Report Finds Shifts in IT-enabled Business Innovation and Changing CIO Role

By Peter Bernstein March 17, 2014

According to a new report commissioned by Red Hat and conducted by Harvard Business Review Analytic Services, IT departments are not just for enabling companies to do more with less, but are key sources of innovations that drive growth.  In fact, the report, "Business Transformation and the CIO Role," finds that companies—known as “Innovation Accelerators”— pursuing IT-enabled business innovation as a core strategy throughout their organization are getting ahead by using technology to optimize business strategy and customer engagement. As part of this process, it is causing rather dramatic changes in the role and responsibilities of the Chief Information Officer (CIO).

Innovation Accelerators are leading the way

The survey of 420 global business leaders found that Innovation Accelerators (32 percent of survey respondents) are anticipating significant change over the next three years. Areas highlighted are: how they engage with and learn about customers; refine or introduce their business models, products and services; and improve end user processes.

The report also contains the six key behaviors CIOs at innovation-driven companies share and use as the roadmap for transforming their IT departments.  

Created by The Enterprisers Project.

The 6 Behaviors of CIOs at Companies Out-Innovating You

Source: Harvard Business Review Analytic Services, The Enterprisers Project

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Below are a few of the report findings that are food for thought.

  • Innovation Accelerators are more than twice as likely to invest in the creation of new applications compared to peers in companies where innovation is not a priority (72 percent vs. 34 percent).
  • They are more likely to focus on revenue generating opportunities with new customer experience strategies (71 percent), business model innovation (69 percent) and service innovation (68 percent). By contrast, companies for which innovation is not a priority will focus more internally on the automation of business processes (70 percent).

Not surprisingly, customer engagement and leveraging Big Data to better target customers and improve their experience top the list of items that will be changed the most by IT-enabled innovation.

  • 55 percent of all survey respondents say it will be changed significantly
  • 20 percent say it will be completely transformed (rating it a 10 on a scale of 1-10).

As the report explains with quite a bit of granularity, respondents also believe IT-enabled innovation will change the way employees do their work.  This is reflected in the findings where 48 percent say IT will be significantly changed and 15 percent say it will be completely transformed. 

When it comes to company products/services the impacts are also significant according to respondents.  Here, 46 percent say it will be significantly changed and 11 percent project it will be completely transformed.  And, as might be expected there is a growing perception of the importance IT-enabled innovation is likely to have on business models where 42 percent say it will be significantly changed and 13 percent say it will be completely transformed.

What is most significant in the above responses is that for Innovation Accelerators, the numbers are significantly higher. For example, 70 percent say their approach to customer engagement and insight will be significantly changed, and 33 percent indicate it will be completely transformed.

The projects that are expected to gain CIO attention and budget in the next three years based on respondents answers are:

  • 67 percent plan to automate business processes
  • 66 percent plan to execute customer experience strategies
  • 60 percent plan to create new applications
  • 57 percent plan to spend time and effort on innovating their services
  • 56 percent plan on refining or introducing new business models.

But wait there is more

The report also provides what respondents feel will be the main innovation business drivers in the next three years.  Topping the list are business intelligence/analytics and mobile technologies and apps at 66 percent and 53 percent, respectively. These are followed by process automation (44 percent), collaboration tools (29 percent), cloud computing (28 percent) and social media (24 percent). Indeed, the lower interesting in cloud and social are a bit surprising given the importance expressed on executing customer experience strategies.

As survey after survey has revealed, and as is reflective of the changing role of the CIO, the report notes that C-level leadership plays a significant role in driving technology-driven business innovation. This report found that CIOs lead these IT-enable innovation efforts in 41 percent of organizations (25 percent alone and an additional 16 percent in tandem with another executive). This is in contrast to CEOs taking the lead in 16 percent of organizations, and other C-level executives accounting for 16 percent. In addition, in approximately one-fifth of organization (18 percent), a senior cross-functional committee or innovation board leads IT-driven business innovation.  In fact, where Innovation Accelerators separate themselves from their peers is in that they place a high value on cross-functional collaboration, with nearly half (48 percent) reporting that IT and the business typically engage together to identify innovation opportunities.

What the researchers also found is that CIOs are certainly at a watershed in many organizations due to the rapidly transforming nature of their responsibilities and accountabilities. In fact, respondents indicated that while CIOs have responsibility to help drive, and in many cases lead, innovation acceleration, daily responsibilities of running IT and limited resources are proving to be gating factors on performance.   While 57 percent believe the CIO should drive innovation and strategy, only 12 percent say their CIO actually does that. The detail on this is that even as CIOs at Innovation Accelerator companies perform more strategic roles, developing and refining business strategy (26 percent), driving business innovation (30 percent), and identifying opportunities for competitive differentiation (26 percent), the percentages are actually lower than expected given the mandates they are under.

“It is clear from survey results that every organization should strive to become an Innovation Accelerator,” said Lee Condon, CIO, Red Hat. “These companies have moved from a ‘keep the lights on’ strategy to one where they are driving strategic initiatives like customer experience and service innovation. It is clear to me that the role of the CIO is changing as a result too, now playing an essential role in IT-driven business innovation.”

What remains to be seen is how much of a role, and how much buy-in CIOs receive from the C-levels and line-of-business (LOB) heads. 

The report provides good fuel for discussions inside enterprises as it gives nice context for how having IT-enabled business innovation as a priority can make a competitive and operational difference.  The challenge obviously is to assure that IT is better engaged with all aspects of the business so it does not risk be characterized as the sound of one hand clapping. 

The strategic as well as tactical use of technology is increasingly “mission critical” as accelerating the speed of innovation in all aspects of business operations— internal along with customer facing and those that are part of ecosystem sustenance and enhancement—looms ever larger as the way to provide differentiated and sustainable value. However, getting people to plan and execute as to which technologies to invest in and deploy, when, where, why and how, remains the hard part. At least this new study lays out the criticality of getting it right, and the role CIOs can and should play in the process.     

Edited by Cassandra Tucker
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