Innovation vs. Extinction

Glenn Wintrich

Several conversations on this site have looked forward to where IT is headed. But what if, instead, we look in the rearview mirror for guidance?

Historically, IT originated as a function to support accounting, which naturally led to an emphasis on quality because the accounting process cannot tolerate errors, and the CIO added value by creating high-quality systems with economies of scale, efficiency and repeatability.

Under these marching orders, the IT department flourished for years, and it gained a reputation as “the great speed bump.” If you asked the IT folks for something innovative to meet business needs, the answer was typically, “No.” And why would anyone expect a different answer? Building systems for high quality and economies of scale creates a very rigid environment. So, asking IT for something new meant you were asking them to disassemble something they had taken great pains to build according to the known world order.

If you ask any CIO who has been around for a while, “What is the surest way to prevent a short tenure?”, you would probably get the same answer over and over again. If the only thing you did every year was to reduce the cost of IT by 10 percent, it was considered enough. You learned from experience that the organization measured value based on how much you decreased the cost of each transactional unit you produced for the business and whether it was repeatable.

Tipping Dinosaurs
Enter the upstarts. One of the things I have discovered in my research is where young companies, the entrepreneurs of the world, have so often disrupted larger companies.

For one example, look at what Netflix did to the rental movie industry and what it did to Blockbuster’s market capitalization. They didn’t invent anything new. Netflix just applied it differently, and it took Blockbuster literally years to turn the ship on their business model. Blockbuster had built a model with economies of scale that spanned the entire United States. It enabled them to run the business efficiently and make the cost of renting a movie low enough to attract customers, while still maintaining good margins. But that scale and efficiency was part of their downfall — along with the fact that they didn’t have a vision of where the future was going before Netflix saw it — because the model that supported it was rigid.

Innovation via Utilization
So, if in the past IT folks were thought of as rigid and simply produced large scale and low transaction costs, what’s the model for today? It isn’t about the value they bring to the IT process itself; it’s about bringing value to the business. It’s how quickly IT can pivot to meet changing business needs. Agility becomes one of the core values they can bring to the table.

It’s also about understanding how new technologies will enable an innovative process or business model for the enterprise. And that’s a key difference. People think IT creates innovation or that new technology enables the innovation. But technology just enables the business to create innovation. In another example of a disrupter, Amazon.com did not create software as a service, and they did not create the cloud. They utilized these technology approaches. They didn’t create a new mode of distribution; they simply utilized FedEx and UPS. In case after case, the online retailer took some aspect of the Long Tail effect that had been in books for decades, if not a century, and they utilized it. They broke down the largest barrier to entry into the book business and they eliminated the capital and OPEX of bookstores.

For example, if you buy anything from Amazon, you’ll be haunted by their application of business analytics — they’ll offer you similar, associated products in an email every day for three months. Those analytics in the cloud enabled them to create a business model that disrupted — at least initially — the established bookstore chains. And they pushed less nimble companies into extinction or to the brink of extinction. Borders went out of business, and Barnes & Noble lost over half of its market capitalization.

So the new role, if you’re looking through the windshield for IT, is the way they will create value: by using new, major disruptive technologies — mobile apps and mobility, analytics for business intelligence, cloud computing and social media. If you can apply these in a flexible, agile fashion to your business, and then work with the business, you will add value.

Whereas IT used to be a separate entity you went to for things you needed, moving forward, not just the CIO, but the entire IT staff will need to engage business units proactively and understand their needs. For example, with an understanding of the business and its challenges and opportunities, they can say, “If we apply business analytics to this, and we use social media to glean information, we can really understand our customer base, and this new understanding will drive new value and customer experience.”

That type of conversation is what innovation really means in IT.

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