I Before E Especially

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1 Chris Wearing, President, Teneo Consulting I Before E Especially After C Why The CEO Must Become The CIO It is well documented how technology has spent the last thirty years accelerating and delivering on new business models, but with the recent onset of social media, data analytics and digital capabilities we enter 2014 with a major shift having occurred: technology is now driving business in many areas and dictating the business models and associated governance that should be leveraged. This shift means that business leaders must have a deeper understanding, and in some cases ownership, of these technologies and view Information Technology (IT) more as a line of business and less as a corporate support function. At the very least, they need to use a business lens through which to view IT capabilities this lens can be via a Chief Information Officer (CIO) from the business or by aligning IT to the business strategy and not the budget process. Most large firms are doing a great job transforming their IT group, leveraging skills from non-commercial industries, like the intelligence agencies, working with all the bestin-breed technologies, and competing hard for the limited skills available. The key question is whether business is driving these efforts. CEOs and business leaders will need to spend more time understanding and owning the business value to be derived from technology, which, based on the power of the incoming generation of IT capabilities, can far outweigh the costs for most industries. You shouldn t change the compact car in your driveway for a new SUV to take the same trip CEOs should ask how technology can enable new directions, not just enhance existing practices. They should embrace a goal-oriented approach to the use of big data technologies. as before but a little quicker. A more strategic question should be: where can we go now with this capability that we weren t able to consider before? This is a question for the driver, not the mechanic. In my experience, there are many compelling words spoken around this topic but rarely are the skills, governance and processes developed to enable and achieve true business growth. To benefit from this strategic opportunity, the CEO must be the key player. An Investment not an Expense As IT is often a large component of a firm s costs, most organizations have developed sophisticated processes to measure and report IT-related expenses. Few have applied that same level of sophistication and resources to linking expenditure directly to business strategy. So much of the agenda around IT is focused on cost reduction, storage cost management, vendor rate and license renegotiation and demand management that new expenditure is often limited. When deciding how to use their IT budget, many firms look first at the running costs, then maintenance of existing systems, then compliance and regulatory costs. They are then left with a small discretionary budget that too often fails to meet innovative business requests. Every CEO talks about innovation; indeed, most firms now have the term referenced in their Core Values. However, while technology is at the center of most innovation, few firms have an investment approach, which appropriately involves lines of business to truly foster innovation.

2 To resolve this disconnect, I have worked with many firms to implement a process where IT budget discussions start with the business strategy, especially around new revenue streams, as a first priority. I have also developed a robust process, and in some cases assembled a team of dedicated people, to match and track every dollar of IT-spend to proposed business returns. This requires a sophisticated business case process (more appropriately called investment process) to ensure that all spend is assigned to a specific return, differentiation or competitive advantage, and that the returns are measured, as thoroughly as spend is, even for a multiyear period. Everyone knows when an IT project has overrun its budget or incurred a large spend on a vendor or offshore supplier, but few monitor the achievement of business benefits so thoroughly. If the process works well, then you may even accelerate spending when initial benefits are better than expected. This may sound simple, but the process needs to be driven by the CEO as many business and strategy leaders are not comfortable wading into technology. Often, IT business cases are written by the IT team. To bridge the gap, business needs to come across the aisle to IT a move that has to be directed by the CEO because it is more than a process change; it is a change of discipline and culture. The key question a CEO must ask is: who is defining, estimating and owning the specific business case? If businesses could focus on this as much as IT does on the estimates and Finance does on managing the spending, a tremendous business benefit could be achieved. Many firms find it hard to justify business analysts filling these roles and in many cases they are first to be let go in a downturn. This refocus does not mean that the regulatory and compliance needs will not be met and maintenance or security ignored but rather that a different mindset and view of the role of IT will develop, forcing a more balanced culture of focusing on return. Process can be very helpful here, but business leadership also needs to understand the capability of the technology as they are best positioned to see how technology can drive business improvement. Whoever built the SUV can t tell the driver where to go the driver lives in the neighborhood and knows what trips he wants to take. Some of the best technology applications are developed when technology firms take development out of the lab and into a business unit. A great example of this approach is the Fintech Innovation Lab in New York City, which I founded in 2011 with Maria Gotsch, CEO of the New York City Investment Fund (NYCIF). The program allows growth-stage companies that have developed cutting edge technology products targeted at financial services customers to refine and beta-test their products inside major financial institutions in New York, the firm s ultimate client base. Many of these companies had developed fantastic technologies but, without the right business knowledge, had targeted them in an early-stage at the wrong issues. In one example, a firm with background in oil and gas exploration built a ground-breaking 3D analytics visualization of Big Data. All the financial service CIOs agreed they had not seen similar capability and the firm was chosen for the Innovation Lab. However, the firm had developed the application as a front office trading application assuming that to be the hot area. Once under the guidance of a business unit within a major bank, the application found its higher purpose in a back office finance group risk management/portfolio analysis application. That firm, like many others in the program, has done well because business oversight was considered early in the development process. Companies need to mirror this process in their own IT shops, with CEOs driving that business oversight. Big Data Imperative If the need for business oversight resonated in traditional IT development, then it certainly applies in the application of data analytics where businesses must be driving the application. Big data should give business experts the leverage to build required business functionality into the tools directly. 2

