority believe growth is more important than finding cost efficiencies, while one-third said their companies weren’t taking enough risk to meet their growth objectives.13
Geoffrey Moore, author of Zone to Win: Organizing to Compete in an Age of Disruption, points out that when a firm enters a new high-growth category, investors price its stock dramatically higher—often to ten times projected revenues or more. Once the category matures, however, valuations stabilize around one- or two-times current revenue. The only way to make the share price move again is to enter another emerging growth category at significant scale.14 In other words, businesses must be consistently catching the next wave.
In business school I was taught that companies need to develop sustainable competitive advantages (care of the writings of business theorist Pankaj Ghemawat, for example). But sustainable advantages are rare these days. The cloud, the internet, and the globalization of markets have conjoined to reduce barriers to entry. Resource advantages? All companies have access to the same technologies. Locking up a distribution channel is far less sustainable now that new competitors can disintermediate the channel. Firms can build core competencies, as C. K. Prahalad and Gary Hamel have said they must,15 but who’s to say whether their competencies will continue to be of value?
In the digital world, competitive advantage must be constantly renewed. Successful companies continually innovate, harvesting the advantages of each innovation, then moving on to the next when the advantage is competed away. Our economy is largely the one Joseph Schumpeter envisioned in 1942 when he introduced the term “creative destruction.”16 Growth is driven by innovation, whether it’s innovation in products, in building customer relationships, or in improving processes to reduce costs.
The only way to sustain continuous innovation is to reduce the cost and risk of trying new ideas. The good news is that today’s IT techniques give companies the agility, nimbleness, and speed they need to do just that. Enterprises using the cloud, along with the set of practices known as DevOps, can deploy IT capabilities to customers and employees hundreds of times a day—rather than once every six months—and can do so reliably, securely, compliantly, and at a high level of quality and usability.
The bad news is while today’s technology supports innovation and business agility, the way enterprises use it remains based on mental models from decades ago. The challenge is not in the technology, but in realizing the business value it can deliver. To gain and maintain competitive advantages, stimulate innovation, delight customers, and react quickly to changing market circumstances, a company must change its way of making technology decisions, overseeing its technology initiatives, budgeting and accounting for its technology . . . and most of all, change its way of interacting with its technology group.
As Stephen Denning says in The Age of Agile: How Smart Companies are Transforming the Way Work Gets Done, “Trying to exploit technology and data with the management practices that are still pervasive in many big corporations today is like driving a horse and buggy on the freeway. To prosper in the very different world that is emerging, firms need a radically different kind of management.”17
The harsh truth is that the C-suite has often not felt comfortable with IT as a business function. How can technologists be held accountable for their work? They’re always late with projects. The systems they create are buggy. Equipment suddenly stops working or is too complicated for employees to use. IT always says no. IT costs are too high; benchmark organizations do IT better and cheaper. IT people overcomplicate everything and speak technical jargon that makes everyone else feel dumb.
The problem is serious. In Leading Digital: Turning Technology Into Business Transformation, George Westerman and his coauthors report: “Many executives told us that, given their IT units’ poor performance, they were going to find a different way to conduct their digital transformations. The business executives were going to move forward despite their IT units, not with them.”18 Particularly disturbing to me is the finding from the CIO Executive Council’s 2015 Power of Effective IT Communication Survey that only 3% of business stakeholders consider IT to be a game changer, 11% think of it as a peer, while 58% think of IT only as a cost center or service provider.†19 Although organizations view digital technology as a game changer, many apparently don’t think of the stewards of digital technology—the IT folks—as game changers.
In a survey of 800 global business and IT executives, 34% of the business and 31% of the IT respondents characterized their relationship with each other as combative, distrustful, or siloed.20 It is war, in other words, but a war within a single dysfunctional family. And those of us who drive our chariots between the two warring armies feel as bad about it as Arjuna does at the start of the Bhagavad Gita.‡
Given this disconnect, it’s no surprise that enterprises have thought of bringing a new member into the C-suite: a chief digital officer (CDO). Gartner has proposed that business technology needs to move at two speeds: slow for the legacy, backoffice, and low risk-tolerance systems; fast for customer-facing, innovative systems.21 If they’re right, then it makes sense to have a CIO who continues to dispiritedly plod along with slow-moving IT and a CDO who’s responsible for prancing joyfully about with systems of speed and flexibility.
