This seems like a simple question doesn’t it? Yet if you look at the structure, resources, skills and processes of most IT departments you would probably be none the wiser, or perhaps you might even think that they are in the technology business. And if you asked the CIOs of these companies where they spend most of their time, a large number of them would probably say they spend it on issues related to managing and supporting networks, servers and applications thereby reinforcing the perception that they work in a technology business.
The question of recognising what business you are in was covered by Michael Friedenberg, CEO of IDG Communications, in a recent article. In his piece Friedenberg used the example of the ice industry in eastern US in the early twentieth century to demonstrate how companies that do not recognise what business they are in could get caught out as markets and consumer preferences change. In Friedenberg’s example, the companies that dominated the delivery of ice to homes and businesses throughout New York eventually went out of business when refrigeration and home freezers became commonplace. If, Friedenberg argues, these companies had viewed themselves as being in the delivery or logistics business instead of the ice business, they may still be around today.
This is a particularly salient lesson for the digital age where potentially every industry faces the threat of disruption, and where that disruption can happen much quicker than it could have done in the past and can be caused by an unknown start-up.
Gartner is currently pushing a theme that says that every business is a technology business. This is misleading. Organisations have to focus on their core business, which for the vast majority is not technology. What Gartner should really be saying is that, in the digital world this vast majority will find that their business models, products and services are enabled or enhanced with technology; in other words every business will be based on technology. But that does not make them a technology business per se.
Most CIOs are not in the technology business yet they spend the vast majority of their time on technology issues. And their departments are dominated by technical resources performing roles that would not look out of place in a real technology business (which is where these CIOs should be looking to outsource the activities that most of their technical resources are performing).
The CIO-CMO relationship has had a lot of attention recently. The need for collaboration, close-working relationships, joined-up thinking, etc, have all been identified as being key to a successful digital transformation. For CIOs there is something else they can get out of their relationship with their CMO: how to focus on the core business of your organisation. Most marketing functions tend to be quite lean, particularly in comparison to their IT equivalents. CMOs have long been comfortable using partners to provide a range of services so that they can focus on the areas in which they can add real value to the business.
For example, if a marketing function needs to produce a series of videos to promote the organisation’s new products, they would work with a supplier to develop the concept, format, style and storyboards for the videos. They would also outsource the filming, editing and production of the videos. And they would use freely available tools and channels for distributing the videos. This leaves the CMO to focus on the key messages, brand values and leading and shaping the overall campaign – the areas that directly contribute to the core business.
Now, if the CMO were to adopt the IT model for the same campaign, they would very likely have to start by recruiting staff with the relevant skills to design and make the videos, purchasing a stack of video and audio equipment, and installing their own editing suite! Instead of focusing on the core business of selling the product they would be, inevitably, bogged down in the detail of video production and editing.
And, if following the example of marketing is too much for CIOs to swallow, there are plenty of examples from CIOs in other organisations who have answered the question what business are we in and are transforming their IT functions and their company’s platform based on the answer.
One of my favourite examples is Netflix, which is transforming its IT function and platform to focus its resources on being an entertainment business. Netflix is realising this change by moving much of its IT estate to the cloud. By the end of the current year, 100% of its corporate or back-office systems will be cloud-based and even the in-house developed customer applications, which are part of the core business, are deployed in the cloud thereby eliminating the need to acquire, maintain and support the infrastructure that would be needed to host these solutions internally.
GPT Group, an Australian property group that manages AUD15.2bn of assets and which is one of the country’s top 50 listed stocks, has recently moved all of its development, test and core production systems to the cloud to free up time and resource to focus on being a property business. As a result CIO Greg Baster and his IT team are now playing a key role in creating new revenue generating services instead of worrying about servers and networks.
The IT department does not need to be a service provider any more. Instead, it needs to be working alongside the rest of the organisation, helping to solve business problems and identifying opportunities to use technology to create value, grow revenue and create competitive advantage. To do this CIOs need to follow the examples of Netflix and GPT Group by recognising what business they are in and then focusing their resources and, hence their own time, on the areas where they can add value to that business.