3 The intelligence community s initial leadership in big data analytics should not come across as a surprise. The problems they are tasked with solving are classic big data problems: attempting to analyze data from a multitude of sources where not only does the volume of data pose a significant challenge, but also the inherently disconnected nature of the data warehouses storing the data. Much of the data at the disposal of the intelligence community is unstructured text and audio, with video becoming increasingly important. Making sense out of unstructured data and coupling the analyses with the more traditionally structured data sets is at its very core a big data problem. With cutting edge Natural Language Processing and Machine Learning algorithms, the intelligence community has led the way in not only providing efficient access to and the ability to cross-query data sets, but also generated value-added insights from raw data. These include innovative new research in automated entity extraction, network analysis and data visualization methodologies. These are the value-added components that comprise the big data paradigm. With storage and memory becoming cheaper by the day, it has become possible to cheaply store massive amounts of new data being generated by millions of sensory devices, mobile devices and increasing use of social media, and to enable efficient indexing and retrieval of that information to derive valuable insights. However, the most defining developments in this age of big data analytics are the abilities to query across data sets (previously acceptable as a limitation for analytics projects) and the move towards using an entire data set instead of relying on carefully crafted sampling methods to use a representative approximation. Often, businesses struggle to articulate effectively the goals of their problems. This has led to many a failure when investing in technological resources. The intelligence community, on the other hand, has found it easy to articulate their goals and used those clear articulations to shape investments in the right set of technologies. Business leaders need to adapt this approach where all investments are a consequence of well thought-out goals instead of expecting technological innovations to inform objectives. This is easier said than done, and commercial enterprises will have to spend significant resources to invest in leaders who can adapt to this goal-oriented approach to technological investments for analytics. The commercial world does have a few significant success stories in using the big data paradigm to innovate business practices by articulating clear goals and strategically investing in the right set of big data technologies to reap rewards. In some cases, businesses have used large-scale data analytics to enhance existing business lines and have exceeded their goals. Netflix s resurgence is one such example where the company has managed to reinvent itself and a large part of that exercise has involved a goal-oriented reliance on big data technologies. For example, their bidding to win the rights of the popular show, House of Cards, was a data-driven decision-making process that aimed to explore new opportunities within the streaming business. For its first-ever exclusive TV series, Netflix correlated millions of data-points to learn its customers preference to binge on shows. It therefore released all thirteen episodes at once. This was a major break from the norm aimed at maximizing customer satisfaction and revenue generation and was rooted in big data analytics of past customer data. Another example is that of Inrix, a company that makes available millions of data points about vehicular traffic. While at first businesses would only have been able to imagine utilizing Inrix s data for navigation and route-prediction purposes, with the ability to cross-query and visualize data sets from disparate sources, new business opportunities have emerged. A hedge-fund has been able to use Inrix s data on a particular geographical location to predict the health of a retail store s commercial activity during any discrete time period. While the correlations are not impossible to imagine, the storage, retrieval and analysis of the 3

4 traffic data has made it possible to explore these new business opportunities. The key, however, is to use these technological enhancements to further clearly defined goals for which the business leadership is most accountable. Once a business head understands the capability and applicability of big data to meet his or her business needs, they start to ask more relevant questions of data and technology. As these analytics can deliver game-changing opportunities, from customer insights to operational efficiency, market trends to marketing effectiveness, and social media sentiment to cyber security and fraud detection, the only way to leverage big data analytics is to iterate development under the guidance of business leadership. Big data presentations at many firms too often are written by IT (and their consultants) and are very technical in nature, alluding to the power of the new technology without providing a strong and relevant business context for the audience. For one client, we built a demonstration using tools that portrayed how the results of a U.S. national marketing campaign, along with corresponding social media sentiment, could be aggregated after just one day, rather than waiting several weeks. While impressive, these kinds of capabilities are also creating issues for traditional marketing managers who are threatened by such applications of big data and defend traditional approaches rather than embrace new analytics. This is another reason why any such transformation must be led by the CEO. In another example, our demonstration of a new analytics tool was able to show a very large national retailer where to put a department store in a major U.S. city. As the CEO pointed out to his marketing team, the tool reached the same recommendation as his team but took less than two minutes compared to their six months of research. Often business needs are not specific, and therefore the process of making data into information and then information into insight has to be led by the business. Many businesses looking for new customer trends, products and sources of revenue often do not know what the next wave will be so will want to study patterns to help them see what the data can tell them rather than tell the data what to do. This skill can rarely be found amongst tech firms or groups of engineers and data scientists. The company must dedicate significant business acumen to play with the data. Another area of technology where there is a need for business oversight is digital, which in its broadest sense encompasses big data, analytics, cloud, mobile and social media capabilities. Digital is still viewed and managed as a division within IT, but is surely more than that in most industries. Every business is becoming a digital business as that is how most individuals and businesses want to consume products and services. Thus, digital should no longer be viewed as a delivery channel but rather a business of its own, and CEOs and business leaders must treat it that way. In the banking sector, for instance, digital is no longer one of the many ways to deliver products and services to customers, but rather a business that needs its own P&L, governance, skills, IT infrastructure and leadership. Many banks are making digital a separate business unit, with its CEO reporting into regular business governance. Even where firms have not created a separate unit, I have seen them re-order their IT investment process to start with funding for digital capabilities as a first priority, especially banks which feel there is a window of opportunity to acquire customers who are looking for digital delivery of banking services. What I have outlined above may sound like a fairly simple process change, but at most major firms the impact of stopping unnecessary projects, tying IT spending to achievement of real business benefits, and prioritizing IT to match strategic business needs can save most firms around one billion dollars in spend and double proposed business benefits. In 2014, CEOs need to assess whether their companies spend as much time and dedicated resources to reviewing IT spending and managing procurement and vendors as they do on achiev- 4

5 ing the proposed benefits. It is an enlightening exercise to see how many firms are dedicated to both. A CEO must be able to see his or her entire IT spending in order of business priorities overlaid on the business strategy and over time key technologies will become businesses for many firms. One other factor that is critical for CEOs to understand is their role in attracting the necessary talent to drive these capabilities. CEOs of CHRIS WEARING Fortune 100 companies need a structure to attract these skilled workers or they will see more of their services and products provided by non-traditional competitors. MORE INFORMATION info@teneoholdings.com +1 (212) Prior to joining Teneo, Mr. Wearing was with JPMorgan Chase as Head of Strategic Reengineering. Previously, he was with Accenture for 29 years consulting in Europe, America and the Far East, advising clients on business strategy, technology development and delivery, outsourcing, enterprise wide cost reduction, leadership development and market development. He held a number of leadership positions during his tenure at Accenture including Managing Partner of the New York office for seven years (the largest consulting firm in NYC with 3,400 consultants), U.S. Head for their Financial Services Management Consulting practice and the Global Head of the Financial Services Talent and Organizational Performance practice. He also led their Markets and Banking Client Service groups for the U.S. He was the Global Client Partner for a number of major Fortune 100 companies. In 2001, Mr. Wearing helped found NPowerNY and is the Chairman of the Board of Directors for NPower (now a national non-profit that provides comprehensive, high-quality & affordable technology assistance to thousands of non-profits across the U.S). Mr. Wearing was the Chairman of the Board of Trustees for the Big Apple Circus for six years and is now Chairman of the Board of Trustees of Only Make Believe. Mr. Wearing represented Accenture on the Partnership for New York City Board and was a David Rockefeller Fellow (Class of 2003). He has presented on Corporate Philanthropy at the United Nations and The White House. Mr. Wearing holds a B.A. degree in Philosophy, Politics, and Economics from Oxford University. He lives in New Canaan, CT with his wife, Danielle, and their sons Christopher and Ian and daughter Grace.