I don’t think much of this two-speed idea. Today’s best practices suggest that all of the technology in the enterprise should move fast, and that all of it should align with the way the company competes in the market and serves customers. Separating IT into CIO and CDO roles is likely to increase the obstacles to nimbleness and innovation I describe in this book.§ It would be much better to heal the divide between IT and the remainder of the organization.
But recognizing that organizations have different needs and that some prefer to separate these roles, when I speak of the CIO, please interpret it in the sense of “head of digital technology”—whether that person is a CIO, CDO, or Emperor of Bits and Bytes and First Consul of Computing. In the digital world, an organization will need to learn how best to work with its technologists, whether they’re working for a CIO or CDO.
Imagine an enterprise leadership team, who, upon seeing their competitors evolving quickly around them, plops themselves down in a conference room and proclaims, “We need digital transformation!” They hire a consulting firm or talk to companies that are already enjoying successful transformations. They gather ideas about how leading technology companies move at high velocity. Then they reconvene in the conference room.
“We can’t do that! We’re too bureaucratic. We don’t have the right skills! We have too many compliance constraints! There’s no security if you move so fast! There’s no way to control that kind of IT! Good ideas, but our company is different. It won’t work here until we radically change our culture. But we do need to transform!”
Yes, but. . . . Yes, but. . . . Yes, but. . . . This is the leadership team’s impression of bobblehead dolls, heads bobbling in the wake of the fast-moving companies around them.
The bobblehead model is not an effective business strategy.
Now is the time to start transforming, because it’s both low risk and urgent. You might be surprised that I say it’s low risk, but I insist. Enterprises may feel like they should move slowly and cautiously, stepping onto the digital path only after they’ve checked the traffic coming from all directions. But the very point of digital transformation is to reduce risk. Digital enterprises set risk-mitigating guardrails¶ in place, then use their speed as a way to quickly adjust course when new risks appear. And the transformation can be undertaken incrementally, one reversible decision after another. Think: big vision, small execution. This is no time for cautious head-bobbling. You can use the ideas in this book to move quickly and limit your risk.
Maybe it has occurred to you to ask, “What can I do differently to get better results from my technologists?”
Donuts.
It’s worth a try. But maybe that’s just me. My point of view is that of someone who has a background in IT but has seen the divide from the outside as well, having helped senior leaders move their enterprises into the cloud and overcome their cultural, bureaucratic, organizational, and skills barriers. I have been a CEO as well as a CIO, a former software developer (I shall claim to have been one of the great stylists of the COBOL language—take that, William Shakespeare!). I’ve worked in the private sector, the nonprofit sector, and even in government as the CIO of US Citizenship and Immigration Services (USCIS). When it comes to telling hawks from handsaws,** I can train an artificial intelligence “machine learning” program to do it well. I know what as a CIO I wanted my colleagues in other functions to know about IT, and what as a CEO and as an independent advisor, I wanted the CIO to know.
Our goal here is to overcome the IT/business duality so that the enterprise—the business and IT—can enter the digital world, smiling and nodding happily just like bobblehead dolls. Why bobbleheads? To me, there is something endearing about them; they are agreeable and don’t take themselves too seriously. They appear across different cultures—the head-nodding ox called akabeko in Japan; the dancing dolls of Thanjavur, India; Victorian era “nodders”; not to mention today’s bobbleheads that play such an important role in the sacred American ritual of baseball.22 As agreeable as they are, you can’t really tell whether they are bobbling empty-headedly or wisely. A digital transformation, I want to say, means going from a state of agreeable head bobbling to a different state of agreeable head bobbling—one that is filled with wisdom and effective practice. Culture, bureaucracy, risk management, investment oversight—all will continue to be there, just as they always have been.
Throughout this book, you’ll find cycles of creation and destruction—innovation that requires doing away with legacy ideas, bureaucracy and culture that need to be nudged repeatedly in a new direction, Napoleon defeating Russia only to find that Russia has defeated him. But through it all, the bobbleheads bobble. Their smiles will just mean something different at the end of your transformation.
A few themes run throughout:
Part I, “Principles,” discusses why the traditional relationship between IT and the rest of the enterprise won’t support digital transformation. Part II, “Particulars,” breaks down some of the typical concerns the enterprise has about working with its IT organization, and how these can be given a new foundation so as to equip the enterprise for the digital world. “Prescriptions,” Part III, is an action plan for moving forward—immediately and with a sense of urgency—into this digital world.
Who this book is for:
If you’re a CEO, you are likely to be focused on growth and innovation. If so, you should be thinking hard about how to integrate IT with the rest of your organization. Or perhaps you’re thinking about how to nimbly respond to uncertain circumstances while avoiding disruption by startups, competitors, and hackers. I’ll show you how to use IT as a strategic component of your organization, yielding results from it that will shape your company’s performance.
If you’re a CFO, then we need to talk. You’re in a difficult position today. You face the challenge of growing your company and finding new sources of value while also safeguarding your company’s core business. You have probably recognized that you need to shift your focus from analyzing the past to forecasting and planning for the future. On one hand, you’re responsible for control and risk management—you are at the front lines where compliance bureaucracy meets innovation and are the steady hand that manages the company’s financial resources and investments. On the other hand, you recognize the need for speed and sense that finance should be a competitive weapon.†† IT has always been a problem area for you—one that resists effective controls. I’ll address issues around capitalizing versus expensing IT costs, about new ways of establishing auditable controls, and about selecting investments and managing their risks. How do we measure IT success? What I have to say will, I hope, improve your life.
If you’re a non-IT CXO, then this book is about how to let the CIO help you accomplish your objectives. You may be frustrated by the relationship between IT and the rest of your organization, or you might simply have lowered your expectations. But IT is there to accomplish your company’s goals. You should be able to rely on its expertise in areas where you’ve spent less time becoming an expert, but you might need to learn how to help them be more effective. This book should help.
If you’re a CIO or IT leader, then you may have begun rolling out Agile development along with Lean and DevOps practices, but have hit organizational impediments in trying to extract their full value. If you read my previous book, A Seat at the Table, it may have given you ideas about how to play a more consequential role in your company. Now you need to have a conversation with the rest of the leadership team about it. This book is that conversation.
If you’re any other category of business leader, then this book is the missing manual about how to work with IT to be successful. Your performance will be judged largely on what you’re able to get from or with IT.
For others in the business and IT community, I hope this book will open up a discussion on the economics and strategic impact of organizational agility through technology. The promise of DevOps was to create a more humane work environment by putting operations and development people on the same team. This book furthers that mission by putting technologists and non-technology business people on the same team so that their heads all bobble together.
* Also 42% say “digital first” or “digital to the core” are their company’s default digital postures.
† Note that this is based on a survey of CIOs—that is, CIOs believe that this is the way business leaders think.
‡ In the opening scene of the Bhagavad Gita, the armies of the Pandavas and Kauravas, many of them related to one another, face each other before battle in the Kurukshetra War. Arjuna, a Pandava prince, despairs, seeing his friends, relatives, and teachers on the other side, and asks Krishna for advice.
§ Note that my point is only about the C-level position. Digital products should probably have their own product management hierarchy, just like any other product. I would also argue that the C-level leader should act as an advisor/consultant to the C-team on technical opportunities—this also makes more sense if it is a single person.
¶ More about risk-mitigating guardrails in Chapter 6: Risk and Opportunity.
** That’s Shakespeare, who had no abilities whatsoever in machine learning. Touché!
†† By the way, Napoleon did too. See Chapter 11: The Leadership Team.