The recently released results of McKinsey’s annual global survey on business technology contain some very blunt and potentially worrying messages for CIOs. The headline finding from the survey of 800 executives from a range of business functions including IT is, that whilst business leaders acknowledge the strategic value of IT, they also believe their IT functions are becoming less effective at supporting the organisation.
The bad news starts with the response to questions about how effectively IT is enabling the business to meet its goals. Across five key areas comprising sharing knowledge, delivering year-on-year productivity gains, tracking customer or segment-level profitability, creating new products and entering new markets, there was a drop in the number of respondents saying that IT is enabling their organisation to meet its objectives compared to the previous year’s results.
And, perhaps most worryingly given how technology is being used to enable new business models, products and services in the digital age, the fall in the create new products and enter new markets areas was the most significant; 49% of respondents said IT was effective at enabling the business to create new products compared to 62% a year ago while 37% (57%) said that IT was effective at helping the organisation to enter new markets.
It gets worse. When asked how their IT function performed in activities such as managing infrastructure, driving technology-enabled innovation and introducing new technologies, the number of respondents saying IT was effective fell in all but one of the activities compared to last year. The one area that did see an increase in performance was implementing a strategic approach to sourcing which saw 24% (21%) of executives saying that IT was effective. Some good news but that still means that three quarters of IT functions are not considered to be effective at strategic sourcing.
So IT is contributing less to the realisation of business goals and is less effective at doing the core tasks expected of the department. So what can CIOs do about this perceived decline in their department’s (and by association their own) value to the organisation? Well, thankfully the McKinsey report also provides some potential answers.
For example, the survey found that while organisations currently spend 27% of the IT budget on infrastructure, in three years’ time executives expect this to fall to 19%. Similarly, core transactional applications, which account for 26% of IT spend today, are expected to fall to 22% by 2017. This means that business leaders expect infrastructure and back office applications to reduce from 53% to 41% of the total IT spend. Security (+2%), analytics (+4%) and innovation (+6%) are the main areas where expenditure is expected to increase.
When asked which initiatives would improve the level of IT performance the top three responses were: improve the business’s accountability for IT-related projects (45%); reallocate IT budgets to focus on critical drivers of business value (43%); and improve the overall level of talent and capabilities of IT staff (35%). The first two complement each other in that an increase in the proportion of the IT budget being spent on areas that are of most value to the business should by definition result in more involvement and hence ownership of these investments from the rest of the business. For example, moving expenditure from providing, managing and maintaining servers and storage to areas that enhance customer experience will increase the engagement between IT and the marketing function who will want to (and should) own the end solution.
The third most popular response – improving the quality of IT staff – is a reflection that the core competencies and skills of most IT departments have not kept pace with the needs of businesses in the digital age. When asked to identify what skills are most needed in the next 12 months the respondents highlighted analytics and data science, joint business and IT expertise, mobile or online development, enterprise application architecture and cloud computing. In other words, skills that are required at the front-end of the business to gain insights into customer behaviour, business performance and market conditions, create new or enhance existing customer experiences, products and services, and design, source and manage solutions built from external cloud-based services.
The skill requirements are entirely consistent with the views expressed by the C-suite throughout the rest of the survey: executives expect the CIO to make greater use of partners, software-as-a-service and cloud-based solutions to reduce the cost of running the day-to-day systems and to use these savings to invest in more value-adding areas such as analytics. And they expect the IT function to be playing a more proactive role in helping the rest of the business to identify, access and use technology that will help the organisation to realise its strategic goals.
I think this gives CIOs a clear agenda for transforming the IT function to ensure it is focused in the right areas and has the right capabilities to meet the organisation’s needs:
- Adopt a cloud/partner first approach to new solutions and spend less time and resources on provisioning, managing and supporting infrastructure and applications.
- Focus in-house resources and budget on the areas that directly support the realisation of the business’s goals.
- Develop/hire people with competencies that support the organisation’s goals and who have the knowledge and skills to work alongside the rest of the business.
This agenda is also the basis of my new book, Disrupt IT, in which I define a new model for the IT function and a repositioning of the CIO role. This includes a new set of core competencies and skills required by IT functions to support a digital business. The book also provides a framework of seven principles that CIOs and boards can use to design and manage the transformation process. By applying these principles organisations will create the IT capability they need to realise their strategic goals and succeed in the digital age. And the C-suite is likely to give IT and the CIO a much better report in future McKinsey surveys as a result.
Disrupt IT is available from Amazon in print and Kindle formats. Country links are listed below: