CIO View of Tech Innovation: The MAGIC Framework

I am presenting at a session on Innovation at MR's Enterprise conference at Pebble Beach in October. I will be be moderating two CIO guests  - John Dean of Steelcase and Dave Watson of Kaiser Permanente who will be presenting on the CIO view of Tech innovation.

CIOs, like most executives, are under intense pressure to innovate as global competition intensifies. But as I talk to John, Dave and other CIOs it is becoming clear that their views on innovation are very different from those of tech vendors and VCs. They do not want to be "spoon fed" innovation - they want building blocks they can adapt to their own vision of innovation. They bristle at the premium and large spend expectations around vendor innovation.

I have pieced together 5 elements - what I am calling the MAGIC framework -  of what CIOs like John and Dave are using to define tech innovation and deliver it within their enterprises

Mashups - in the CIO world, there is a clear recognition there is no silver bullet. Mashup to them is about exploring every nook and cranny of the Doblin innovation framework - business model changes, channel optimization, product improvement and more. Also, most CIOs are looking at wide array of promising technologies from mobility to sensors to grids to web services. They want basic building blocks in each area and then have their teams do the mashup.

Vendor tip:  Curb your enthusiasm. You may think your technology solves world hunger (like many Web 2.0 companies do right now), but few vendors can dream of or service the wide ranges of innovations CIOs are looking at. Present your capabilities rationally and knowing it individually is a small part of the CIO's innovation portfolio.

Alpha technology - a quiet revolution is taking place in CIO budgets.  After years of vendor consolidation, the top 10 vendor share of their wallets is now shrinking. CIOs realize they have to take more risk to deliver innovation and are willing to give younger vendors and technologies much more of a chance. Also, many CIOs are having to scratch out innovation budgets from "utility" spend with incumbent, large vendors. The confrontional re-negotiations are not encouraging CIOs to listem to innovation pitches from such vendors. Besides, having outsourced R&D to vendors, many CIOs are disappointed only 5 to 10% of that spend actually has gone over the last few years to vendor R&D and innovation.

Vendor tip: The number of patents you have is not that important. Innovations in release 8 of a product are just as unimpressive. Early, but usable, technology in the hands of the CIO team is what counts.

Global inspiration - While globalization is affecting every business executive, in the last couple of years I have seen CIOs travel more and become more fascinated with global sourcing. Mobile applications from Korea. Open Source from Scandinavia. BPO ideas from India. Manufacturing innovation from China. CIOs are becoming global faster than many of their executive peers. And global in another sense - willing to look outside their own verticals. They do want learn about web services at banks, telematics at distribution companies.

Vendor tip: Every buyer has historically told vendors to show them relevant, industry specific citations and applications. They will continue to, but you will be surprised how open they are to new ideas from wherever.

Intensity-  CIOs assign small "tiger teams" to innovation projects. Short time frames. Stingy budgets. Constrained based innovation. The old dream of huge Sabre like "competitive advantage" projects is gone. It is about tactical, but significant, payback projects.

Vendor tip: Think big, execute small and intense. Talk quietly and carry a big stick. Necessity is the mother of invention. Cliches I know- but each points to constraint based thinking and focus on high payback areas. CIOs also want to hear how you have innovated your own sector's business model. It could be through different licensing, delivering software as a service. They want to understand the risks, but they do not want "same old".

Collaboration with LOB - Many of their tech innovation ideas are coming from their non-tech executive peers. Business execs, helped by reading materials (yes even airline ones) and peer sources, see several technologies as facilitating innovation. Yes, many do believe the I in CIO is Innovation.  CIOs in turn see it as their job, not just to ensure security and compliance, but to deliver applications to delight business users, not  to impress technologists. The bond between CIO and LOB is being strengthened on the back of innovation projects.

Vendor tip: Would a business executive understand your pitch? If not, leave out elegant architecture,  methodology and other materials. Focus on what the CIO needs to delight the LOB.

CIOs are under huge pressure to help their businesses innovate. Their next generation of vendor partners will be brimming with ideas, will be intense and will themselves be innovating their own business models, channels etc.. The Chief Innovation Officer should expect no less from his/her supply chain.

I am presenting at a session on Innovation at MR's Enterprise conference at Pebble Beach in October. I will be be moderating two CIO guests  - John Dean of Steelcase and Dave Watson of Kaiser Permanente who will be presenting on the CIO view of Tech innovation.

CIOs, like most executives, are under intense pressure to innovate as global competition intensifies. But as I talk to John, Dave and other CIOs it is becoming clear that their views on innovation are very different from those of tech vendors and VCs. They do not want to be "spoon fed" innovation - they want building blocks they can adapt to their own vision of innovation. They bristle at the premium and large spend expectations around vendor innovation.

I have pieced together 5 elements - what I am calling the MAGIC framework -  of what CIOs like John and Dave are using to define tech innovation and deliver it within their enterprises

Mashups - in the CIO world, there is a clear recognition there is no silver bullet. Mashup to them is about exploring every nook and cranny of the Doblin innovation framework - business model changes, channel optimization, product improvement and more. Also, most CIOs are looking at wide array of promising technologies from mobility to sensors to grids to web services. They want basic building blocks in each area and then have their teams do the mashup.

Vendor tip:  Curb your enthusiasm. You may think your technology solves world hunger (like many Web 2.0 companies do right now), but few vendors can dream of or service the wide ranges of innovations CIOs are looking at. Present your capabilities rationally and knowing it individually is a small part of the CIO's innovation portfolio.

Alpha technology - a quiet revolution is taking place in CIO budgets.  After years of vendor consolidation, the top 10 vendor share of their wallets is now shrinking. CIOs realize they have to take more risk to deliver innovation and are willing to give younger vendors and technologies much more of a chance. Also, many CIOs are having to scratch out innovation budgets from "utility" spend with incumbent, large vendors. The confrontional re-negotiations are not encouraging CIOs to listem to innovation pitches from such vendors. Besides, having outsourced R&D to vendors, many CIOs are disappointed only 5 to 10% of that spend actually has gone over the last few years to vendor R&D and innovation.

Vendor tip: The number of patents you have is not that important. Innovations in release 8 of a product are just as unimpressive. Early, but usable, technology in the hands of the CIO team is what counts.

Global inspiration - While globalization is affecting every business executive, in the last couple of years I have seen CIOs travel more and become more fascinated with global sourcing. Mobile applications from Korea. Open Source from Scandinavia. BPO ideas from India. Manufacturing innovation from China. CIOs are becoming global faster than many of their executive peers. And global in another sense - willing to look outside their own verticals. They do want learn about web services at banks, telematics at distribution companies.

Vendor tip: Every buyer has historically told vendors to show them relevant, industry specific citations and applications. They will continue to, but you will be surprised how open they are to new ideas from wherever.

Intensity-  CIOs assign small "tiger teams" to innovation projects. Short time frames. Stingy budgets. Constrained based innovation. The old dream of huge Sabre like "competitive advantage" projects is gone. It is about tactical, but significant, payback projects.

Vendor tip: Think big, execute small and intense. Talk quietly and carry a big stick. Necessity is the mother of invention. Cliches I know- but each points to constraint based thinking and focus on high payback areas. CIOs also want to hear how you have innovated your own sector's business model. It could be through different licensing, delivering software as a service. They want to understand the risks, but they do not want "same old".

Collaboration with LOB - Many of their tech innovation ideas are coming from their non-tech executive peers. Business execs, helped by reading materials (yes even airline ones) and peer sources, see several technologies as facilitating innovation. Yes, many do believe the I in CIO is Innovation.  CIOs in turn see it as their job, not just to ensure security and compliance, but to deliver applications to delight business users, not  to impress technologists. The bond between CIO and LOB is being strengthened on the back of innovation projects.

Vendor tip: Would a business executive understand your pitch? If not, leave out elegant architecture,  methodology and other materials. Focus on what the CIO needs to delight the LOB.

CIOs are under huge pressure to help their businesses innovate. Their next generation of vendor partners will be brimming with ideas, will be intense and will themselves be innovating their own business models, channels etc.. The Chief Innovation Officer should expect no less from his/her supply chain.

Comments

[Susan Scrupski]

Hey Vinnie. It's unlikely the revolutionaries will storm the prison gates before October, but as I read your post here I'm wondering if you're picking up on the blogger buzz and what Enterprise 2.0 will really mean to the CIO. I don't want the CIO community PO'd at me, but jeez, if they didn't like outsourcing, they surely aren't going to like this. There's a growing camp of believers in the Enterprise 2.0 story that personally don't care what the CIO is interested in because the CIO is not their target. It's an LOB sell with a liberating story for user/knowledge workers. There's much debate around security, FUD, control, etc., but the technology is moving faster than the opposition can throw up arguments against it. Vinnie, I know you know this. New rules for a (finally) a new economy with new buyers and sellers. Your blog and influence is living proof of some of the changes taking place. :-)

xoxo, S

[viinnie mirchandani]

Susan, I hear that too. And wait till some web 2.0 vendors goes to LOB and says we will liberate you, do not worry about paying employees, processing orders etc. You cannot have one and not the other. There is a mistaken view in parts of the vendor community that the CIO is dead and gone. From what I see, the CIO is back as a very active parrt of the exec suite. The enemy is not the CIO - it is the hard baked utility costs in most IT budgets. as those loosen up there will be money for web 2.0 ...

[Dennis Howlett]

Point of clarification: CIO - Information OR Innovation?

[vinnie mirchandani]

Dennis, I wrote about the CIO as Chief Innovation Officer in July of 2005 in post below before innovation seemed "hot". IBM has since launched a large ad campaign around CIO - Chief Innvoation Officer

http://dealarchitect.typepad.com/deal_architect/2005/06/the_giant_crunc.html

[David Johnston]

Vinnie, your framework is generally solid but you comments on the R&D spend is wrong. R&D is a risk/reward activity for the vendor that is necessary in order to keep existing business and, more importantly, obtain new business. While many companies may choose a cool technology and build a process around it, prudent businesses decide on a need then look for software to fulfill those needs. If their current vendors cannot do it they can go elsewhere. Once a company chooses a vendor they WANT incremental upgrades and improvements to that technology but don't necessairly want a wholesale change; they have already built a process around the software and changing a process is difficult .

The company wants their vendor to take on the risk of developing new technology and then pay for it once a benefit has been shown. I.E., companies that are not in the software development business do not outsouce software development R&D.

If a company wants to outsource process R&D they hire consultants that do not have a specific software package that they represent OR they hire someone who brings a development framework for custom implementation but is still not afraid to recommend alternatives when they are appropriate.

A response geared toward small and medium sized businesses (SMBs) is available via my link. I specifically target dealerships who generally care for end results and not eye-in-the-sky innovation and do not have the same in-house capabilities that a large company does. And yes, this framework applies to them as well, because reality is process oriented and these people are very close to the processes that make up their businesses.

[Naveen Palli]

Vinnie,

It is hard to share your sanguine view that all CIOs will change. Sure there are many exceptions, but there is a reason the 'revolutionaries at the gates' view is gaining traction. What would you call someone who spends 85% of their budget on a few vendors (incl. services) for a decade, squeezes out small software vendors, and then complains that they got *gasp* locked in? Honest and innovative are not the first words that comes to mind. The view that CIOs are docile sheep getting squeezed by the megavendors simply disingenuous. It takes two to tango. Talk is cheap, many CIOs will continue the current state of few vendors and megabudgets (putting in complicated systems from megavendors) and push systems to users because it suits them. This is a mechanism for a cost center (IT) to gain power and control. All the transaction costs, crazy margins, service inefficiencies etc. are symptoms. We need to take a much broader view to see how situation has come about. Some long historical perspectives on two such 'cost departments' --

You talk about florence during the renaissance in your other blog vinnie, it is very intersting. Looking back, preceding the renaissance and reformation it is odd that the church which was supposed to be spiritually focussed had so much earthly power and control. The church's prime weapon to consolidate power and money was the threat of damnation. Included were strange latin liturgies, payment of indulgences, confessions and such 'methodologies' none of which the common folk understood. Some CIOs with support of megavendors seems to have discovered an equivalent path to consolidate their power in the organization - 'how will you get paid?' 'who owns the ledger/payroll?' (evil laugh). Today, LOB people don't understand what all this means from a technology perspective, they get scared that somehow business will collapse if you don't listen to the CIO. But tell me, vinnie, how is this a complicated issue? Do companies without these systems not chug along fine?. Trading, getting paid, maintaining books etc. is as old as mankind how come this has become so system dependent in the last 10 years. Why is the IT tail wagging the LOB dog?

During the black plague, the lie of the church was exposed when it was found out that no matter how much you paid to the church you still would die. All the strange latin liturgy was really unnecessary. Power shifted to the people and honest clergy. After the tech bubble people realized that great IT spend didn't necessarily translate to great success. One of these days LOB people in the organization will learn the IT language will figure out that this "Who owns the ledger/payroll" stuff really is - updating some database - and the lie will be exposed. These are business software's dark ages.

In modern times another cost center keeps rising to power periodically and has to be cut down. The cost center takes huge chunks of our money promising some great public benefit and then turns around and controls our lives. Yes, the much detested government. You pay them a salary and then they turn around and start restricting your life in all sorts of ways, adding beauracratic delays, pork belly spending all the good stuff we hate about governments worldwide.

The lessons learnt from these two organization structures is 1) cost organizations who have tasted power dont reform by themselves, pressure has to come from outside 2) the smaller they are the better it is for the general public. In any case, the rot has already started at megavendors. All the smart software talent will continue to move to google, ebay, amazon and other companies where they can work with users directly. In their place, megavendors will start getting filled with - "fuck-you is my name" ABCing salespeople and modern clergy - MBAs.

The solution to reform is very simple - cut IT budgets by 75%, make IT people talk in business language and give the money back to the LOB people to spend as they wish. This, vinnie more than anything, will cause the real florence like renaissance and innovation in business software. A million software flowers will bloom!. Scary cat projections of chaos will never come to pass. In fact, it might be liberating to some software megavendors. This will cause major shifts in power and "gee-i-got-locked-in-mommy" type CIO wont be happy. Smart CIOs see the writing on the wall, they are ahead of the curve, and are giving users the systems based on the user needs instead of the other way around. However, many CIO's will continue to talk big using megavendor marketing collateral and do nothing. The day we see IT budgets getting massively slashed is the day things will start changing.

[Vinnie Mirchandani]

David, you are right in a sense. But I can tell you many of my clients are not happy to see 3 to 4 times in SGA as they see in R&D. There is zero innovation/payback to a customer from SG&A. with R&D it is by no means guaranteed but at least you have a shot. To a CIO, spending on software is outsourced development. Spending on an outsourcing contract is an expectation of continuous improvement etc.

[Vinnie Mirchandani]

Naveen, wow!

Great thoughts, challenges.

IT is only 2 to 3% of revs in the manufacturing sector (more in fin scvs). Other g&A is often 2 to 3 times that number. So not sure where the perception that IT holds purse strings and controls everything comes from. The CFO, VP of HR,Legal, Sourcing often are more of a LOB nusiance than IT.

The solution is to move a lot of the utility IT stuff - infrastructure, ERP applications to services. Provide LOB the services and insulate them from the complexity Reaosnable, scalable, etc etc.

But the gating factor is not usually the CIO. The CIOs I know are not afraid to outsource. They outsource more than other white collar executives (with possible exception of HR). The gating factor is often price and quality.

see my note below

http://dealarchitect.typepad.com/deal_architect/2005/10/utility_computi.html

but I would say that gives start ups/younger companies even more of an opportunity because large incumbents want to preserve the status quo. The low risk tolerance of a CIO can be overcome with a compelling set of solutions - I have seen it often...

[David Johnston]

Naveen, that is one of the better analogies that I have read in a long while, AND I LOVE IT. However, I agree with Vinnie in that the CIO is not the real problem. Yes, they have unreasonable expectation of their vendors but they at least have the background to understand the megavendor/multi-service tradeoffs and I would hope that more are becomming business savy anyway. As I posted here:
http://www.birdofire.com/blog/?p=9
I see a clear distinction between the CIO and CTO. If SG&A is becomming a large issue for the company the CTO should sit down with the CIO and determine if there is any way to keep the same functionality while reducing costs (switch vendors, third-party support contract, training, etc...) Separating the CTO and CIO roles and requiring the CIO to be more business savy (and defend spending to the CEO and LOBs) will go a long way without alienating the IT people and putting a responsibility for learning technology onto the LOBs.

Vinnie, I agree that many are not happy about the situation but unless the CIOs are able to direct the R&D so they get what they want (assuming they know what they want) they won't be happy. 15% or so spent to continually improve a product that was years in the making is not unreasonable, all the hard work has been done. In reality software is a service (whether online or not) that the vendor is making available for a fee. Just because I purchase McAfee Virus Scan gives me no expectation that the money I pay them will allow them to develop a hardware firewall. If they do, and I like it, great! Otherwise, I'll go to Symantec and purchase theirs. The same principles hold at a larger scale.

Those CIOs have unreasonable expectations and they instead should be looking at alternatives if what they feel they are paying for the products the agreed to purchase is too much. The vendor risks losing business but that is the vendor's decision to make. The CIO needs to treat innovation as a separate product to either outsource or perform themselves. To act otherwise is to fight against the reality of software development in general (especially at large companies).

I would welcome a response on how these large vendors that are only spending 15% of their revenue on R&D would benefit from additional expenditure, as well as whether you feel whole new product lines should be developed or if you are referring to "revolutionary improvements for existing software offerings".

[vinnie mirchandani]

David, the CIO preference is to cut current incumbent spend and use it for their own innovation. If they cannot get price reductions, they at least want to see more spent in product development or efficiency ...when MS gives out $ 75+ billion in dividends it does not help buyers. When the avarage s/w company spend 40% in SG&A it does not either. Clearly individual CIOs cannot dictate specific R&D investments but they can express some broad guidelines to the vendor community...

[David Johnston]

Agreed, and furthermore, often times those vendors (especially MS and, in my situation ADP Dealer Services and Reynold & Reynolds) have such a dominate market position that voting with money is neither effective nor prudent at the individual company level. This is the crux of the "problem" causing the symptoms that you and I are both seeing, and in fact a client of mine just went through the slash and self-innovate process.

Those guidelines are useful and as you said smaller vendors are providing the innovation that these CIOs want. The question becomes, will these CIOs switch or will they find alternative ways to compensate for MS's monopolistic pricing. The last option is to accept status quo and just move on; sometimes, if it isn't broke you shouldn't try to fix it. The correct choice is situational but a choice needs to be made, and then move on.

[Ric]

This post is going to the boss as well ...